Issue#: 388/2017

Spot values at a glance:







Asian indices reached decade highs, taking the lead from US equities which had climbed to record levels overnight. The euro gained after Catalonia’s president stopped short of declaring the region’s independence from Spain. The US dollar fluctuated near overnight lows, as investors await minutes from the Fed’s latest meeting, due tonight.


Daily Observations:


Tax Reform:

President Donald Trump said Tuesday he plans to make changes to his tax plan within the next few weeks, although he didn’t specify what kind of changes he expects to make to the plan. The framework that Trump and GOP congressional leaders released last month has been criticized for adding to the budget deficit, and independent analysts suggest that it would raise taxes for 30% of people making between $50,000 and $150,000 per year.


New Highs, Same Concerns:

The S&P 500 and Dow Jones Industrial Average set all-time closing highs Tuesday with consumer and financials leading the way up.

However, a buoyant and complacent stock market is worrying Richard Thaler, a professor who this week won the Nobel Prize in economics. Thaler, who has made a career of studying irrational and temptation-driven actions among economic actors and won the Nobel for such contributions to behavioural economics, expressed misgivings about the low volatility and continued optimism among investors.

Thaler further added that if the gains are based on tax-reform expectations, “surely investors should have lost confidence that that was going to happen”, and that he didn’t know “where anyone would get confidence” that tax reform is going to happen.


Krugman on Warsh:

Another Nobel-prize winning economist, Paul Krugman, blasted potential Fed Chair candidate Kevin Warsh, saying that “he’s been wrong about everything” from inflation to fiscal policy, in an interview with Bloomberg TV Tuesday. But that may not stop Trump from nominating Warsh for Fed chair because he has solid family connections and a Republican pedigree, according to Krugman, a consistent critic of the GOP.


Catalonian Crisis:

Catalonian President Carles Puigdemont announced his intention to pursue talks with the Spanish government rather than immediately declare independence during a speech to the assembly on Tuesday. The region allegedly voted in favour of independence in a referendum that has been declared illegal by Spanish constitutional courts. The Spanish government responded by saying the Catalan president “has taken his irresponsibility to the absolute extreme.” Hard-line allies who wanted Puigdemont to assert the region’s independence were also disappointed. Ahead of Puigdemont’s address, Spain had reportedly readied special police forces to arrest the president if he declared independence.

The euro hit 1-week highs following the development, while the iShares MSCI Spain Capped ETF also spiked.


UK Economy:

Economic data from the UK yesterday continues to surpass expectations, adding further to the case for a November rate hike from the BOE.

Industrial production in August rose 1.6% year-on-year (vs. +0.9% est.), while July’s 0.4% gain was revised upwards to 1.1%. Manufacturing production, over the same period, jumped 2.8% (vs. +1.9% est.), accelerating upon its prior month’s upwardly-revised 2.7% rise.


Weekly Thematic News:


Gold Miners:

According to the research findings of Bloomberg’s Cameron Crise, there is statistical evidence of gold being an effective hedge in periods of risk. Using the VIX Index as a proxy for market risk aversion and after running a series of regression analyses, he concluded that the t-statistic (a gauge of the importance of explanatory variables) shows up as highly significant when comparing spot gold and the VIX. The most significant driver of gold prices, though, was inflation, followed by real US 10yr yields.

He goes on to conclude that a portfolio of 55% stocks-35% bonds-10% gold outperforms a traditional 60% stocks-40% bonds portfolio by about 55 basis points a year over the past 3 decades. A brief summary of his report can be found here.

An alternative way to gain exposure to gold, instead of buying physical bullion or an ETF, would be to invest in a portfolio of gold-mining companies. The Gold Miners Inverse Vol portfolio on iAdvisor has returned a modest 2.6% year-on-year, but given the increasing risks in today’s financial landscape and gold’s special role as a hedge, some exposure to this portfolio is highly recommended.


China Online:

According to a report by Google and Temasek Holdings, Southeast Asian’s e-commerce market is projected to reach $88 billion by 2025. While Amazon is firmly established in Japan, the web retailer has mostly ceded China to Alibaba and Inc. In Singapore, locally-established Lazada, whose parent is Alibaba Group Holdings, dwarfs Amazon by offering more than 30 million products compared with tens of thousands listed on Amazon’s Prime Now. Lazada has recently already teamed up with real-estate operator CapitaLand Ltd., letting people shop online and pick up merchandise at a nearby mall.

