Issue#: 403/2017

Spot values at a glance:

USD/SGD

USD/CNH

AUD/USD

USD/JPY

USD/CAD

GBP/USD

Daily Observations:

Equities in Asia were mixed as investors assessed the latest news on US tax-cut plans and looked ahead to Friday’s American jobs report. The Australian dollar took a hit and bond yields headed lower after retail sales data raised doubts about the strength of the economy.

 

Trump Nominates Powell:

President Donald Trump said Thursday he would nominate Jerome Powell to be the next Federal Reserve chairman, saying he had won the respect of colleagues at the central bank and members of Congress for his judgment and intelligence.

In Powell, Trump selected a former private-equity executive who favors continuing gradual interest-rate increases and sympathizes with White House calls to ease financial regulations.

 

Tax Reform:

The US tax reform bill is finally out. House Republicans unveiled plans Thursday to cut the nation’s corporate tax rate to 20%, phase out the estate tax, halve the home mortgage interest deduction for new purchases, reduce the number of individual brackets, and impose a levy of up to 12% on multinational firms’ overseas earnings.  A credit given to electric vehicle buyers was scrapped, while the carried interest loophole was preserved. Opposition to some of the proposed tweaks is already mounting — not only from Democrats, but also Republicans who are upset the bill will increase the deficit as well as some industries that are on the losing end of reform.

Major stock indexes spent the day mostly lower before ending little changed, which suggests the news was already priced into equities.

 

Bank of England’s Dovish Hike:

The Bank of England increased its policy rate for the first time in more than a decade Thursday in a move widely expected by traders. Governor Mark Carney emphasized that the central bank had no inclination to embark upon a series of swift hikes, with the central bank suggesting the top speed at which the economy could sustainably grow without generating excessive inflationary pressures was just 1.5%. Two monetary policymakers dissented from Thursday’s decision.

In light of the dovish tone, the pound was the worst-performing G10 currency on the day. Ironically, five-year U.K. bond yields fell by more than 10 basis points — the biggest daily drop since the central bank’s rate cut in Aug. 2016.

 

Australian Retail Woes:

Retail sales in September were flat month-on-month, after slumping 0.5% in August and underperforming the median consensus of a 0.4% gain. This was the third straight month of missing retail sales estimates, the worst run since 2010. The Australian dollar weakened as traders pared bets on interest-rate hikes as the numbers suggested households are struggling to cope with record-high debt and record-low wage growth.

 

Weekly Thematic News:

Solar Energy:

Investors are accessing the possibility that tax credits for solar power may be removed by the US government should policy makers seek avenues to make up for lost revenue following the anticipated tax reform proposal.

The International Trade Commission offers owners of solar systems a tax credit worth 30% of their systems’ costs, and both companies would be adversely affected if it was reduced or eliminated. Wind and solar have been the fastest growing sources of US electricity since 2014, spurred by federal tax credits. The credits are scheduled to be mostly phased out in the 2020’s.

With the move to clean energy being a global and increasingly heavily-emphasized trend, the multi-year growth of the solar energy industry is expected to continue nonetheless. Investors can purchase the Solar Energy US portfolio on iAdvisor, which has outperformed every other portfolio over the last month, returning 7.8% as of Thursday.

 

Smart Real Estate Singapore:

By filling the sea along its coasts with imported sand, Singapore has expanded its physical size by about 24% since 1960, according to data from the Singapore Land Authority. However, getting a steady supply of sand to keep extending the shoreline has become more complicated over the years, with countries such as Indonesia and Vietnam having halted sand exports amid environmental concerns and political considerations about shipping lanes and territorial boundaries. In July, Cambodia became the latest country to ban sand shipments to Singapore following pressure from activists alarmed by the negative consequences of massive dredging on coastal mangroves.

With land becoming more and more scarce, property prices is expected to be buoyed over the horizon. Investors looking to capitalize on a possible rebound in the real estate sector can buy into the Smart Real Estate Singapore portfolio on iAdvisor, which has returned a healthy 26.5% from a year ago and provides a dividend yield of 4.7%.

 

Gold:

According to Bloomberg report, gold investors are loading up on the haven asset, sensing the dip in the price of the precious metal from about $1,362/Oz in early September to $1,265/Oz recently is a buying opportunity. Despite the price decline, investors have boosted their holdings of gold through exchange-traded funds to the highest since November 2016, or 2,163.4 tons.

The recent drop in gold has a lot to do with the rebound in the US dollar; since the safe haven asset is priced in the US currency, any gain in the greenback mean’s its more expensive to buy gold. Although gold may be suffering a rough patch, it does have some high-profile backers.

Billionaire Ray Dalio, the founder of Bridgewater Associates, has recommended investors consider placing 5 to 10% of assets in gold as a hedge against political and economic risks. BlackRock advised that in a world where economic or geopolitical perils lurk, investors hould hold bullion in their portfolio to balance equity and credit risks, adding that the prospects for real interest rates staying low are positive for gold.

An alternative to invest in gold would be to buy into the Gold Miners Inverse-Volatility US portfolio on iAdvisor, which comprises of US-listed gold mining companies. In a world where rising debt is a concern, we employ a filtering process to ensure the companies selected satisfy certain credit ratio requirements.

 

FX Updates:

USD/SGD:

Spot: 1.3611

USDSGD continues to be supported around the 1.3600 handle. The bias remains to the upside, after the pair broke above its year-to-date downward trend channel last week. The key resistance remains at 1.3690. A strong break above it could lead to a push for 1.3900.

 

AUD/USD:

Spot: 0.7686

AUDUSD’s fall below its old support/resistance level of 0.7750 last week has led to renewed technical bearishness for the pair. 0.7600 will be key – a move below it signals more pain for Aussie bulls. The pair is likely to test recent lows again following weak retail sales numbers reported earlier today.

 

USD/CAD:

Spot: 1.2813

The currency pair failed to close above the 1.2900 handle recently, in spite of poorer-than-expected GDP data released on Tuesday which dampened the expectations of a rate hike later this year.

USDCAD is expected to meet strong resistance around the 1.2928 mark – the pair’s 50% retracement level from the high in May to its low in September.

 

USD/CNH:

Spot: 6.6181

USDCNH’s recovery over the past 7 weeks seems to have halted over the last week, with the pair failing to close above 6.6500 despite advancing beyond it three times. Further downside bias is expected; the medium-term support target is at 6.5578.

 

USD/JPY:

Spot: 114.02

USDJPY continues to trade around the 114 handle, after the BOJ earlier this week left its massive monetary stimulus program unchanged. The major resistance level lies at 114.50 – a break above it could result in the currency pair embarking on a longer-term move upwards, with the double-top at 118.60 a realistic possibility within the next year.

 

 

GBP/USD:

Spot: 1.3068

GBPUSD slumped despite the BOE raising rates for the first time in a decade, as Governor Carney signalled another rate increase isn’t imminent. Money markets pushed back pricing for the next rate increase to November 2018 from August 2018 prior to the decision after the central bank omitted language from its previous statements saying that more tightening could be needed than the market expects.

With another hike now looking remote, it could be news on Brexit that drives the pound. The 1.3000 handle remains the key level to watch; below that, the next support lies at the 200-day moving average of 1.2850.

 

© Jachin Capital Pte Ltd

UEN: 201419754M


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