Singapore pre-market Friday: Sentiment faces hit from canceled North Korea summit

A Singapore 10-dollar note Photo by Leslie Shaffer

Singapore shares may struggle for direction on Friday, with sentiment taking a hit after the White House instigated a fresh round of geopolitical tensions, with U.S. President Trump canceling his summit with North Korea after shaking up global markets with threats to impose high tariffs on auto imports.

Singapore stocks to watch Friday: Hyflux, ESR REIT, Mapletree Logistics, Yoma, Frasers Property

The Dow Jones Industrial Average fell 0.30 percent on Thursday, the S&P 500 shed 0.20 percent and the Nasdaq edged down just 0.02 percent. Futures for the three indexes were edging up a tad early Friday Singapore time.

The Nikkei 225 opened essentially flat, dwon 1.58 points at 8:21 A.M. SGT.

Singapore STI futures were up 0.92 percent at 3528 on Thursday, according to Bloomberg data, but that was essentially flat with Thursday’s close at 3528.92.

“The overall sell-off was a low keyed affair, but should not be interpreted as diminishing the fragility of the current state of geopolitical risk,” Stephen Innes, head of Asia Pacific trading at OANDA, said in a note on Friday. “The market has traveled a path well-worn on Korean peninsula risk.”

But he noted that Asia Pacific markets, particularly Japan, have a higher sensitivity to the issue.

North Korea

Sentiment has taken a hit after U.S. President Trump announced in a strangely worded open letter on Thursday that he would cancel a summit with North Korean leader Kim Jong Un, which had been set for June. Trump claimed he was canceling the meeting due to North Korea’s “tremendous anger and open hostility,” although he didn’t say what that referred to.

North Korea has recently warned it might walk away from the talks, a rhetorical tactic in line with its behavior historically, as the country complained about military drills being held by the U.S. and South Korea. In response to the complaint, Trump had conceded to watering down the drills. North Korea had also been upset about the Trump administration’s stated preference for a “Libya model” of abandoning its nuclear program.

While Trump canceled the summit, his letter said that if Kim changed his mind about holding it that he should “not hesitate to call me or write,” while North Korea reportedly responded that it was willing to talk “at any time.”

Auto tariff threats

Global trade tensions were also back on the table after U.S. President Trump on Wednesday U.S. time ordered an investigation of whether auto imports were hurting the U.S. auto industry in a move that could see tariffs of  up to 25 percent imposed on national security grounds. It was a move that was met with harsh criticism from the industry, governments and from within the president’s own party as it was likely to drive a spike in inflation, tangled global supply chains, job losses and demand destruction.

The Nikkei Asian Review reported, citing data from the Center for Automotive Research, that imports made up 44 percent of the cars sold in the U.S.

Analysts were critical.

“This is the behaviour of a volatile personality-led emerging market, not a first world nation let alone a superpower,” Scotiabank said in a note on Thursday.

“With U.S. auto exports at an all-time record high, it remains hard to argue that the U.S. auto industry is unable to compete and so the natural inclination is just to view this as an attempt to gain market share – and, more importantly, to appeal to the people in parts of the country who put him in office,” Scotiabank said.

“One has to very fundamentally doubt the stability of the U.S. as a partner in global commerce and the value of its signatures on international agreements ranging from the WTO to NAFTA to the Paris accord and the TPP among others,” it said.

Oil prices retraced a bit of their recent rally. Reuters reported, citing OPEC and oil industry sources, that OPEC may increase output to counter a drop off in supply from Iran and Venezuela following new U.S. sanctions. U.S. weekly stockpile data, released by the U.S. Energy Information Administration on Wednesday U.S. time, had shown a surprise increase of 5.8 million barrels from the previous week; Reuters said a decline was expected.

Nymex WTI crude oil futures for July were down 0.04 percent at US$70.68 a barrel at 8:12 A.M. SGT on Friday, while ICE Brent crude futures for July were off 0.06 percent at US$78.74 at 8:11 A.M. SGT, according to Bloomberg data.