Spot values at a glance:
Asian stocks were mixed while the US dollar eased amid concern about the progress of US tax reforms after the Washington Post reported a possible delay. China’s exports continue to rise, underpinned by robust global demand. Gold was largely unchanged on the day while oil eased back below the $57/bbl handle.
Trump in Seoul:
US President Donald Trump told reporters in Seoul that Kim Jong Un’s regime should “come to the table” and refused to rule out the possibility of direct communication with Pyongyang in order to broker a deal on its missile and nuclear weapons program. The more traditional approach was echoed in the US Congress, where the Senate Banking Committee unanimously approved enhanced sanctions against the regime and the banks that support it. Speaking at a dinner with Trump, South Korean President Moon Jae-in struck a similar tone, emphasizing that “war must not break out” on the Korean peninsula.
The next stop for Trump is Beijing where he is expected to tackle issues such as North Korea’s nuclear ambitions and trade with his Chinese counterpart, Xi Jinping.
Tax writers from the House of Representatives are expected to hammer out their plan this week. However the US dollar weakened early Wednesday on fresh concerns tax cuts may be delayed after the Washington Post reported Senate Republican leaders were considering holding cuts back for a year, while they are also said to be considering repealing deductions for state and local taxes.
Yield Curve Flattens:
According to Joseph LaVorgna, a chief economist at Natixis SA, the yield spread between 2- and 10-year Treasuries has fallen this year to the lowest in a decade, even as expectations for Federal Reserve rate hikes. If history is any guide, what appears to be a classic episode of bear flattening could lend credence to the view of Janus Henderson Group’s Bill Gross – that the spread is close to signalling a potential economic slowdown.
What’s been puzzling economists is how 10-year yields have stuck to their tight 207 trading range, as opposed to 2-year yields which are up 44 basis points this year and on pace for the biggest increase since 2005. “Simply put, the Treasury market either does not believe we will get tax cuts, or, if we do, they will not lift GDP growth,” LaVorgna wrote in a Nov. 6 note. “Instead, the curve is sending us a cautious message on growth.”
Saudi Arabia’s alleged crackdown on corruption is widening, with the kingdom freezing the individual bank accounts of “persons of interest”, including dozens who reportedly are not yet under arrest. Already, as much as $33 billion in personal wealth belonging to the richest detainees has been put at risk. Saudi Arabia has assured the US that prosecutions “will be held in a fair and transparent manner.” Billionaire Prince Alwaleed bin Talal has lost more than $1 billion after being detained this weekend as shares in his investment vehicle, Kingdom Holding Co., have plummeted.
Australia’s central bank showed increasing confidence in the investment picture outside mining while retaining concerns about the prospects for household spending as it kept interest rates at a record-low 1.5% on Tuesday. “One continuing source of uncertainty is the outlook for household consumption,” Governor Philip Lowe said, days after retail sales posted the weakest 3-month stretch in 7 years. He added that “inflation is likely to remain low for some time, reflecting the slow growth in labor costs and increased competitive pressures, especially in retailing.”
Household debt remains at a record 194% of income while wage growth lingers at lows last seen in Australia’s 1991 recession; meanwhile, firms are unable to pass on cost spikes to customers for fear of losing business. Aussies have traditionally been able to inflate their way out of debt with rising incomes, but now appear increasingly skittish about spending cash amid weak household balance sheets and job insecurity.
At least 17 high-profile Saudi Arabians, including senior princes, current and former government ministers and businessmen, were arrested by security forces this weekend on the orders of King Salman. The purge is being billed as a crackdown on corruption, but also concentrates power around King Salman’s son, Crown Prince Mohammed bin Salman, and may promote a smoother succession.
Among those detained includes the billionaire Prince Alwaleed bin Talal, whose publicly-traded investment vehicle, which owns sizeable stakes in Citigroup, Twitter, Apple, and Lyft, to name a few, plunged on Sunday. A director of Saudi Aramco has also been implicated in the probe.
