Issue#: 381/2017

Spot values at a glance:







The US dollar is headed for its best week this year on US tax reform hopes. Asian equity indices, apart from those in Tokyo and Singapore, were higher on the day after US indices advanced for the eighth straight session. Oil slipped after climbing into a bull market earlier this week, while gold maintained near a 5-week low.


  • China told companies in North Korea operating inside its borders to shut down as the world’s second-largest economy looks to comply with sanctions levied against the rogue state. Companies are required to cease business within 120 days of Sept. 12 – the day after the UN passed new sanctions aimed at punishing North Korea for its latest missile and nuclear tests. Non-profit and non-commercial public utility and infrastructure projects are not subject to the order, the Ministry of Commerce said.

Tax Reform:

  • Republicans unveiled their nine-page blueprint for tax reform on Wednesday, which reduces the number of individual brackets, eliminates the estate and alternative minimum taxes, and removes some popular tax deductions.US President Donald Trump billed the plan as a “revolutionary” win for American workers. He pledged that the corporate tax rate would be lowered to at least 20% in a bid to incentivize domestic activity and employment.
  • Contrary to Trump’s assertions, however, the proposal offers more than $1 trillion in tax breaks for the wealthiest Americans, with the proposed framework calling for capping the tax rate on such pass-through businesses at 25%. Businesses organized that way don’t pay income tax themselves, instead passing earnings to their owners, who pay at their individual rates. Owners with high business incomes, who currently face a top rate of 39.6%, are in for major tax relief, policy analysts said according to a Bloomberg report.
  • Moreover, some senators may be wary of how much the tax cuts could boost the budget deficit. GOP Senator Bob Corker has said while he supports lower taxes, he won’t back legislation that increases deficits such as last night’s proposed tax framework. Senate Republicans need every vote they can get to pass tax cuts with 50 votes in a chamber they control by a 52-48 margin.
  • According to another report from Bloomberg, although Republicans say the plan is to reduce the corporate tax rate to 20 percent from the current 35%, the Institute on Taxation and Economic Policy found that more than 250 of the largest US companies already paid an effective rate of just 21.2% from 2008 to 2015. This may indicate the promised corporate tax cut won’t be much of a cut.
  • Goldman Sachs estimated that S&P 500 companies will earn a collective $139 a share in 2018, and predicts that every one percentage-point reduction in tax rates would raise profits by $1, thus indicating the best stock bulls can expect is slightly less than a 1% boost to earnings from the proposed tax cuts.


  • The US economy expanded by an annualized 3.1% quarter-on-quarter during the second quarter of this year, revised upward from the second estimate of 3.0%. Second-quarter growth received a healthy contribution from business spending, as well as consumer spending which grew 3.3%. The rate of expansion was the fastest since the first quarter of 2015, and while it’s above the Trump administration’s 3 percent goal, most economists expect the pace to slow.
  • The spread between long and short-term US government bond yields has swelled over the past two sessions as investors wager that flattening is over. The outperformance of longer-maturity debt has been a dominant theme in the market for months. Now, open interest data show investors are unwinding wagers that the slope of the yield curve from 5 to 30 years will fall, after it turned the flattest in nearly a decade.
  • The benchmark 10yr Treasury yield was unchanged on the day overnight at 2.31%, erasing an earlier session gain of as much as 5bps where the yield briefly broke its 200-day moving average. The yield currently sits around its 2017 average, a long way from the 3% level that some analysts predicted to start the year.
  • The Dollar Index took a breather following 3 straight session gains, declining 0.3% but still managing to hold above its 50-day moving average.
  • US stocks rose to record levels, heading for an eighth straight consecutive gain. The S&P 500 Index inched up 0.12% while the Dow Jones Industrial Average gained 0.18%; the Nasdaq Composite ended flat.
  • A little more than half of US investors anticipate a decline this year that will wipe out “significant gains,” according to the latest Wells Fargo/Gallup poll results. That’s fully 54% of the respondents, though down from previous survey highs in 2013 (62%) and 2014 (58%). 18% said they’re selling stocks to shield their portfolios from a downdraft, and only one out of five said they were buying bonds to limit their exposure to stock market risk.
  • Not only are the investors in the survey not terribly worried about a correction, 61% said now is a good time to invest in the stock market. In the face of a market correction, 62% of investors said they would ride it out, and 27% said it would be a buying opportunity. Just 15% agreed that “fear of a market correction is making your life stressful” and only 13% said a correction would hurt their financial picture “a lot.” Meanwhile, 43% anticipated a “moderate” amount of pain.


