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Stocks, dollar edge higher ahead of Trump-Xi meeting

NEW YORK: Global equity markets and the dollar edged higher on Thursday, helped by fresh data showing a tighter U.S. labor market, as investors stayed cautious before the first meeting between U.S. President Donald Trump and his Chinese counterpart Xi Jinping.

Key stock indexes in Europe and on Wall Street climbed but a gauge of global equities was little changed, with gains offset by a decline in emerging markets .

The dollar index extended gains after data showed new applications last week for U.S. unemployment benefits recorded their biggest drop in nearly two years.

Last week’s jobless claims data, however, has little bearing on the March employment report due out on Friday. Claims rose during the survey week for nonfarm payrolls last month, suggesting some moderation in the pace of job growth.

“The market will be very remiss to do anything too sharp at this point, given that we have payrolls coming up,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.

The dollar index rose 0.15 percent, with the euro down 0.18 percent to US$ 1.0643. The Japanese yen weakened 0.21 percent versus the greenback at 110.93 per dollar.

Trump faces pressure to deliver trade concessions with China for some of his most fervent supporters and to prevent a crisis with North Korea from spiraling out of control. However, White House officials have set expectations low for the meeting.

The market’s main concern is that Trump and Xi may not see eye-to-eye on most things and that traders will infer this from their body language, said Thierry Albert Wizman, global interest rates and currencies strategist, at Macquarie Group in New York.

“Rather than a lack of agreement, however, the greater risk is a lack of deep engagement,” he said.

On Wall Street, the Dow Jones Industrial Average rose 51.75 points, or 0.25 percent, to 20,699.9. The S&P 500 gained 5.89 points, or 0.25 percent, to 2,358.84 and the Nasdaq Composite added 12.22 points, or 0.21 percent, to 5,876.69.

The pan-European FTSEurofirst 300 index closed up 0.16 percent to 1,499.94, while MSCI’s gauge of stocks across the globe fell 0.06 percent.

Oil prices rose nearly 1 percent, on track for a fourth straight day of gains, but analysts warned record high U.S. inventories could derail the rally.

U.S. crude rose 55 cents to settle at US$ 51.70 a barrel and Brent settled up 53 cents at US$ 54.89.

U.S. Energy Department data show crude inventories at record levels, leading some analysts to say speculative buying is starting to reach dangerous levels from a technical perspective.

“It’s hard to justify the move on the on back of fundamentals,” said Robert Yawger, director in energy futures at Mizuho.

U.S. Treasury yields fell slightly ahead of the U.S. jobs report on Friday.

Benchmark 10-year Treasury notes were last up 2/32 in price to yield 2.3480 percent.

U.S. gold futures gained 0.39 percent to US$ 1,253.40 an ounce. Copper lost 0.29 percent to US$ 5,878.00 a tonne.

(Editing by Bernadette Baum and Nick Zieminski)

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Singapore dollar hits all-time high against Malaysian ringgit

SINGAPORE: The Singapore dollar hovered at an all-time high against the Malaysian ringgit on Friday (Feb 24), peaking at 3.1687 earlier in the day before easing back to 3.1643 in afternoon trade.

An outperformance of the Singapore currency, rather than a weakening in the ringgit, was behind the movements in the SGD/MYR, analysts told Channel NewsAsia.

Alongside broad-based strength in other Asian currencies such as the South Korean won and the Taiwan dollar, the Sing dollar edged up as overnight comments from US Treasury Secretary Steven Mnuchin pulled down the US dollar.

Speaking to CNBC in his first televised interview since taking office, Mnuchin said he wanted to see tax reform passed before Congress’ August recess, but later acknowledged on Fox Business Network that such a timeline was “very aggressive”. US president Donald Trump previously said he would announce a “phenomenal” plan by early March to cut business taxes.

“Overnight comments from Mnuchin seem to suggest that the tax reforms will only be read in August. If that’s the case, dollar strength will only come later,” said Mr Christopher Wong, senior FX strategist for Maybank.

“Even on Trump’s point of declaring China as a currency manipulator, Mnuchin said there’s no plan to do that so there seems to be a contradiction in there,” Mr Wong added. “This sets the stage for Trump’s first address to a joint session of Congress on Feb 28, which markets will be keeping an eye on for more details of his tax reform and infrastructure plans.”

Little clarity on the US president’s proposed fiscal stimulus has reined in the US dollar’s rally since the start of the year, allowing Asian currencies to take a slight breather.

On Friday, even a below-par industrial production report failed to dampen the spirits of the Sing dollar, which was last seen at 1.4050 per US dollar in afternoon trade. Earlier in the day, the local dollar hit 1.4091 against the greenback, its highest since Nov 10.

