Singapore market trends Tuesday: Trump escalates US trade war, Asia sees outflows

An aerial view of Singapore’s portAn aerial view of Singapore’s port

Singapore shares were facing another bad brew on Tuesday, with sentiment likely sour over fresh salvos in the U.S. trade war and as watching the World Cup is likely leaving traders feeling bleary.

Wall Street had another down day on Monday, with the Dow Jones Industrial Average dropping 0.41 percent and the S&P 500 falling 0.21 percent, while the Nasdaq ended with its nose barely in the green, up 0.01 percent. Futures for the three indexes were sharply lower early on Tuesday.

The Nikkei 225 index was down 0.48 percent at 8:27 A.M. SGT.

The Straits Times Index ended Monday down 0.97 percent at 3324.04, extending Thursday’s 1.05 percent drop. The market was closed Friday for a holiday. July futures for the index were at 3316 on Monday.

U.S. President Trump threatened late Monday, U.S. time, to slap a 10 percent tariff on another US$200 billion worth of imported goods from China, escalating his trade war. Trump said the move was in retaliation for China’s retaliation against his earlier tariffs.

“While there is still hope yet for de-escalating of trade tensions, financial markets are likely to be under pressure from such uncertainty which could worsen rapidly if both sides take further reciprocal actions,” UOB said in a note on Monday, before the news of the Trump administration’s escalation broke. “Meanwhile, equity markets will view this environment of uncertainty negatively, and the ‘risk off’ flows will bias towards safe haven assets including the U.S. dollar, Swiss franc, Japanese yen, and U.S. Treasurys.”

To be sure, previous Trump administration threats that the market considered too big to be anything but ridiculous have gotten mere shrugs from traders, but it’s unclear if that will apply this time around.

Singapore shares could also get caught up in an exodus of funds from emerging Asia. Bloomberg reported that emerging Asia has been hit by the biggest foreign fund outflow since 2008, during the Global Financial Crisis.

World Cup

There’s another wrinkle that may weigh on stocks: distractions from the World Cup.

“World Cup and stocks do not mix well in general,” DBS said in a note last week, pointing to data showing the STI fell by an average of 8.6 percent in the two months between end-April and end-June during the last six World Cups.

“STI’s decline in May this year is thus in line with our expectation that the two-month period from May-June should be net negative with subdued trading activity,” DBS said. But it noted that its end-2018 target for the STI is 3850, pointing toward upside.

Currencies

The dollar index, which measures the greenback against a basket of currencies, was at 94.66 at 8:17 A.M. SGT, after trading as high as 95.03 overnight. That compares with levels as low as 93.29 last week.

The 10-year U.S. Treasury yield was at 2.899 percent at 8:32 A.M. SGT, after trading as high as 2.93 percent overnight; bond prices move inversely to yields.

The euro remained depressed, fetching US$1.1628 at 8:29 A.M. SGT, after trading as high as US$1.1827 last week.

The Singapore dollar was also somewhat weaker, with the dollar/sing at 1.3519 at 8:31 A.M. SGT, compared with levels as low as 1.3328 last week.

“Asia FX continues to struggle and look to be extremely vulnerable as outflows continue to pick up momentum as investor angst over trade war, and policy divergence remains front and center as investors remain extremely cautious about re-engaging risk,” Stephen Innes, head of Asia Pacific trading at OANDA, said in a note on Tuesday.

Oil

Nymex WTI futures for July were down 0.35 percent at US$65.62 a barrel at 8:24 A.M. SGT, while ICE Brent futures for August were down 0.44 percent at US$75.01.

“With the OPEC meeting looming on Friday the headline procession marches on. Despite a likely veto from Iran to block the Vienna group production rises, most OPEC members are optimistic the group can agree on a production hike,” Innes said.