  • The Canadian Federation of Independent Business business barometer fell to 56.9 in September, reaching its lowest level since March 2016 after peaking in May and indicating a slide in optimism among small and medium businesses.
  • A separate survey from the Business Council of Canada found that chief executives are worried the nation has become a worse place to do business, with burdensome regulations and rising costs of labor and energy.
  • The reports highlight an undercurrent of worry that exists among Canadian businesses, even as they benefit from one of the strongest growth spurts over the past decade, according to Bloomberg News. Those concerns are being driven by everything from growing protectionism in the US to rising taxes and regulatory costs, including new carbon pricing and higher minimum wages.


  • The Bloomberg Brexit Barometer rose sharply, entering “cloudy” territory for the first time since July, as EU negotiator Michel Barnier said he saw a new dynamic in the talks. Still, he cautioned that it may take weeks or months before the parties to turn to discussing trade, an issue very important for Prime Minister Theresa May and her government. The Confederation of British Industry and the Trades Union Congress said in a rare joint statement that the uncertainty had become “intolerable.”


  • The snap election called by Japanese Prime Minister Shinzo Abe to capitalize on a boost in popularity linked to North Korea’s provocations now looks to be a two-horse race after Abe’s main opposition party agreed to merge with a new group created by Tokyo Governor Yuriko Koike.
  • Japanese prices extended their run of gains to 8 months, rising the most in more than 2 years. Headline CPI gained 0.7% year-on-year in August, accelerating from the prior month’s increase of 0.4%, and beating the 0.6% forecast. Excluding the effects of fresh food, CPI rose 0.7% over the same period, in line with expectations and faster than July’s advance of 0.5%.
  • Industrial production rose 2.1% month-on-month in August (vs est. 1.8%), rebounding from a 0.8% decline in July. Retail sales over the same horizon sank 1.7%, more than the 1.5% expected.
  • The key takeaway from this morning’s deluge of economic data in Japan as reported by Bloomberg is: Heading into next month’s election, the government can point to an economy that’s doing well after almost 5 years of Abenomics. The number of people working is increasing, the size of the economy has expanded more than 10% and is on track to grow for a seventh quarter in a row. However, that good news is partly the result of massive fiscal and monetary stimulus, which has pushed up debt and swelled the central bank’s balance sheet. And like in many other nations, inflation is weak and wages haven’t kept pace with rising gross domestic product.

Precious Metals:

  • Spot gold was mostly unchanged on the day following a 0.4% decline in the prior session. Gold had touched its lowest mark since August – $1,277.83/Oz yesterday, and is headed for its biggest monthly loss this year as traders raise bets that the Fed will boost rates by the end of December.
  • With the failure to hold above the key $1,300/Oz handle, coupled with a break below its 50-day moving average on Wednesday, the momentum has shifted to the downside for the precious metal. The next support below lies around $1,240/Oz – a Fibonacci retracement level of gold’s rally from mid-July to mid-September.
  • Silver for immediate delivery was little changed as well, holding near its previous session’s close of $16.8181/Oz.


  • Crude oil futures was little changed earlier today after falling 1.1% to $51.56/bbl last night. US government data released yesterday showed American drillers lifted output almost 9% during the past 3 weeks, the biggest 3-week increase in half a decade.
  • Oil this week returned to a bull market after rising 20% since late June and is set for its biggest monthly gain since April 2016.
  • Iraq said Turkey agreed to deal exclusively with its central government over exports of Kurdish crude oil, a step that could disrupt shipments from the independence-seeking Kurd region.
  • Libya’s oil output is rising again after disruptions ended at its biggest field, with production reaching about 950,000 barrels a day even as OPEC and allied suppliers step up efforts to contain a global glut.


Weekly Thematic News:

China Online:

  • Baidu Inc.’s iQiyi is targeting a U.S. initial public offering as soon as in 2018 that could value China’s most popular Netflix-style streaming video service at more than $8 billion, two people familiar with the matter say. IQiyi, the only Chinese service that licenses shows from Netflix Inc., needs to build up its war chest as it battles rival platforms run by Alibaba Group Holding Ltd. and Tencent Holdings Ltd. Baidu, which is also investing heavily in artificial intelligence and autonomous vehicles, needs to buy and create more content to sustain its lead among online video platforms, based on time spent.


  • About 68% of global investors intend to increase green investments and one-in-two companies has a strategy to reduce their environmental impact, according to a survey commissioned by HSBC Plc published Sept. 12. Most companies said they lack any clear competitive advantage to be more transparent, particularly regarding cost of funding. Only 66% of the investors surveyed hold green bonds, which isn’t surprising given that total outstanding issuance is relatively small at $232.2 billion in July, according to the report.
  • The report estimates that about $90 trillion of investment is needed in new green infrastructure over the next 15 years. In 2016, $22.9 trillion of assets were managed under responsible investment strategies, a 25 percent increase from 2014.
  • In separate news, Morgan Stanley and Citigroup Inc. announced they will get all of their energy from renewables in a few years. The banks are aiming for their operations to be carbon-neutral, Morgan Stanley by 2022 and Citi by the end of the decade. Both plan to buy power from clean energy projects.