Gain exposure to Alibaba and other e-commerce Chinese ADRs by investing in the China Online portfolio on iAdvisor. China Online is one of the top 3 performers over the past year, gaining a remarkable 43%.



Tax incentives for the wind industry should be eliminated, Environmental Protection Agency administrator Scott Pruitt said Monday, responding to a question about the effectiveness of renewable energy. He added that renewable energy sources should compete in the market “as opposed to being propped up by tax incentives and other types of credits that occur, both in the federal level and state level”.

Congress voted to extend tax credits for both the wind and solar industries in 2015 as part of a broad deal that also ended ban on crude oil exports. Under the deal, the wind industry’s 2.3-cent-per-kilowatt hour tax credit would begin phasing down this year before expiring in 2020. The solar industry’s 30% tax credit winds down and expires in 2022.


Singapore Real Estate:

En-bloc sales, or redevelopment deals in which a group of owners band together to sell apartment blocks at a hefty premium, are at a 10-year high, according to estimates by OCBC Investment Research. On the back of a spate of deals last week, en-bloc sales have totalled more than S$5 billion this year, its highest level since 2007.

As of Monday, the Smart Real Estate Singapore portfolio on iAdvisor is currently up 20.6% year-on-year, outperforming other REIT indices such as the SGX S-REIT 20 (+12.3%) and the FTSE Straits Times REIT (+12.7%).

Self-Driving Cars:

According to a survey by AIG Inc., US residents are “polarized” on whether to embrace driverless cars. Out of the 1,000 people polled, 42% were generally OK with it, while 41% said they had reservation. 39% said they thought such vehicles would operate more safely than the average driver, while three-fourths of the surveyed said there’s a threat that hackers would take control of autonomous vehicles. Still, the majority said they don’t expect driverless cars will be on the road within the next two decades.

The Self-Driving Car US portfolio on iAdvisor has been one of the stellar performers over the past year, returning an impressive 39.2% from a year ago.

FX Updates:


  • Spot 1.3570
  • USDSGD reached its lowest in 2 weeks on Tuesday amid US dollar weakness ahead of the release of the FOMC’s latest meeting minutes.
  • USDSGD has gained for 4 consecutive weeks, although the pair has met with strong resistance around the 1.3700 level.
  • A move above 1.3700 would confirm the technical breakout of its year-to-date long downtrend; the next resistance lies around the 1.3900 handle.
  • The pair is likely to maintain above its 1.3550 support.


  • Spot 0.7783
  • Following last week’s break below the 0.7800 support, the bias is now to the downside for the AUDUSD, with the next support below coming in around the 200-day moving average of 0.7650.


  • Spot 1.2513
  • USDCAD continues to hold above its 1.2500 handle Wednesday, with the effects a weaker US dollar overnight offsetting stronger crude oil prices.
  • USDCAD ended last week on higher note, with the pair reaching the 1.2600 handle briefly, its highest level since early-September.
  • The currency pair could face downward pressure for the rest of the week, with a pullback to 1.2400 a possibility.


  • Spot 6.5817
  • USDCNH retreated back below its 50-day moving average Tuesday after a PBOC Governor Zhou’s call for the relaxation of capital controls, shortly before the start of the Communist Party congress.
  • Speculation has been building in the past 2 months that policy makers will extended the current 2% trading range.
  • Strong resistance is expected to cap USDCNH around the region between 6.7000 (a strong psychological level) and 6.7165 (the 50% Fibonacci retracement level since January) this week. To the downside, the pair could find support at 6.5000.


  • Spot 112.47
  • The recent ascent of USDJPY looks to have hit a snag around the 113 handle. Further consolidation between 112 and 113 is expected.
  • The next key resistance to be tested lies at the 6-month high of 114.48.


  • Spot 1.3199
  • Sterling continued to recover from last week’s drop after UK Prime Minister Theresa May won public support from Brexit hardliners in her cabinet for outlining contingency plans for leaving the European Union without a deal. GBPUSD regained back above the 1.3200 handle overnight following a fourth straight month of gains in UK like-for-like retail sales, and manufacturing and construction data that beat forecasts.
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