“The outperformance of the Sing dollar occurred way before the data release but even that had little impact. Simply because the big swing this month in industrial production was due to the biomedical manufacturing, which is typically quite volatile,” Mr Wong said.

Amid expectations of further bouts of US dollar weakness, analysts expect the Sing dollar to continue outperforming.

“The narrative surrounding Trump and his agenda is fraying and that’s causing these movements. With a little bit of recovery in risk sentiment given the push back in moves that could inflate trade tensions, we see low-yielding currencies like the Sing dollar doing better,” said Mr Julian Wee, senior markets strategist for Asia at National Australia Bank.

On the other hand, the Malaysian ringgit will likely continue to underperform most of its Asian counterparts.

One reason for that is Bank Negara Malaysia’s (BNM) lack of adequate foreign exchange reserves to “smooth out the depreciation” of the currency amid a strong dollar environment, Mr Wee noted.

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Singapore dollar to weaken further in uncertain 2017: Analysts

SINGAPORE: The Singapore dollar may have recovered some lost ground after hitting multi-year lows against the greenback last week, but this momentum is unlikely to be sustainable when the new year comes around, analysts told Channel NewsAsia.

Alongside most of the regional currencies, the Sing dollar has been on the back foot since Donald Trump’s surprise victory in the US presidential election shook the greenback out of a slump.

Compounded by the US Federal Reserve’s decision to raise interest rates earlier this month, the local currency fell to 1.4509 versus the US dollar on Dec 22, hitting its weakest level since August 2009. The Sing dollar has since made mild gains and was last seen fluctuating between 1.4463 and 1.4497 on Tuesday (Dec 27).

However, market analysts said the greenback’s resurgence looks set to continue in 2017 on the back of expectations for a stronger economic recovery in the US and as the Fed flagged a faster-than-expected pace of rate hikes. That could deal Asian currencies a further blow.

“With further upside for the US dollar in 2017, we expect more weakening for the Sing dollar and in fact, weaker Asian currencies across the board with no exceptions,” ANZ’s senior FX strategist, Irene Cheung, said.

“The recent hike in US interest rates and the possibility of more aggressive rate hikes as indicated by the Fed will, for one, be underpinning the US dollar. Markets will also be looking out for the fiscal policies that Mr Trump has been advocating,” added Ms Cheung, referring to the President-elect’s fiscal stimulus proposals such as tax cuts that have been seen as bolstering US economic growth and inflation. “That will only be good for the US dollar.”

Apart from that, the incoming US President’s protectionist stance on trade will likely remain as a source of pressure for the Sing dollar and other currencies of export-dependent economies in Asia. Since the US elections, the Sing dollar has fallen 3.5 per cent against the greenback while the South Korean won and Malaysian ringgit slumped around 5 per cent and 7 per cent respectively.

“On what the new US administration could announce on its trade policies with Asia and in particular, China, we are a little bit wary (as) the signs don’t appear to be good,” said Mr Julian Wee, senior markets strategist for Asia at the National Australia Bank (NAB).

For one, the appointment of Peter Navarro, an economist who has urged a hardline stance on trade with China, to head a newly formed trade council is “not a good sign”, Mr Wee added. “It is shaping up to an uncertain year ahead.”

In addition to external factors, the Sing dollar’s fortunes are also hamstrung by a growth deceleration in Singapore’s economy. For the third quarter, gross domestic product (GDP) slowed to 1.1 per cent on a year-on-year basis amid headwinds such as stubbornly weak external demand, and economists have grown increasingly pessimistic about growth prospects in the year ahead.

“If you look at the open economies globally, Singapore is one of the most vulnerable in a rising trade protectionism and anti-globalisation environment. Domestically, we are still in the transition phase for the Singapore economy so I think markets are pricing these in,” said Mr Saktiandi Supaat, head of FX research at Maybank Singapore. “Both externally and domestically, things are not looking too positive.”

In light of the double whammy, Mr Saktiandi expects the Sing dollar to “proceed towards 1.45 or be slightly above 1.45” by mid-2017, before stabilising around 1.43 at the end of the year.

ANZ’s Ms Cheung has a gloomier forecast, predicting that the currency will weaken more than 3 per cent to touch 1.50 – its lowest level since April 2009 – next year.

KNOCK-ON EFFECTS OF WEAK SING DOLLAR

Amid expectations for more Sing dollar woes, what will that mean for Singapore’s economy, businesses and the country’s monetary policy settings?

