Singapore shares face another tough audience on Wednesday as the U.S. trade war weighs on sentiment across trade-dependent Asia even as the World Cup is distracting attention.
Some analysts were extremely negative on the potential market impact of the U.S. trade war.
“Investors’ complacency has given way to sheer terror as there can be very little doubt that the U.S. and China have locked horns in a legitimate trade war as battle lines get drawn, and investors hunker down with safe havens preparing to ride this one out,” Stephen Innes, head of Asia Pacific trading at OANDA, said in a note on Wednesday.
The Dow Jones Industrial Average ended Tuesday down 1.15 percent, the S&P 500 shed 0.40 percent and the Nasdaq was down 0.28 percent. Futures for the DJIA and Nasdaq were a tad positive early on Wednesday, while S&P 500 futures were flat.
Japan’s Nikkei 225 index opened a tad in the green, up around 0.06 percent, after falling 1.77 percent on Tuesday.
The Straits Times Index ended Tuesday down 0.68 percent at 3301.35. The STI July futures contract was at 3294 on Tuesday, according to SGX data.
Traders in the city-state may have a second-day reaction to the tumble in Chinese shares on Tuesday. The Shanghai Composite lost 3.78 percent on Tuesday, while Hong Kong’s Hang Seng Index fell 2.78 percent.
The U.S. trade war is set to remain a key focus as the Trump White House showed no sign of backing away from its belligerent stance, while China was unlikely to allow itself to appear to lose face by caving to such an aggressive approach.
Kit Juckes, global head of foreign-exchange strategy at Societe Generale, said in a note on Tuesday that U.S. President Trump’s latest salvo of imposing tariffs on an additional US$200 billion of Chinese imports would have a more direct impact on U.S. consumers than anyone else.
“Away from the political implications, these tariffs will deliver higher prices to the U.S. and weaker growth to China,” Juckes said.
He noted it wasn’t certain how Chinese policymakers would respond as expectations for easier monetary policy and a weaker currency might take a backseat to China’s preference for foreign-exchange stability.
“Either way, it’s a drag on growth on both sides of the Pacific. It decreases President Trump’s chances of making it to the next election before the U.S. economy suffers a meaningful slowdown,” he said.
There’s one product where U.S. consumers may not feel the pocketbook pinch from their president’s trade war: the iPhone. The New York Times reported on Monday, citing a person familiar with the talks, that the Trump administration told Apple CEO Tim Cook that it wouldn’t place tariffs on iPhones, which are assembled in China. However, Apple remained concerned that China would retaliate against its business there, the report said, citing three people close to Apple, but who weren’t authorized to speak publicly.
This may be another round of Trump White House chaos, with the right and left hands failing to speak, however, with White House trade adviser Peter Navarro telling media he was unaware of the iPhone exemption.
Safe-haven flows appeared to be pushing up the dollar, while weighing on U.S. Treasury yields.
The dollar index, which measures the greenback against a basket of currencies, was at 95.01 at 6:05 A.M. SGT, after trading as high as 95.26 overnight. But that was a gain from the day’s low of 94.30.
The 10-year U.S. Treasury yield fell to 2.895 percent by 7:56 A.M. SGT, after trading as high as 2.93 percent earlier in the week, but it had traded as low as 2.857 percent overnight. Bond prices move inversely to yields.
Analysts noted the flow of funds into Treasurys could short-circuit expectations of higher interest rates.
“Should investors’ and U.S. business confidence be dented by the ‘noise’ surrounding U.S. trade policy, the 10-year T-bond’s safe-haven status could reduce the risk of higher yields, even if U.S. core Personal Consumption Expenditure (PCE) inflation rises above the Fed’s 2 percent target,” Pictet Wealth Management said in a note on Tuesday.
The safe-haven yen was slightly weaker early on Wednesday; the dollar/yen was at 110.08, after touching levels as low as 109.56 overnight. The pair had touched levels as high as 110.58 earlier in the week.
The euro was fetching US$1.1587 at 8:02 A.M. SGT, after trading as high as US$1.1644 overnight.
In addition to dollar strength, OANDA’s Innes said that the common currency faced pressure from ECB chief Mario Draghi confirming the central bank’s dovishness.
On Wednesday, Draghi reportedly said the ECB would be “patient” and “gradual” with interest rate increases.
The Singapore dollar was weaker, with the dollar/sing at 1.3562 at 8:04 A.M. SGT, but that was off the pair’s high of 1.3599 touched on Tuesday.
“With the driving force behind the Singapore dollar’s sell-off based on external factors, further downside could be witnessed this week if the greenback continues to strengthen and trade war fears intensify,” Lukman Otunuga, research analyst at FXTM, said in a note dated on Tuesday.
Nymex WTI crude oil futures for July were up 0.31 percent at US$65.27 a barrel at 7:48 A.M. SGT, while ICE Brent futures for August were down 0.35 percent at US$75.08 at 5:59 A.M. SGT, according to Bloomberg data. Those levels were well off recent highs, with WTI futures touching levels about US$72 in May, while Brent had edged close to US$80 last month.
“Concerns that OPEC and its non-member allies will increase production for the first time since late 2016 is a major contributor behind the sharp selling of oil in recent weeks,” Jameel Ahmad, global head of currency strategy and market research at FXTM, said in a note on Tuesday.
“The recent price action in the oil markets suggests that investors are confident that OPEC will announce an increase in production output, but I do not expect that it will be to the degree that articulates WTI falling $10 in less than a month. The commodity is at risk to being oversold as the OPEC get-together commences and could be in line for a rebound,” Ahmad added.
Goldman Sachs also predicted a rebound in oil prices this year.
Traders in Asia are likely burning the midnight oil watching the World Cup, especially after widely tipped favorite Germany’s loss to Mexico on Sunday likely shook out all their predictions.
Favorite Brazil’s tie with Switzerland on Sunday, the often-derided England team’s victory over Tunisia on Monday and Japan’s win over Colombia on Tuesday may also lead to changes in projections ahead.
Matches on Wednesday featuring lesser tipped but generally respected favorites Portugal and Spain may take on greater significance — and spur more sleepless nights from Asia’s market players.