Spot values at a glance:
The US dollar weakened after the September’s FOMC meeting minutes showed a dovish slant when officials debated over the transitory nature of recent low inflation. Asian equities gained after US stocks hit fresh record highs.Treasury yields declined, while gold rose to a 2-week high.
Fed officials debated last month over whether forces holding inflation down were persistent or temporary, with several policy makers looking for stronger evidence of price gains before supporting a third interest-rate hike this year. Minutes indicated that their decision on a third rate hike this year would depend on “whether the economic data in coming months increased their confidence” on inflation rising toward their 2% target. It will be worthwhile to take note that this was the view during the Fed’s September meeting, and since then, economic data released this month, in the form of nonfarm payrolls, average hourly earnings and ISM manufacturing, has continued to surpass expectations.
Officials didn’t sound any alarms on valuations in financial markets. Odds of an interest rate hike by year-end lingered above 75% in the wake of the release.
Hackers from North Korea stole military plans developed by the US and South Korea last year that included a highly classified “decapitation strike” against the North Korean leader, according to a South Korean lawmaker. The plans were devised as the regime in Pyongyang steps up nuclear tests and fired long-range missiles toward the Pacific Ocean.
Fed Chair Search:
President Donald Trump is meeting this week with Stanford University economist John Taylor, who is on the shortlist of people under consideration to be the next chairman of the Federal Reserve, people familiar with the matter said.
Taylor is a renowned monetary economist whose widely cited rule on setting policy is used as a reference by the Fed and other central banks. He is also a frequent congressional witness at hearings where Republicans have pushed Chair Janet Yellen to move toward a more rules-based policy. Yellen has resisted legislative attempts to curb or audit the Fed’s discretion on setting interest rates, arguing it needs flexibility to respond to shocks to the economy.
The U.S. tax code is uncompetitive and overly complex, and it’s time for politicians and special interests to set aside partisan interests and pass reform legislation, JPMorgan Chase CEO Jamie Dimon said. He elaborated that a general tax reform framework released last month “has all of the key ingredients to fuel economic expansion.” Reducing the corporate tax rate to 20% from the current 35%, as the plans calls for, could support the creation of as many as 2 million new jobs if the savings were funnelled in that direction, Dimon said, citing a study by the accounting firm EY. JPMorgan would have seen a bump of about $1.5 billion to 2016 profit if the lower rate were in place, according to bank filings and Bloomberg calculations.
All 3 major US indices set all-time closing highs Wednesday with tech stocks pacing gains. Investors are gearing up for the US bank earnings season, which kicks off tonight.
For the first time, money managers who rank as the most sceptical in a weekly survey by the National Association of Active Investment Managers also report being almost fully invested in stocks, according to Bloomberg News. Normally, the least bullish rung in the survey contains a bunch of managers who are short the market, but last month they were 90% long. Elsewhere, a quantitative model developed by Morgan Stanley shows hedge funds are more optimistic on stocks than at any time since the global financial crisis.
Donald Trump called Canadian Prime Minister Justin Trudeau “a great friend” after the two met on Wednesday, while suggesting it’s possible renegotiations of Nafta could end with no deal. Trudeau’s predecessor, former Prime Minister Stephen Harper, warned that the possibility of Trump tearing up the trade agreement can’t be ruled out.
American business leaders have cautioned that some of the US’s hard-line stances on Nafta, including on American-made content in automobiles, put the future of the trade pact in jeopardy. Auto executives have called changes to the rules of origin provisions to be a “lose-lose” situation for the countries. Negotiators from Canada, Mexico, and the U.S. are expected to discuss energy issues on Friday in Washington.
Singapore’s central bank is widely seen sticking to a neutral stance on Friday, but it may be moving closer to tightening policy as the economy continues to strengthen. All but one of the 23 economists surveyed by Bloomberg predict the MAS, which uses the exchange rate rather than interest rates as its main tool, will keep its policy stance where it is: seeking no appreciation in the currency against a trading basket.
Less clear is whether the MAS will signal it’s ready to tighten next year. More than half of the economists in the survey expect that forward-looking language used in the previous 2 policy statements, that the neutral stance is appropriate for an “extended period of time”, will be dropped. 8 predict some tightening at the next scheduled policy decision in April.
Weekly Thematic News:
California took another step Wednesday toward permitting testing of self-driving vehicles without a human driver, continuing a shift away from previous policies that companies criticized as being overly restrictive. The state’s Department of Motor Vehicles on Wednesday released revisions to regulations proposed in March to allow such autonomous car testing on public roads, which could take effect by next June. The proposed rules would also allow companies to introduce self-driving vehicles that can be used by the general public.
According to a survey by AIG Inc. earlier this week, 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.
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 analysis 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.
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 JD.com 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%).
- Spot 1.3528
- USDSGD reached its lowest in 2 weeks Wednesday following US dollar weakness on the back of dovish minutes from the FOMC’s latest meeting.
- USDSGD looks poised to break its run of 4 consecutive weekly gains, after meeting 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 currently trading around its 1.3550 support.
- Spot 0.7833
- AUDUSD gained back above 0.7800, largely on the back of a weaker US dollar, and even in spite of iron ore prices hitting fresh 3-month lows.
- The bias remains to the downside for the pair, with the next support below coming in around the 200-day moving average of 0.7650.
- Spot 1.2441
- USDCAD declined to an October low Thursday, following overnight USD weakness.
- USDCAD ended last week on higher note, with the pair reaching the 1.2600 handle briefly, its highest level since early-September.
- As expected, the currency pair is currently facing downward pressure which is expected to continue for the rest of the week, with a pullback to 1.2400 a possibility.
- Spot 6.5760
- 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 112.24
- 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 1.3243
- 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.