Asian markets opened broadly higher following a strong US session as the trade talks held in Beijing ended with positive note, although little detail was revealed.

It is clear that huge divergence remains on key issues surrounding China’s ‘structural reform’ in its trade and economic practices as demanded by the US, but both sides are now more patient to allow a lengthened negotiation to be carried out with possibly an extension in tariff deadline.

The US dollar index fell for a third day to the 96.6 area, alleviating pressure on other G10 currencies like GBP, AUD and CAD. Concerns surrounding Trump’s declaration of emergency on border and a divided White House on Mexican wall dispute contained the rally in dollar, fuelling the rally in commodities. Gold and Brentoil have both broken out above their key resistance level at US$1,320 and US$63.0 respectively.

Technically, gold has resumed its ascending trend with both 10-Day SMA and SuperTrend (10,2) sloped upwards and MACD about to form a positive crossover. Immediate resistance level can be found at around US$1,340 and US$1,350 respectively. Brent crude oil has broken out above US$63.0 and is about to challenge the next resistance at US$68.1. Momentum indicator MACD is trending upwards, alongside with SuperTrend (10,2).

Fundamentally, a dovish shift in Fed and other central banks is the key driver of ‘hard assets’ like commodities, as a pause in interest rate hike made them less unattractive comparing to cash and cash equivalents. Accommodative monetary environment has made commodities more valuable as their value can’t be diluted away via easing measures.

Singapore’s largest lender, DBS, announced a largely in-line-with-expectation 4Q results this morning. Its share price climbed 1.7% following the earnings. Net profit rose 8% YoY and ROE improved to 12.1%, buoyed by higher Net Interest Margin (NIM) and moderate loan growth of 6%. Higher interest income helped to underpin a 4% decline in Non-interest income, which was attributed to weakness in investment banking, wealth management and brokerage fees.

Looking forward, despite strong financial footprint in 2018, the bank’s future earnings growth is shadowed by slower loan growth, provision normalisation, and moderate NIM improvement as Fed’s dovish move has contained the upside of interest rates. The company’s chairman has also highlighted a synchronised economic slowdown globally, and uncertain geopolitical situation surrounding the trades and Brexit.

The bank is now traded at 11x trailing P/E and 5% dividend yield.

DBS

 

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