Singapore’s shares will start trade on Thursday with positive signals from Wall Street and regional markets, but Singtel shares will be closely watched and geopolitical clouds are still gathering on the horizon.
Regional markets offered a positive signal, with Japan’s Nikkei 225 index up 0.41 percent at 8:11 A.M. SGT.
The Dow Jones Industrial Average ended up 0.25 percent on Wednesday, the S&P 500 index rose 0.41 percent and the Nasdaq gained 0.63 percent. Futures for the three indexes were nose up.
That was despite the 10-year Treasury yield touching a fresh high from 2011 during the overnight session; at 8:23 A.M. SGT on Thursday, the yield was at 3.09 percent. The dollar index, which measures the greenback against a basket of currencies, also climbed overnight to as high as 93.63; that’s up from levels as low as around 92.26 at the start of the week. At 8:21 A.M.. SGT, it was at 93.29.
“There are warning signs out there on the horizon,” Chris Rupkey, chief financial economist at MUFG, said in a note on Wednesday. “The dollar’s rally could throw a monkey wrench into the Trump administration plans to build it in America. You can’t build it in America unless you can ship it out in exports to America’s trading partners, and the dollar’s rally is making American products more expensive for its overseas customers.”
But Wall Street got a fillip from positive U.S. economic data which showed industrial production rose in April as manufacturing and mining grew, although housing starts data disappointed.
“The Trump economics team sees greater investment spending as one of the goals of those massive tax cuts, but it looks like residential housing construction is not going to be leading the way when it comes to new investment dollars that help make the economy grow,” Rupkey said in a separate note on Wednesday. He pointed to concerns over rising interest rates.
“Home buyers have more cash in their pockets from the tax cuts this year, but it will be all for naught if the costs of purchasing a new home continues higher,” he said.
Some analysts were more sanguine on the potential impact of higher rates, at least on Asia.
“Ultimately, this bodes well for risk assets such as equities and corporate credit, although in the near term market sentiment will remain jittery,” Tai Hui, chief market strategist for Asia Pacific at J.P. Morgan Asset Management, said in an email on Wednesday. “Demand from recent Treasury auctions has been robust, mirroring the strong inflows seen by institutional investors and the need to deploy cash. This should help to moderate the surge in yields.”
Concerns over Malaysia’s economy may rise. The new government fulfilled its campaign pledge to cut the goods and services tax (GST) to zero, while also taking moves implying fuel subsidies will be revived.
“These decisions are, on the surface, more negative for Malaysia’s creditworthiness than we initially thought. They imply significant risks to our forecast of the government reducing its fiscal deficit,” Nomura said in a note on Wednesday. “As a result, we see the risk of a sovereign
credit rating downgrade rising significantly.”
Trade jitters will likely continue to buffet the market as U.S. President Trump took to a series of bizarre Twitter posts on Wednesday U.S. time to explain his decision over the weekend to offer what appears to be a major concession to China ahead of talks between the two countries by saying he would help ZTE “get back into business, fast,” by instructing the Commerce Department to “get it done.” Last month, the U.S. had banned ZTE from doing business with U.S. companies for seven years as a penalty for illegal shipments to Iran and North Korea.
On Wednesday, Trump appeared to claim his ZTE move was related to upcoming trade talks with China, tweeting “nothing has happened with ZTE except as it pertains to the larger trade deal,” but then added that “we have not seen China’s demands yet” and “the U.S. has very little to give.” It’s an odd negotiation that makes both a claim of “poverty” and a major concession before knowing if it’s even on the table.
More than the usual Trump White House chaos may be in play. Speculation has been rife that the ZTE reversal may be related to the Trump Organization reportedly receiving as much as US$1 billion in financing from Chinese state-owned companies.
North Korea also stepped up the geopolitical stakes, and its rhetoric, suggesting that U.S. President Trump’s attempt to pin his bid for a Nobel Peace Prize on his talks with the pariah nation’s leader may come unglued. North Korea initially threatened to walk away from the planned talks in protest of scaled back U.S.-South Korea military drills, which were underway.
Later on Wednesday, North Korea reportedly stepped up the rhetoric by questioning receiving compensation only after it “denuclearized,” adding that it felt “repugnance” over national security adviser John Bolton, who has said he wanted a “Libya model” for the rogue nation. In 2004, Libya gave up its nuclear program in exchange for sanction relief and then-leader Moammar Gaddafi was subsequently overthrown and killed.
To be sure, in the past, North Korea has frequently threatened to and sometimes actually walked away from talks and analysts generally aren’t surprised at the country’s about face this time.