Singapore market trends Friday: Hopes for US-China trade talks boost sentiment

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Singapore shares may get a sentiment boost on Friday as markets appear to be dialing back some of their trade war jitters in favor of optimism of a negotiated resolution. Traders may also be reluctant to hold positions over the weekend amid erratic U.S. positioning on trade.

“Hopes that there may yet be a diplomatic solution to the U.S./Chinese trade dispute helped trigger a bounce for commodity and equity markets, and has given markets overall a risk-friendly feel,” Kit Juckes, global fixed income strategist at Societe Generale, said in a note on Thursday.

The Nikkei 225 index was up 1.4 percent in early trade.

The Dow Jones Industrial Average ended up 0.91 percent on Thursday, the S&P 500 rose 0.87 percent and the Nasdaq gained 1.39 percent. Futures for the three indexes were nose up in early trade on Thursday.

The Straits Times Index ended up 0.12 percent at 3253.01 on Thursday; July futures for the index were at 3242 on Thursday, while August futures were at 3210, according to data from SGX.

China’s Shanghai Composite ended Thursday up 2.16 percent at 2837.66, while Hong Kong’s Hang Seng Index was up 0.6 percent at 28,480.83.

Singapore GDP

Singapore’s gross domestic product rose 3.8 percent on-year in the second quarter, down from the first quarter’s 4.3 percent. That was below some analysts’ estimates.

Trade war

The U.S. and China were open to reopening talks over trade, Bloomberg reported early on Friday, although Treasury Secretary Steven Mnuchin said that was only “to the extent that China wants to make structural changes.”

U.S. President Trump also used the occasion of his first official visit to the U.K. to sharply criticize his host, Prime Minister Theresa May, in an interview with a British tabloid, saying that her Brexit plan could doom any potential trade deal with the U.S.

Analysts are pricing the trade war into their forecasts.

“The higher-than-forecast U.S. PPI print [Wednesday] of 3.4 percent year-on-year for June is indicative of how tariffs may already be disrupting factory gate prices and resulting in a re-pricing of supply chains that could cascade at the global level,” Societe Generale said in a note on Thursday.

Others were also pointing to the inflationary impact, particularly in the U.S.

“Largely targeting Chinese consumer products that are not easily replaceable, the new 10 percent tariff looks like a consumption tax. A wide range of goods are being targeted by the new tariffs, including clothing, furniture, electronic goods (but not mobile phones or tablets), household appliances and car parts,” Pictet Wealth Management Senior Asia Economist Dong Chen and Senior U.S. Economist Thomas Costerg said in a note on Thursday.

“From a macroeconomic standpoint, this means risks to our 2019 growth forecast of 2.3 percent for the U.S. are tilted to the downside and that risks to our 2019 core PCE inflation forecast, currently 2.4 percent, are tilted to the upside,” the Pictet note said.

It added that it previously forecast further trade-tension escalation could deduct 0.3 percent from U.S. GDP growth in 2019 and 0.5 percent in China.

Currencies

The dollar index, which measures the greenback against a basket of currencies, was at 94.89 at 8:00 A.M. SGT; That was up sharply from levels as low as 93.75 earlier in the week as risk-off sentiment has risen amid concerns the U.S. trade war is escalating.

The 10-year U.S. Treasury bond yield was at 2.856 percent at 8:09 A.M. SGT, after trading in a range of around 2.846 percent to 2.871 percent on Thursday; bond yields move inversely to prices.

“The big theme is dollar strength, against a broad swathe of currencies that are vulnerable to slower global growth, to trade wars and to the continued unwind of global monetary accommodation,” Juckes said. “Trade wars aren’t disinflationary, in the sense that they do put upward pressure on some prices (tariffs will be passed on in part, for sure). But they threaten growth, and they will help cap longer-term, inflation expectations and longer-dated Treasury yields,” Juckes said.

The dollar/yen was at 112.667 at 8:14 A.M. SGT, with the yen continuing to weaken after the pair traded as low as 111.88 overnight, according to DZHI data.

The euro/dollar was at 1.1664 at 8:15 A.M. SGT after trading in a 1.1648 to 1.1696 range overnight, according to DZHI data.

The dollar/yuan was at 6.6629 on Thursday after trading in a 6.6594 to 6.7020 range during the session, according to DZHI data.

The Singapore dollar wobbled in early trade after the GDP data, with the dollar/sing rising as high as 1.3641 from around 1.3628 before the data; the pair had traded in a 1.3600 to 1.3652 band on Thursday, according to DZHI data.

Oil

Nymex WTI crude oil futures for August were nearly flat at US$70.32 a barrel at 7:56 A.M. SGT, while ICE Brent crude futures for September were up 1.43 percent at US$74.45, according to Bloomberg data.

World Cup

Belgium and England will be playing on Saturday for the third place title.

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