Spot values at a glance:
Asian stocks followed gains in US equities as earnings and congressional action on tax reform boosted confidence in the growth outlook. The US dollar gained while gold fell to a 3-week low. The euro declined after the Draghi outlined the ECB’s plans to taper bond purchases but also indicated zero percent interest rates could remain until “well past” the end of QE.
A trio of US tech titans announced earnings that crushed expectations after markets closed on Thursday, sending their shares soaring in the after-hours session. Amazon.com Inc. reported top and bottom line beats that included roughly $1.3 billion in quarterly revenue from Whole Foods Market Inc. and profit growth of more than 40% in its cloud-computing division. Shares rose by as much as 8.2% in extended trading.
Demand for cloud services also helped propel Microsoft Corp.’s sales higher, contributing to better-than-anticipated earnings. Alphabet Inc., the parent company of Google, saw ad volumes surge in the third quarter while its mysterious “Other Bets”, the non-internet project division, drew praise from CFO Ruth Porat.
The S&P 500 Index rebounded 0.1% from Wednesday’s drop, as other better-than-expected earnings from firms such as Twitter Inc. to Ford Motor Co. propelled the index higher. The Dow Jones Industrial Average added 0.3%.
The Nasdaq Composite declined 0.1% after another day from biotech shares, hit by a double whammy of Celgene Corp.’s poor results and US President Donald Trump’s pledge to go after companies that helped fuel the opioid epidemic. Reports that Amazon has received pharmacy-wholesaler licenses in at least a dozen US states catalysed a larger drop for drug distributors.
European Central Bank President Mario Draghi managed to avoid roiling markets when he detailed the central bank’s plan to cut its monthly bond purchases in half by 30 billion euros in January, and run the purchases until September. Draghi also indicated that zero percent interest rates could remain at current levels until “well past” whenever it finally decides to end its quantitative easing measures. Bonds and stocks soared while the euro weakened.
“The ‘lower for longer’ scenario appears to be a victory for the doves on the ECB, and is consistent with Draghi’s call for ‘patience and persistence’,” the strategists at Brown Brothers Harriman wrote in a research note. “Draghi seemed intent (on) encouraging the market to push out in time when the first hike may be delivered.” The reaction may help alleviate the biggest fear among global investors, which is that markets will fall apart as central banks stop injecting cash into financial assets. That’s been the concern since the infamous “Taper Tantrum” of 2013 that roiled markets when then Fed Chair Ben Bernanke said the central bank was considering slowing its bond purchases.
Tax Reform Gaining Momentum:
Bank stocks rallied to a decade high on the news that House Republicans narrowly passed a budget resolution that paves the way for as much as $1.5 trillion in US tax cuts over 10 years while setting aside the party’s traditional concern about deficits. A draft of the tax reform measure is due on Nov. 1 and will face internal divisions over plans to limit state and local deductions.
Bank of Canada Holds:
The Bank of Canada indicated it’s in no rush to cool an economy that is very close to running up against capacity constraints, citing a long list of worries ranging from gains in the Canadian dollar to risks associated with growing protectionism in the US. The central bank left it is benchmark overnight at 1.0% Wednesday, after consecutive hikes at its last 2 decisions in July and September, and warned they will remain “cautious” when considering future hikes.
In addition to a stronger loonie that is weighing on inflation and exports, the bank highlighted growing risks associated with renegotiation of the North American Free Trade Agreement, slowing housing market plus evidence of continued slack in the labor market despite recent strong economic growth. There is also some uncertainty over the impact higher interest rates will have on households given record high personal debt levels.
Canadian Foreign Minister Chrystia Freeland criticized a one-sided strategy in Nafta negotiations after US Commerce Secretary Wilbur Ross said he wasn’t prepared to make concessions to reach a deal. Freeland later added Canada now understands the value of opening new export markets in China and elsewhere “more urgently than ever”.
