Issue#: 480/2018

Spot values at a glance:

USD/SGD

USD/CNH

AUD/USD

USD/JPY

USD/CAD

GBP/USD

Daily Observations:

Asian stocks declined, while the dollar built on its recent rally as investors assessed the outlook for trade and whether turmoil in some emerging markets can be contained. The pound retreated as UK Prime Minister Theresa May ruled out a second Brexit vote.

 

US-Canada Nafta Talks Stall:

President Donald Trump slammed what he termed “decades of abuse” by Canada with a new threat to terminate the North American Free Trade Agreement, a day after talks Canada stalled hours before a deadline.

“There is no political necessity to keep Canada in the new NAFTA deal. If we don’t make a fair deal for the US after decades of abuse, Canada will be out,” Trump said on Twitter on Saturday. “Congress should not interfere w/these negotiations or I will simply terminate NAFTA entirely & we will be far better off.”

 

Treasury Bills Supply Poised to Slip:

According to a Bloomberg report, this year’s relentless climb in short-end U.S rates may be about to take a break as the Treasury dials back bill auctions for a change. But any dip in rates may prove short-lived with another Federal Reserve hike looking imminent.

The Treasury will sell a combined $145 billion of bills Tuesday when the market reopens after the Labor Day holiday. The total is down $16 billion from last week, for the first across-the-board cut in bill supply since April. Bill rates have climbed steadily this year, pushing 3-, 6- and 12-month yields above 2% for the first time in a decade.

However with traders anticipating an increased issuance across the curve to finance the nation’s ballooning budget deficit and offset the Fed’s balance-sheet unwind, the pullback in supply might not last for long. In addition, this Friday’s release of the latest labor-market data may solidify expectations for a quarter-point Fed rate hike this month.

 

Trump Set to Snub Asia Summits:

President Donald Trump will skip 2 major summits in Asia in November, a move that could stoke concerns in the region about the US’s reliability as a counterweight to China.

The White House said Friday that Vice President Mike Pence would travel to Singapore for an 18-nation summit hosted by the Association of Southeast Asian Nations, before heading to Papua New Guinea for an Asia Pacific Economic Cooperation gathering. The APEC summit is normally attended by 21 leaders, including Chinese President Xi Jinping and Russia’s Vladimir Putin.

The decision removes a potential avenue for Trump to meet with Xi as a trade war between the US and China deepens. The US is leaning toward a fresh round of tariffs against Chinese imports, this time for $200 billion in goods, in what would mark a significant escalation. Xi and Trump are expected to attend the Group of 20 summit in Argentina later in November, though. Trump’s absence is also likely to fuel concerns among Asian leaders who want the US to push back against China’s increasing economic and military might.

 

Argentina’s Credit Rating on the Brink:

Argentina’s credit rating may be cut further into junk territory by S&P Global Ratings amid a plunge in the peso and a bailout from the International Monetary Fund.

S&P said last Friday it may lower the nation’s long-term foreign currency rating from its current B+ grade, which is 4 notches below investment grade, and on par with Turkey, Greece and Fiji. The ratings company cited the risk of worsening creditworthiness and exchange rate volatility as potential threats to the economic adjustment measures undertaken by Mauricio Macri’s administration.

Still, Macri’s commitment to stabilizing South America’s second-largest economy through difficult austerity measures, such as a $50 billion credit line from the IMF, should help maintain the government’s access to capital markets, which the nation had been locked out of for more than a decade. After tumbling a world-leading 50% this year, Argentina’s peso stabilized on Friday, following a series of steps by the Macri administration.

The central bank raised its benchmark interest rate to a world-high 60% last Thursday. A day earlier, Macri made a surprise appeal to the IMF, seeking to expedite payments under the record $50 billion credit line agreed in June. The Fund looks set to oblige, saying that high-level talks will begin Tuesday with the aim of “rapidly” submitting a revised lending plan to the IMF board.

 

Smart Money Sees China Bear Market Lasting: JPMorgan Survey:

China’s institutional investors aren’t counting on recouping this year’s equity losses any time soon, according to a JPMorgan Asset Management survey last month. While the majority of the 200 respondents said onshore stocks will rise in the next 12 months, some 80% predict gains won’t exceed 15%. That’s not much of a rebound when you consider the CSI 300 Index is down 18% this year in what’s set to be its worst annual performance since 2011. Almost a third called for further declines, according to the poll of fund distributors in Beijing and Shanghai.

About $2.5 trillion has been wiped off the value of mainland shares since January, weighed by risks borne out of the country’s drive to reduce leverage, namely rising defaults and tightening credit conditions. While that policy’s been put on hold, caution still prevails amid mounting evidence the economy is slowing. US tariffs on Chinese goods and cooling global trade haven’t helped either.

 

 

FX Updates:

USD/SGD:

Spot: 1.3716

USDSGD was little changed earlier today, after regaining back above the 1.3700 handle last Friday amid broad strength in the greenback.  The strong bounce off the 1.3600 handle last week reconfirmed the uptrend channel the currency pair has been in since March this year. A revisit of the 1.3819 high reached last month is likely.

 

AUD/USD

Spot: 0.7184

AUDUSD’s bearish close last Friday, which resulted in a fresh 18-month low, reinforced the downside bias over the coming weeks for the FX pair. The Aussie, along with the yuan, has been most affected by fresh concerns over the US-China trade dispute.

The key support lies along 0.7160, which could be breached as soon as this week. Below that, the psychological 0.700 handle will be a likely short covering target for Aussie bears.

 

USD/CAD:

Spot: 1.3062

Last week’s collapse of US-Canada trade talks resulted in USDCAD soaring back above 1.3000. Further Nafta uncertainty is likely to depress the Canadian dollar and further buoy the currency pair. A breach of the 1.3100 resistance  is likely to lead to further upside gain to the key 1.3386 level.

 

USD/CNH:

Spot: 6.8449

USDCNH rebounded last week from multi-week lows, registering its first weekly gain in 3 following renewed concerns over US-China trade dispute. The 6.8000 region continues to provide support.

 

USD/JPY:

Spot: 110.90

USDJPY extended its Friday’s decline earlier today, slipping below 111, as safe haven demand for the Japanese yen outweighed a strengthening US dollar. The uptrend in the second quarter of this year will be confirmed broken should the pair fail to regain back above 112.

 

GBP/USD:

Spot: 1.2925

GBPUSD fell by as much as 0.5% earlier today after UK Prime Minister Theresa May ruled out a second Brexit vote. In a comment piece on the Sunday Telegraph she said another referendum would be a “gross betrayal of our democracy.’’ Lawmakers in Britain are back to work after sterling volatility left political pundits scratching their heads last week. EU Chief Negotiator Michel Barnier’s promise to offer the UK an unprecedented partnership sent the currency soaring more than 1% even though he had said it before.

 

 

Sources: Bloomberg

© Jachin Capital Pte Ltd

UEN: 201419754M


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