Issue#: 395/2017

Spot values at a glance:

USDSGD

USDCNH

AUDUSD

USDJPY

USDCAD

GBPUSD

Daily Observations:

The US dollar climbed today as Treasuries fell after latest developments in the White House buoyed optimism about the chances for tax cuts in the US. S&P 500 futures hit fresh record highs during Asia trade, however stocks in Asia were largely mixed. Political developments in Spain, an upcoming decision on Yellen’s replacement and testing equity valuations are prompting caution among money managers.

 

Tax Reform

The US Senate adopted a fiscal 2018 budget resolution Thursday that House GOP leaders agreed to accept, a show of unity aimed at speeding consideration of President Donald Trump’s plan to enact tax cuts. Final approval of the budget, which cleared the Senate 51-49, will unlock a special procedure allowing Republicans to pass a subsequent tax code rewrite without Democratic support. The House and Senate tax-writing committees plan to release draft legislation by early November, which will set off a furious lobbying battle as Republicans attempt to enact a bill by the end of the year.

 

Fed Chair Search:

President Donald Trump’s closest advisers are steering him toward choosing either Stanford economist John Taylor or Federal Reserve Board Governor Jerome Powell to be the next Fed chief, according to several people familiar with the process, Bloomberg news reported. Trump has not yet made up his mind, the people said, though he has publicly promised to announce a decision before his Nov. 3 departure for Asia.

 

China:

Chinese third-quarter growth of 6.8%, in line with expectations, gives President Xi Jinping the flexibility to follow through on other policy goals: cutting down on excess capacity and pollution, while shifting the world’s second-largest economy onto a more sustainable growth model. Indeed, steel output plunged to its lowest level in at least 6 months in September, a testament to the anti-pollution drive emphasized in Xi’s speech to kick off the Chinese Communist Party’s 19th Congress.

Risks to financial stability continue to loom large. PBOC Governor Zhou Xiaochuan stressed the need to defend against a “Minsky Moment” in China when speaking on the sidelines of the congress. In a nutshell, a “Minsky Moment” is a collapse in market values following the exhaustion of a credit expansion. Debt can only build up in times of economic growth for so long before a correction, goes the theory.

 

Crisis in Catalonia:

Spanish Prime Minister Mariano Rajoy said his government will move to suspend Catalonia’s regional government, invoking the never-before-used Article 155 of the nation’s constitution. Rajoy acted after Catalonian President Carles Puigdemont refused to drop his claim to independence. Leaders of the EU are backing Rajoy’s decision, while saying the international community won’t get involved to mediate the dispute. In response, leaders of the separatist movement are mulling a unilateral declaration of independence as early as next week. Spanish assets were rattled by the news from Rajoy, with 10yr bond yields soaring, the IBEX 35 Index dropped as much as 1%, and credit default swaps jumped.

 

New Zealand in the Spotlight:

New Zealand Labour Party leader Jacinda Ardern will be the country’s next prime minister, the country’s youngest in more than 150 years, as well as the world’s youngest female leader, after winning the support of the nationalist New Zealand First party to form a coalition government. Both sides likely found common ground on restricting immigration, boosting housing supply, and central bank reform.

The kiwi fell more than 1.5% against every other G10 currency on the day, battered by concern that these areas of agreement would increase economic uncertainty and curb growth.

 

 

Weekly Thematic News:

Renewable Energy:

Caisse de Depot et Placement du Quebec, one of Canada’s largest pension funds, will scale back its high-carbon investments such as coal while boosting its renewable holdings in a bid to help fight climate change. Already among the world’s largest renewable energy investors, the Caisse is pledging to increase low-carbon investments by 50% over 3 years, according to a statement Wednesday. This will represent more than C$8 billion in new investment, the Caisse said. By 2025, the Montreal-based fund manager will also aim to reduce its carbon footprint by 25% per dollar invested.

In a separate report, tech giants are beginning to get in on the act in the business of clean energy, with Amazon and Google leading the way. Amazon has bought more than 1.22 gigawatts of output to date from U.S. clean-energy projects, second only to Alphabet Inc.’s Google, with 1.85 gigawatts. In a statement made on Thursday, Amazon said that its 253-megawatt wind farm in Texas will deliver more than 1 million megawatt-hours of clean energy to the grid annually. It’s among 18 Amazon wind and solar projects in operation; the company has more than 35 projects in development.

