There was no easing back into trade after the long holiday weekend, with Singapore’s Straits Times Index taking a tumble on Monday, hit by a toxic brew of fears the U.S. trade war will escalate further and tighter monetary policy across developed markets.
The STI was down 1.54 percent at 3304.89 at 11:22 A.M. SGT, extending Thursday’s 1.05 percent decline. The market was closed on Friday for a public holiday.
Markets in Hong Kong and China were closed on Monday for the Dragon Boat Festival.
On Friday, the Dow Jones Industrial Average shed 0.34 percent, the S&P 500 edged down 0.10 percent and the Nasdaq fell 0.19 percent. Futures for the three indexes were sharply lower early Monday.
Traders may be focused on the escalating trade war launched by the U.S., with China retaliating over the weekend by imposing tariffs on a list of U.S. goods targeted regions which voted for U.S. President Trump. China also reportedly scrapped its deals with the U.S. to buy more U.S. goods to narrow the mainland’s trade surplus.
“While economists appear to widely concur that the slapping of these tariffs would hardly add a scratch to the growth of both economic powers, equity markets may not be left unscathed should escalation come through,” Jingyi Pan, market strategist at IG, said in a note on Monday.
It’s a situation that can easily hurt Southeast Asian economies, which are key to global supply chains and which often send intermediate goods to China for assembly before they are sent on to their final destinations, which include the U.S.
“The immediate risk to the outlook stems from increased escalation beyond the initial round of tariffs and China’s subsequent retaliation,” Nomura said in a note dated Sunday, pointing to Trump’s threat to retaliate if China retaliates.
“With Beijing braced for a tit-for-tat strategy, the risk of an escalating trade conflict is rising, adding significant uncertainty to global trade while dampening investment incentives in affected countries, especially China,” Nomura said.
That’s all aside from the mini-earthquake that may have kept traders awake late on Sunday: Germany lost its opening match of the World Cup to Mexico. The resulting jubilation in Mexico may have caused an “artificial” earthquake. It could prove a distraction for traders who might need to readjust all of their World Cup expectations, which had heavily favored Germany to emerge as the victor for a second straight time.
And locally, Singaporeans may find their faith shaken in “Andy’s Dad,” from a much-mocked anti-gambling ad during the last World Cup.
The U.S. dollar index, which measures the greenback against a basket of currencies, was at 94.86 at 11:32 A.M. SGT, climbing sharply from around 93.30 on Thursday.
“Although many people feared that a trade war would exacerbate the dollar’s troubles and reduce demand for the greenback, it instead sent the dollar soaring as investors interpret Trump’s aggressive trade actions as short-term trouble for countries he’s singling out,” Kathy Lien, managing director of FX Strategy at BK Asset Management, said in a note on Monday.
The 10-year U.S. Treasury yield was at 2.91 percent at 11:43 A.M. SGT, dropping from around 2.94 percent on Friday, suggesting a risk-off move into the bonds. Bond yields move inversely to prices.
The euro was fetching US$1.1591 at around 11:45 A.M. SGT, dropping from levels over 1.16 on Friday.
The Singapore dollar also lost ground, with the dollar/sing pair at 1.3513 at 11:46 A.M., compared with around 1.3364 on Friday.
Nymex WTI crude oil futures for July were down 1.88 percent at US$63.84 a barrel at 11:40 A.M. SGT, while ICE Brent Crude futures for August were off 0.86 percent at US$72.81, according to Bloomberg data.
“Russia and Saudi Arabia all but confirmed a production increase and sentiment shifted from doubting OPEC will reach a consensus to apprehension that both Russia and Saudi Arabia could push through their choice for more supply regardless,” Stephen Innes, head of Asia Pacific trading at OANDA, said in a note on Monday.