Singapore market trends Wednesday: US launches another trade war salvo

Singapore port and Sentosa islandSingapore port and Sentosa island

Singapore shares will face fresh trade war headwinds at the open on Wednesday, with the Trump administration overnight announcing a list of US$200 billion of Chinese goods to target with tariffs.

Singapore stocks to watch Wednesday: City Developments, ST Engineering, SGX, SPH REIT

“A list is a list and not an actual tariff, so lots to be ironed on this one. But regardless, it will put the  markets back on the defensive for the time being,” Stephen Innes, head of Asia Pacific trading at OANDA, said in a note on Wednesday.

Singapore state-owned investment company Temasek on Tuesday also said it believed the risk of a U.S. recession was rising.

Japan’s Nikkei 225 index was trading 0.94 percent lower in early trade on Wednesday.

The Dow Jones Industrial Average ended Tuesday up 0.58 percent, the S&P 500 rose 0.35 percent and the Nasdaq edged up 0.04 percent; the indexes came off their highs late in the session after the U.S. announced its list of potential tariffs. Futures for the three indexes have tumbled early Wednesday.

The Straits Times Index ended Tuesday up 1.43 percent at 3274.83; July futures for the index were at 3262 on Tuesday, while August futures were at 3230.

The Shanghai Composite ended Tuesday up 0.44 percent, while Hong Kong’s Hang Seng Index had slipped 0.02 percent.

Trade War

U.S. President Trump took his trade war up a notch late on Tuesday U.S. time, identifying a list of US$200 billion in Chinese products to impose tariffs on in retaliation for China’s retaliation against his initial round of tariffs on US$34 million in Chinese products. The fresh round of tariffs won’t be imposed until after a public comment period.

The Trump administration’s trade war has scored another own-goal, with automaker BMW planning to make more of its SUVs in China to avoid the new retaliatory tariffs China has imposed on its U.S.-made cars, according to a Post and Courier report. BMW employs 10,000 people in South Carolina and it is the largest U.S. auto exporter, the report said.

It sounds unlikely that production will be moved back to South Carolina even if the tariffs are removed; BMW said on Monday that it expanded its joint venture with Brilliance Automotive in China to increase production. BMW said it delivered around 560,000 BMW brand vehicles to customers in China last year, more than the next two largest markets, the U.S. and Germany, combined.

Currencies

The dollar index, which measures the buck against a basket of currencies, rose overnight, touching levels as high as 94.47, based on ICE futures; it was at 94.21 at 8:00 A.M. SGT on Wednesday. That was up from levels as low as 93.75 earlier in the week..

The 10-year U.S. Treasury bond yield was at 2.841 percent at 8:13 A.M. SGT after taking a leg down in late U.S. trade Tuesday after touching levels as high as 2.875 percent earlier in Tuesday’s session. Bond yields move inversely to prices and the yield decline implies a risk-off move in markets.

The dollar/yen was at 110.91 at 8:16 A.M. SGT; that was after spiking as high as 111.354 overnight, according to DZHI data.

The euro/dollar was at 1.1731 at 8:17 A.M. SGT, off highs of 1.1791 touched earlier in the week, but still rising from Tuesday’s low of 1.1689, according to DZHI data.

The dollar/yuan was at 6.6295 on Tuesday after trading in a 6.5979 to 6.6350 range on Monday; the pair had spiked as high as 6.7167 last week, according to DZHI data.

The Singapore dollar steadied, with the dollar/sing at 1.3585 at 8:20 A.M. SGT after trading in a 1.3525 to 1.3586 range on Tuesday, according to DZHI data.

Oil

Nymex WTI crude oil futures for August were down 0.15 percent at US$74.00 a barrel at 7:51 A.M. SGT, while ICE Brent crude futures for September were up 1.01 percent at US$78.86 at 5:59 A.M. SGT, according to Bloomberg data.

“Without question, supply risk continues to dominate trader psyche and after the API reported another massive draw traders are now positioning for another sizable drop in today’s EIA weekly report,” OANDA’s Innes said.

He also pointed to further production outages, with worker strikes in Norway and Gabon. That’s amid existing disruptions in supply from Libya, Canada, Venezuela and Iran.

“At the end of the day, supply concerns and more disruptions continue to skew bullish for oil prices,” Innes said.

In a move that might ease some supply concerns, Reuters reported on Tuesday that U.S. Secretary of State Mike Pompeo said the U.S. would consider some requests for exemption from sanctions to be imposed in November on Iranian oil exports. To be sure, given the chaos in the Trump White House, it is unclear whether the administration would follow through with the decision.

World Cup

France beat Belgium 1-0 in the semi-finals, setting itself up to play either Croatia or England in the Final. Croatia and England will be playing in the wee hours, Singapore time. Expect bleary-eyed traders.

Clarificiation: This article has been updated to refer to Temasek as a state-owned investment company.

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