Singapore’s shares may start the week on the back foot, with the U.S. pushing the gas on its trade war with China.
“Global trade developments are poised to remain a dominant market theme over the coming trading week,” Lukman Otunuga, research analyst at FXTM, said in a note on Friday. “Emerging markets are likely to be closely monitored, especially after an appreciating dollar encouraged further weakness for most major emerging market currencies.”
He said the trading week could be “eventful,” with Singapore inflation, industrial production and PPI data in focus. “Markets will be observing whether the recent weakness in the Singapore dollar has had any impact on inflation,” he said.
U.S. President Trump appeared set to further escalate his trade war with China, with plans to prevent many Chinese companies from investing in U.S. technology companies and by blocking some technology exports to the mainland, the Wall Street Journal reported late Sunday U.S. time, citing people familiar with the matter.
Escalating trade war
Stephen Innes, head of Asia Pacific trading at OANDA, noted that investors pulled a record US$8.1 billion from global equities, mostly emerging markets equities, over the past week as the U.S. ticked trade tensions higher.
“These are pretty damning numbers suggesting investors are voting with their feet and will take a lot convincing to get that money out of money market funds, which are the preferred parking spot for retail to wait this trade war mess out,” he said in a note on Monday. “But with the U.S. administration in some form of a trade dispute with everyone, this could undoubtedly drag on for some time to come.”
He added: “Traders do appear to be better sellers in early markets.”
The Dow Jones Industrial Average ended Friday up 0.49 percent and the S&P 500 added 0.19 percent, while the Nasdaq shed 0.26 percent. Futures for the three indexes were lower in early trade.
The Straits Times Index ended Friday down 0.38 percent at 3287.40; July futures for the index were at 3280 on Friday, while August futures were at 3248.
The Nikkei 225 index opened in the red, down 0.3 percent in early trade.
China’s move over the weekend to lower some banks’ reserve requirement ratios (RRR), should release around US$108 billion in liquidity, to the mainland’s financial system, in a move analysts said may be aimed, in part, at helping to counter any economic damage from the U.S. trade war.
“This monetary adjustment should not be interpreted as a policy shift designed to weaken the yuan and further escalate trade tensions, but rather a case of policy fine-tuning intended to calm investors nerves which are fraying due to escalation trade tensions,” Innes said.
The dollar index was at 94.53 at 7:54 A.M. SGT, fairly steady with Friday’s levels, but down from last week’s peaks around 95.50.
The 10-year U.S. Treasury yield was at 2.888 percent at 8:06 A.M. SGT, after touching levels above 2.92 percent on Friday and peaks around 2.95 percent last week.
The euro was fetching US$1.1659 at 8:07 A.M. SGT, relatively steady with Friday’s levels.
The Singapore dollar was fairly steady with Friday’s levels, but analysts were expecting it to weaken further ahead.
The dollar/sing was at 1.3595 at 8:10 A.M. SGT, after trading as low as 1.3302 earlier this month.
“If China-U.S. trade relations worsen, Asia economies that are highly geared towards exports (including Singapore) would likely suffer collateral damage given trade and supply chain linkages. With general U.S. dollar/Asia heading higher on the back of trade tensions and higher U.S. dollar rates, upward pressures on the dollar/sing is apparent,” DBS said in a note last week.
DBS downgraded its outlook for the Singapore dollar, raising its end-2018 target for the dollar/sing to 1.40 from 1.38.
Turkey appeared to have re-elected President Recep Tayyip Erdogan with 52 percent of the vote, in a development that may rattle markets.
“If the lira does hit the floor once again in the aftermath of the election, it is possible that risk appetite will be threatened, meaning that the emerging markets are in danger of being exposed to further weakness depending on how the market reacts to the outcome,” Jameel Ahmad, global head of currency strategy and market research at FXTM, said in a note last week, before the election.
He noted investors have been concerned incumbent President Recep Tayyip Erdogan will heavily influence his country’s interest rate policy if he wins, as he is expected to. Erdogan favors lower interest rates to encourage investment in the country, but that would weigh on the currency further and likely push up already high inflation, he noted.
However, the lira appeared to have regained some of its recent lost ground in early trade. The dollar was fetching 4.6101 lira at 8:25 A.M. SGT, compared with as much as 4.7456 lira on Friday, but that’s still a far cry from the around 3.77 lira levels at the start of the year.
Nymex WTI crude oil futures for August were up 0.20 percent at US$68.72 a barrel at 7:48 A.M. SGT, while ICE Brent crude futures for August were down 1.68 percent at US$74.28, according to Bloomberg data.
Oil may see an upward draft after OPEC and its partners agreed over the weekend to push for full compliance with previous oil-output cut deals, rather than actually increasing supply. Some nations had “over-complied” with the cuts and were producing less than agreed.
The Saudi energy minister, Khalid al-Falih, said this would result in a production rise of around a million barrels a day, but others disputed this, with Iran’s OPEC governor, Hossein Kazempour Ardebili, telling Reuters that would result in around 500,000 barrels a day at most, according to a Reuters report.
The move by OPEC could be seen as the organization thumbing its nose at U.S. President Trump, who had demanded a supply increase, but which the group appears to have largely rejected.
In the World Cup on Friday, favorite Brazil was nearly held to a 0-0 tie with Costa Rica, before managing to score two goals in the waning minutes of the game.
Nigeria topped first-time World Cup team Iceland 2-0 on Friday, while Switzerland beat Serbia 2-1.
On Saturday, Belgium won against Tunisia 5-2 and dark horse Mexico beat South Korea 2-1. Favorite Germany eked out a 2-1 victory over Sweden, while often-derided England surprised with a crushing 6-1 victory over Panama.
On Sunday, Japan tied Senegal 2-2, while Colombia dominated Poland 3-0.
Later on Monday, Saudi Arabia will face off with Egypt and Uruguay and Russia go head-to-head. Lesser favorite, but still a favorite, Portugal will go up against Iran, while another lesser favorite, Spain, will play Morocco.