While a weakening currency is theoretically seen as a tailwind for the economy as exports get a leg-up in competitiveness, the boost may not quite materialise for Singapore, according to Nomura economist Brian Tan.

Noting the presence of “bigger factors” such as sluggish external demand and falling trade intensity that are weighing on Singapore’s exports, he said that a weaker Sing dollar “will not necessarily prove to be such a huge boost for exports”.

Meanwhile, import-intensive sectors and businesses with foreign-currency borrowings will begin feeling the heat as a limp local currency makes imports more expensive and makes their debts dearer in Sing dollar terms, Mr Tan added.

As to whether the weakening currency will sway central bank action, analysts are mostly opting to sit on the fence, citing various events that take place before the Monetary Authority of Singapore’s (MAS) next policy meeting in April 2017.

“There’s a possibility that the MAS could ease but we will be watching the events in early 2017, such as Donald Trump taking office. By then, we will have more clarity on what he will do for the US economy and global trade. We will also be looking at the Budget for any support to the economy on the fiscal front,” said Ms Cheung.

“So, it seems very much like an uncertain year ahead.”

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Singapore dollar hits 7-month low on lacklustre growth outlook

SINGAPORE: The Singapore dollar fell to a seven-month low on Friday (Oct 14), as a disappointing growth report card and a dovish policy statement from the central bank fuelled concerns over the outlook of the economy.

Gross domestic product (GDP) for the third quarter grew by a slower-than-expected 0.6 percent on-year, compared with forecasts of 1.7 per cent from a Reuters poll. Economic growth also contracted 4.1 per cent on a quarter-on-quarter basis, well off expectations for 0.3 per cent growth.

Despite the disappointing GDP data, the Monetary Authority of Singapore (MAS) opted to keep its monetary policy intact on Friday.

Following the MAS announcement, the Sing dollar rose slightly against the US dollar but soon weakened to 1.3872 per US dollar as of 3.40pm, hitting its lowest levels since early March.

“DOVISH HOLD”

While the central bank has opted to stand pat for now, a dovish tone in the policy statement, which implies the likelihood of further easing amid weak inflation and growth outlook, set the stage for weakening in the local currency, analysts told Channel NewsAsia.

In particular, there was the “unusual” introduction of forward guidance in this month’s policy statement, said ANZ’s head of Asia research Khoon Goh, referring to how the MAS stated that “a neutral policy stance will be needed for an extended period to ensure medium-term price stability”.

“Basically, that’s a clear hint that the MAS does not mind further weakness in the Sing dollar,” Mr Goh said. “I think this is one of the few times they provided a form of forward guidance in noting that the neutral policy stance would provide flexibility for the Singapore dollar’s nominal effective exchange rate (S$ NEER) to accommodate near-term weakness in inflation and growth”.

Bank of Singapore’s senior currency strategist Sim Moh Siong described the MAS’ policy statement as a “dovish hold” which signalled a less-than-stellar economic outlook ahead.

“Even though they are on hold, they said that if things worsen from here, there is scope for easing. It is this concern in the statement that says the outlook remains lacklustre therefore there’s a risk that we could see easing at the next meeting,” Mr Sim explained.

Analysts say the odds of further easing at the next meeting have risen, with the MAS likely to opt for a re-centering of the policy band, instead of adopting for a negative slope which would signal “an explicit depreciation policy”.

But for a shift in the policy band to occur, an “adverse economic shock” would need to happen, analysts said.

The central bank is also expected to avoid an inter-meeting move, said Mr Sim, as it did last January when it surprised markets by adjusting the slope to allow the Sing dollar to appreciate at a “slightly” slower pace against its trading partners.

“Inter-meeting surprises are kind of one-off situations and as far as possible, I think they’d want to avoid that because it leaves much to interpretation and could cause market volatility.”

FURTHER WEAKNESS AHEAD

Moving ahead, analysts largely expect the Sing dollar to remain on a weakening trend, likely touching 1.40 against the US dollar by year-end. Apart from faltering growth at home, the possibility of an interest-rate hike in the United States will likely spur further strength in the greenback.

Dutch bank ABN Amro said in a note released on Friday: “Our estimates show that the S$ NEER is slightly below the centre of the policy band. The SGD is testing crucial resistance zone of around 1.3830-1.3890, which had supressed prices since March this year. We maintain our view that the SGD is likely to decline to around 1.40 against the US dollar later this year.”

However, Citi analysts have a differing opinion, noting that the weakness in the Sing dollar will be temporary as the “higher hurdle to re-centering” means it may be “premature to position in anticipation of additional easing down the road”.

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