Solar Energy:

  • Solar installers are looking to partner with companies, as they wrestle with a market that is shrinking after 16 years of rapid growth. Their long-time sales model of knocking on doors, cold calling at home and setting up mall kiosks has proven to be costly. Some have realised it might be more effective to use the umbrella of bigger established companies to find customers, according to a Bloomberg report.
  • Sunrun Inc., for example, will try to sell panels through Comcast Corp., the biggest cable-TV company in the U.S. Last month, the two agreed to a deal in which Comcast will use its vast marketing arm to tap some of its 27 million customers for solar. Vivint Solar Inc. is now bundling its panels with an energy management system offered by Vivint Smart Home, a sister company.
  • Solar companies hope the alliances will solve a problem of high customer-acquisition costs that often run 20% of expenses, sometimes exceeding the panels themselves. They also address another issue: Some potential customers are reluctant to sign on to decades-long contracts with relatively small, little-known companies. That could change by associating with brand names.
  • Through early 2016, installers had an almost singular focus on growth, using no-money-down leases to pump up sales. The industry grew a staggering 48% in 2015, but slowed last year to 20%, and seems to be coming to halt this year with new residential installations expected to drop by 2.4% over 2016, according to Bloomberg New Energy Finance. Shifts in government policies have played a big role in diminishing some of the financial incentives for homeowners to install a solar system. The decline has been most evident in California, the biggest US solar market.

Electric Vehicles:

  • The internal combustion engine’s days may be numbered in California, where officials are mulling whether a ban on sales of polluting autos is needed to achieve long-term targets for cleaner air. Governor Jerry Brown has expressed an interest in barring the sale of vehicles powered by internal-combustion engines, though the earliest such a ban gets imposed is at least a decade away.
  • Dyson Ltd., best-known as a manufacturer of vacuum cleaners, hand driers and air filters, will build an electric car by 2020, founder James Dyson said Tuesday. The company is investing one billion pounds to develop the car, plus the same sum to create solid-state batteries to power it, Dyson said. These investments will dwarf money the company is spending on research and development for its vacuums and air filters.


  • The vulnerability of governments and businesses to cyberattacks was exposed again last week when a top US financial regulator said hackers had breached its electronic database of market-moving corporate announcements in 2016, and may have profited from the information they stole through the use of illicit trades.
  • Singapore has overtaken nations including the US, Russia and China as the country launching the most cyber-attacks globally, according to Israeli data security firm Check Point Software Technologies Ltd. A key Southeast Asian technology hub, much of the internet traffic flowing through Singapore originates in other countries. That means a cyber-attack recorded as coming from Singapore may have been launched outside the country.

FX Updates:


  • Spot 1.3589
  • USDSGD continues to find some resistance at the 1.3600 level, retreating back below it following a retreat in the US dollar overnight.
  • The main trend since the start of the year remains to the downside, although a break above the key resistance around the 1.3600 could indicate a reversal may be on the cards.
  • According to analysts from Credit Suisse, the MAS is likely to remove its forward guidance of “an extended period” of neutral policy stance on expectations that growth will accelerate in the third quarter.


  • Spot 0.7841
  • AUDUSD rebounded off its 0.7800 support, gaining by as much as 0.5% to 0.7860 last night.
  • A break below 0.7800 it may lead to a reversion back to the 200-day moving average of around 0.7650.
  • The currency pair is expected to remain pressured with iron ore futures at a 3-month low.


  • Spot 1.2443
  • USDCAD briefly broke above the 1.2500 handle yesterday, before falling 0.5% earlier today as a 3-day US dollar rally loses steam.
  • The pair yesterday closed above its 50-day moving average for the first time since May. The next resistance level lies at 1.2778 – a 9-week high.


  • Spot 6.6701
  • The PBOC weakened its reference rate earlier to 6.6369 per US dollar, from 6.6285 yesterday.
  • Offshore yuan weakened by as much as 0.2% against the greenback despite a stronger-than-expected fixing earlier today. The yuan is headed for its worst weekly drop since Jan 2016, signalling that the PBOC ‘s strategy of setting stronger-than-expected fixings is having little success in containing losses.


  • Spot 112.67
  • USDJPY was little changed earlier, but continues to remain buoyed above its 200-day moving average.
  • The next key resistance to be tested lies at the 6-month high of 114.48.


  • Spot 1.3414
  • GBPUSD erased a slight overnight gain and remains largely unmoved heading into midday SGT. Investors remain nervy ahead of a slew of macro-economic data from both the UK and US tonight.
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