Issue#: 415/2017
Weekly Macro:
The US dollar pared some of its recent losses earlier this week, while US 10yr Treasuries continue to meander just above the 2.30% key support. . Gold edged higher, but remains capped at the psychological $1,300/Oz handle. Crude oil retreated from fresh 2-year highs.
US Dollar:
- The Dollar Index has endured a torrid November thus far, sinking by as much as 2% earlier this week, although it has since pared some of those declines after Senate Budget Committee advanced its tax bill Tuesday.
- The longer-term direction remains biased to the upside, after the DXY’s downtrend channel ceased to exist during the tail-end of October.
- Strong support continues to reign at 92.50, while any upside looks to be capped at 95.15 over the coming weeks with most of next month’s price hike priced in already.
Treasuries:
- According to Morgan Stanley, investors should prepare for a “completely flat” US yield curve. The 30yr yield is expected to hit a record low of 2% in Q4, below levels seen in the global financial crisis. Morgan Stanley recommends betting on the continued shrinkage of the spread between 2- and 30-yr Treasury yields, targeting the gap to narrow to 10 basis points as one of its top trades.
- Global head of interest rate strategy Matthew Hornbach believes a continued expansion of central bank balance sheets worldwide will buoy demand for long-term debt as the Federal Reserve lifts interest rates once a quarter, fostering a flatter yield curve.
- A flat-to-inverted yield curve is considered a portent of a US recession, and could spark waves of fear for investors across all asset classes. But such worries are ill-founded, Hornbach notes, as the S&P 500 Index peaked well after the previous two instances in which the yield curve completely flattened.
- The benchmark 10yr Treasury yield has been rather muted as of late, consolidating the two weeks between 2.31% and 2.37.
Gold:
- Spot gold climbed to its highest in 6 weeks on Tuesday, just shy of the $1,300/Oz mark as investors braced for a week of economic data and political news.
- A report later this week is forecast to show the Fed’s preferred gauge of inflation slowed in October, after Chair Janet Yellen cautioned last week that raising rates too quickly risks stranding inflation below the central bank’s target.
- Bullion is up almost 13% year-to-date, on course for the best year since 2010, as geopolitical uncertainty underpins demand for the metal as a haven and divisions among US central bankers persist over the path of rate policy.
- A convincing break above the previous high in October of $1,306/Oz could warrant more upside for the precious metal as the year draws to a close.
Oil:
- Crude oil futures slipped from a 2yr high earlier this week amid uncertainty about Russia’s stance on the OPEC-led effort to extend supply curbs well into next year. Moscow still has concerns that taking measures to elevate crude above $60/bbl will be a boon to US shale drillers, according to people familiar with the matter.
- If the outcome of OPEC’s meeting in Vienna on Thursday doesn’t meet expectations, prices could quickly drop further, according to Goldman Sachs Group Inc.
- WTI futures have risen around 27% over the past 5 months, culminating to a high last Friday at around $59/bbl.
Upcoming Key Events:
- In China later this week, the official and Caixin manufacturing PMIs are expected to show mostly steady momentum.
- Japan industrial production is forecast to have rebounded in October, but CPI may show a sharp divergence between headline and core inflation, Bloomberg News reported.
- Fed Chair Janet Yellen is slated to address the Joint Economic Committee of Congress Wednesday.
- The second print of 3Q US GDP on Wednesday may be revised up thanks to consumer spending and inventory accumulation, Bloomberg Intelligence reported. The core PCE deflator, the Fed’s preferred gauge of inflation, is due Thursday.
- OPEC meets in Vienna on Thursday.
Weekly Thematic News:
China Online US:
According to Caixin news report, Chinese lawmakers are moving closer to finalizing the nation’s first e-commerce law, hoping it will take effect as early as next year. The legislation, which will oversee a wide range of online activities of both buyers and sellers, aims to offer better and more institutionalized protection of consumers amid the exponential growth of online businesses in recent years.
China is the largest online retail market in the world. In 2016, the value of merchandise and services traded on e-commerce platforms reached 26.1 trillion yuan ($3.92 trillion), up 19.8% from a year ago, according to data from the Ministry of Commerce. The e-commerce industry and related sectors are employing 37 million people, the ministry said.
Investors who wish to capitalize on this trend can buy into the China Online US portfolio on iAdvisor, which consists US-listed e-commerce stocks domiciled in China, and has returned a stellar 59.3% year-on-year on Wednesday.
Self-Driving Cars:
Waymo, the autonomous car unit of Google parent company Alphabet Inc., revealed that its cars have passed the milestone of driving more than 4 million miles on public roads. The speed at which Waymo is accumulating its driving experience is accelerating nicely – the last million miles took six months, whereas the first million required a year and a half.
Earlier this month, Waymo began sending out self-driving vehicles without a safety driver on board, and the company anticipates being able to give people rides in those entirely driverless cars in the near future. Geographically, it’s all still focused on the western United States, however Waymo’s ambitions, bolstered by millions of real-world miles and billions of simulated miles of driving, are understandably far grander than its present scale.
The Self-Driving Car US portfolio on iAdvisor has been one of the top 5 performers over the past year, returning an impressive 43.2% from a year ago as of Wednesday.