 

Diversified Assets Bearish:

According to a Bloomberg report, a growing number of hedge funds are getting worried about the current unusual state of calm in markets, expecting that it may not last for long. Firms are rolling out new funds designed to protect investors from rising market turbulence, in spite of so-called long volatility strategies being one this year’s worst performers. In recent times, financial and economic bigwigs from Nobel laureate Richard Thaler to BlackRock Inc. Chief Executive Officer Larry Fink has warned that the unusual state of calm in markets may not last.

Indicators of expected swings in stocks, bonds and currencies have fallen toward multi-year lows, while valuations for just about every major risky asset class are climbing. That’s despite heightened uncertainty over US economic policy and the prospect of war with nuclear-armed North Korea. Thaler highlighted the dissonance in a Bloomberg TV interview last week, commenting that “we seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping.”

Rather than positioning for a jump in volatility with hedge funds’ strategies, investors can opt for lower-fee ETFs linked to a downturn in equity indices such as the ProShares Short S&P 500, ProShares Short MSCI EAGE (Europe, Australasia & the Far East) and ProShares Short MSCI Emerging Markets. These inverse ETFs, which generally profit when its index constituents fall, are 3 of the 4 main components of the Diversified Assets Bearish portfolio on iAdvisor.

 

Singapore Real Estate:

Singapore home sales fell in September as developers marketed fewer projects in a month considered inauspicious by Chinese homebuyers. Developers sold 657 units last month, down from a revised 1,246 in August, according to Urban Redevelopment Authority data released Monday. That’s the lowest sales since January. A total of 73 new units were offered, down from 794 in August, the data showed.

Despite a slow month, Singapore’s property market is showing signs of a turnaround. Home prices rose for the first time in 4 years, snapping a record run of declines and confirming recent signs that the property market is rebounding.

As of Monday, the Smart Real Estate Singapore portfolio on iAdvisor is currently up 23.9% year-on-year, outperforming other REIT indices such as the SGX S-REIT 20 (+14.6%) and the FTSE Straits Times REIT (+14.9%).

 

 

FX Updates:

USD/SGD:

Spot: 1.3597

USDSGD regained back to the 1.3600 handle paring its previous week’s decline after the Monetary Authority of Singapore kept its policy stance unchanged a week ago and investors await more news on the new Fed chair.

The key resistance lingers at the 1.3700 handle.

 

AUD/USD:

Spot: 0.7845

AUDUSD continued to consolidate above the 0.7800 handle, following yesterday’s better-than-expected employment report which marked the seventh consecutive month of strong jobs growth in Australia.

0.7800 remains the key support to keep a watch for.

 

USD/CAD:

Spot: 1.2516

USDCAD continues its consolidation phase around the 1.2500 mark, ahead of September inflation numbers due later today. CPI is expected to have quickened to 1.7% year-on-year last month.

The important number to watch is 1.2400 – a break below it and the pair could fall quickly back towards the 2-year low of 1.2062.

 

USD/CNH:

Spot: 6.6233

USDCNH held above 6.6000 and is headed for a weekly gain, with the yuan getting dragged down by dollar strength over the past couple of days.

6.6900 marks the pair’s recent high.

 

USD/JPY:

Spot: 113.22

Dollar strength today was the major theme, resulting in a sharp gain in USDJPY. Japan is set to hold its national elections over the weekend; current PM Abe is expected to win. Analysts expect Abe’s victory to exert downward pressure on the yen with reflation and central bank easing likely to continue for some time.

The 7-month high of 114.48 is a significant resistance level. A breakout above it could potentially lead to the yen to weaken to 118 – 120 to the dollar over the next 12 months.

 

GBP/USD:

Spot: 1.3133

The pound fell against the dollar Thursday after poorer-than-expected UK retail data, overshadowing BOE rate-hike expectations. Continued Brexit uncertainty has also recently weighed on sterling.

The 1.3000 psychological level will be key in the weeks to come. A break below it could spark further pound weakness.

© Jachin Capital Pte Ltd

UEN: 201419754M


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