Singapore pre-market Monday: US trade war fears may not dampen sentiment

Singapore five-dollar note Photo by Leslie Shaffer

Singapore shares may waver in early Monday trade amid a geopolitical concerns over the Trump administration’s stepped-up trade war, Italian politics simmering in the background and distractions from school holidays.

“Asia markets’ direction is very much undetermined and remains jaded by trade tensions, but in general, volumes have remained very light and could even dry up further with summer upon us and a busy World Cup schedule that should keep both local traders and investors glued to their television day and night,” Stephen Innes, head of Asia Pacific trading at OANDA, said in a note on Monday.

The Dow Jones Industrial Average ended up 0.90 percent on Friday, the S&P 500 gained 1.08 percent and the Nasdaq tacked on 1.51 percent. But futures for the three indexes had turned nose down early Monday.

STI futures were at 3431, according to Bloomberg data, just a tad higher than Friday’s close at 3427.51.

But the signal from Japan was positive, with the Nikkei 225 index up 0.86 percent at 8:02 A.M. SGT.

Others noted that geopolitical fears may not derail markets’ Goldilocks period.

“Volatility in share markets is likely to remain high as U.S. inflation and interest rates move up and as issues around President Trump (trade, Mueller inquiry, etc) continue to impact, but the medium-term trend in share markets is likely to remain up as global recession is unlikely and earnings growth remains strong globally,” Shane Oliver, head of investment strategy and chief economist at AMP Capital, said in a note over the weekend.

Exporters in focus

Market jitters over the Trump administration’s stepped up trade war are likely to persist, with trade-dependent stocks, such as contract manufacturers and techs, likely in focus.

The G-7 summit meeting of finance ministers, which ended Saturday, reportedly was unusually rancorous, with U.S. allies criticizing the Trump administration for its pursuit of a trade war, which has, in part, targeted allies. The other six G-7 countries have all been targeted with U.S. tariffs on imports of steel and aluminum, while Canada and Mexico have already launched retaliatory tariffs and the EU was set to follow shortly.

China’s trade talks with the U.S. over the weekend ended with the Beijing issuing a statement saying that any agreements with the Trump administration would be voided if the U.S. implements tariffs and other trade restrictions. It’s a statement that followed a high-profile and unusually harsh comment from Canadian Prime Minister Justin Trudeau calling the Trump administration’s trade policies “insulting and unacceptable.”

Watch the rates

Expectations that the U.S. Federal Reserve would likely hike interest rates a total of four times this year got another fillip after strong economic data. That may put interest-rate sensitive shares, such as property developers, REITs and banks, in focus.

U.S. nonfarm payrolls data released on Friday came in better than expected, showing a rise of 223,000 jobs last month on construction-related hiring and in retail and hospitality sector hiring. The unemployment rate dropped to 3.8 percent, the lowest since the Clinton administration and well below full employment, which also helped to push up wages.

Twitter users watching U.S. President Trump’s account, however, got an inside line on the data. In a move that may have violated federal directives, Trump, who gets to see the statement well ahead of his release, sent a Twitter message saying he was looking forward to the data.  That lack of behavioral control gave some traders an inside edge and sent markets moving well before the actual release.

The dollar index, which measures the greenback against a basket of currencies, remained firm, trading at 94.16 at 8:01 A.M. SGT, in line with levels late Friday. But that was still below levels just a tad under 95 touched early last week, when the dollar index had spiked on fears of Italian political turmoil boiling over. Those concerns have since receded as Italy managed to form a government.

The euro was higher against the dollar, fetching US$1.1675 at 8:26 A.M. SGT, after slipping as low as US$1.1517 last week amid the Italian turmoil.

Oil prices

Nymex WTI crude oil futures for July were down 0.20 percent at US$65.68 a barrel at 7:44 A.M. SGT on Monday, well off highs around US$72.90 touched in May, while ICE Brent crude futures were off by US$76.56, off its May high of US$80.50, according to Bloomberg data.

Traders have been eyeing whether supply might be ramped up in the wake of disruptions in Venezuela and Iran due to fresh U.S. sanctions.

“The bulls are starting to wave the white flag as this high-level of uncertainty around supplies going into the June 22 Vienna OPEC  summit has kept the oil complex trading defensively,” Innes said. “All discussion is centering on if Saudi Arabia and other OPEC members will turn the supply taps up. The market is nervous and thinking OPEC response will be to add more barrels which could intensify the short-term cycle of speculative long liquidation.”

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