The previous round wrapped up this month with ministers trading barbs amid 5 key impasses on dairy, automotive content, dispute panels, government procurement and a sunset clause. Mexico and Canada are effectively dismissing US proposals on all five.
While economic growth across many parts of the world has improved, there’s no time for authorities to be complacent, Ravi Menon, managing director of the Monetary Authority of Singapore, said in an interview on Tuesday, adding that investors are underestimating risks to the global economy as they drive stock markets to record highs.
Weekly Thematic News:
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.
Russian hackers conducted “very active” cyber-attacks against institutions in the Czech Republic last year, according to the European Union member’s counter-espionage agency. APT28 is a Russian hacking group, also known in the intelligence community as “Fancy Bear,” that’s been linked to attacks against the US Democratic Party, the White House and NATO. It targeted Czech diplomatic, military and academic entities last year, the secret service, known as BIS, said in a report released on Tuesday.
International tension over cybersecurity has escalated since the US intelligence community concluded that Russia meddled in last year’s presidential election with the goal of hurting Democratic candidate Hillary Clinton and helping elect President Donald Trump.
Investors can choose to park some money in this increasingly important trend by buying into the Cybersecurity US portfolio on iAdvisor, which has returned 19.4% year-on-year as of Tuesday, outperforming the benchmark ISE Cyber Security Index (+15.8% yoy)
Auto-parts supplier shares jumped in Asian trading after Wall Street Journal reported that Tesla Inc. reached an agreement with Shanghai’s government to build a fully owned manufacturing facility in the city’s free trade zone. A Shanghai official in charge of electric vehicles denied the claim.
Tesla’s production plans in the largest auto market are closely followed by industry watchers and investors as China accelerates electric- and autonomous-car development and works on a timeframe to phase out conventional cars. People familiar with the matter last month told Bloomberg that Chinese authorities are considering a proposal to allow overseas carmakers to set up wholly owned EV factories in free-trade zones, a move that would give Tesla a greater range of options.
The Self-Driving Car US portfolio on iAdvisor has been one of the stellar performers over the past year, returning an impressive 44.3% from a year ago.
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 last 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 last 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 recently, 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.
USDSGD is threatening to break out of its downtrend channel, which has held firm since the turn of the year. A break above the 3-month high of 1.3691 would probably confirm the reversal of the trend.
AUDUSD declined to its lowest since July on Friday, following slower-than-expected inflation data earlier this week damped the outlook for the RBA raising rates. RBA Deputy Governor Debelle further commented that inflation may be weaker than indicated in data due to lengthy intervals between the re-weighting of the consumer price index.
More downside is expected for the currency pair with the next support target around the 0.7600 handle.
For investors with Australian dollar exposure, one way to hedge against the weakening Australian dollar is to invest in the International Growers Australia portfolio on iAdvisor, which comprises of Australian companies with international and growing revenues that stand to benefit from global growth and a weakening domestic currency. The portfolio has gained 5.5% from a month ago, compared to a 4.5% gain in the S&P ASX 200 benchmark index.
USDCAD advanced to a fresh 3-month high Friday following broad US dollar strength, as well as concerns the Bank of Canada expressed over Canadian dollar strength in its monetary policy statement midweek.
The key resistance to watch over the coming week is undoubtedly the 1.3000 handle.
USDCNH’s gained to a weekly high Friday due to dollar strength. Analysts expect more sideways action ahead of Trump’s visit to China on Nov. 8-10.
Consolidation is expected between the 6.6000 and 6.7000 handles.
USDJPY continues to fluctuate below a major resistance level, following PM Abe’s election victory last weekend.
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.
GBPUSD approached a 2-week low against a stronger dollar Wednesday, pressured by growing uncertainty over the Bank of England will raise interest rates next week for the first time in a decade. The implied probability of a BOE rate hike currently lies at 89%, according to pricing data on Bloomberg.
Failure to raise rates could result in decline back below the key 1.3000 handle.