China Trade Data:
Chinese October exports gained 6.9% year-on-year in USD terms, less than the 7.1% increase expected and slowing from the 8.1% gain in September. Imports remained buoyant, rising 17.2% over the same period and exceeding the 17.0% increase forecasted.
As Trump, who arrives in Beijing on Wednesday, remains focused on trimming his nation’s trade deficit with China, there’s little sign of a full-scale trade war between the world’s 2 largest economies. Buoyant global growth is driving demand for Chinese exports, while a broader shift to a consumption-driven economy at home is supporting import growth.
Weekly Thematic News:
Waymo, the autonomous car unit of Google parent company Alphabet Inc., said on Tuesday it will soon start chauffeuring people in minivans without “safety drivers,” staffers that man the steering wheel. For almost a decade, self-driving cars have graced public roads, but always with a person behind the wheel. The move, a first for any company, is a major milestone for the internet giant’s bid to lead the crowded pack trying to commercialize driverless technology. The Alphabet arm has racked up more autonomous test miles on roads than others developing the tech, including Ford Motor Co. and Uber Technologies Inc.
The Self-Driving Car US portfolio on iAdvisor has been one of the top 5 performers over the past year, returning an impressive 50.3% from a year ago.
According to a Bloomberg Businessweek article, the kind of cyberattack that companies will finally take seriously is coming. Security experts call such an attack a cyberphysical, meaning it spills into the real world, causing property damage and perhaps deaths. It happened in western Ukraine two years ago. The attack used malicious software to briefly take out an electrical grid, causing a blackout that affected several hundred thousand people.
So far, most Americans and Europeans haven’t been forced to deal with the dangers of a large-scale cybersecurity breach. Although close to half of the US population had their personal data stolen from Equifax Inc. recently, the usual round of press outrage and congressional finger-wagging didn’t yield any serious charges.
Experts have recently found evidence that hackers responsible for Ukraine’s outages have been quietly rolling into the systems that run US energy grids. On Oct. 20, government officials issued an alert warning of a “multistage intrusion campaign” aimed at industrial control systems in critical infrastructure, including in “energy water, aviation, nuclear and manufacturing sectors”. US companies are said to be unprepared for such attacks; industrial control systems have been connected to the internet in recent years, with little thought given to securing them.
With such a backdrop, the growth of the cybersecurity is expected to grow exponentially. Investors can choose to park some money in this increasingly important trend by buying into the Cybersecurity US portfolio on iAdvisor, which has returned 18.2%% year-on-year as of Friday, outperforming the benchmark ISE Cyber Security Index (+17.5%).
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 30 days, returning 11.6% as of Friday.
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 in end-October. The key resistance remains at 1.3690. A strong break above it could lead to a push for 1.3900.
AUDUSD’s fall below its old support/resistance level of 0.7750 2 weeks ago has led to renewed technical bearishness for the pair. 0.7600 will be key – a move below it signals more pain for Aussie bulls.
USDCAD looks poised to snap a 3-day losing streak, rebounding from the 1.2700 handle, following Canadian dollar weakness stemming largely dovish comments from BOC Governor Poloz. Poloz had stated his confidence inflation will reach the 2% target, bolstering the market view the central bank won’t tighten at the next meeting on Dec. 6.
USDCNH edged towards the 6.6500 handle Wednesday following October’s trade data release which showed year-on-year growth underpinned by robust demand in both global and domestic regions. The currency is expected to remain in its range between 6.6500 and 6.7000 over the near term.
USDJPY declined back below the 114 level Wednesday after failing to break past the key 114.50 resistance, as a declining US dollar on the back of fresh concerns of a delayed tax overhaul plan dragged down the currency pair.
The all-important resistance of 114.50 remains to be broken, although there is a strong chance of that happening in the near term as the BOJ continues to advocate quantitative easing. 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.
The pound is likely to be driven this week by the state of Brexit negotiations and UK politics, after losing support last week from bets on central bank policy tightening. The pair has fallen for 3 straight weeks on concerns about Brexit and as the BOE failed to signal the start of a tightening cycle after raising rates last Thursday.
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.