Singapore shares may stumble on Tuesday, but reaction to the U.S.’s latest escalation of its trade war with China could be muted as the imposition of fresh tariffs was broadly expected.
“Trade war worries are talking their tool on global equities with even the Teflon U.S. markets showing some fraying at the edges,” Stephen Innes, head of Asia Pacific trading at OANDA, said in a note on Tuesday.
“Ultimately, equity markets remain in wait-and-see as a big unknown remains China’s response, which will set the tone for risk sentiment. After all, much of this U.S. tariff headline was well telegraphed,” he added. “We know China can’t go tit-for-tat as they don’t have enough U.S. goods to tax. So, if there is a more heavy-handed approach, such as flat-out import restriction or overtly weakening the yuan, it could certainly bring the big market bears out of hibernation.”
U.S. President Trump escalated his trade war on China on Monday U.S. time, with plans to impose 10 percent tariffs on US$200 billion worth of imports from China and warned that if China retaliates, he will impose further tariffs on another US$267 billion in imports, effectively all of China’s goods exports to the U.S.
The tariffs will start on 24 September and will rise to 25 percent by the end of the year, Reuters reported, citing a senior administration official.
The Washington Post reported that Trump’s blustering likely means that China must also take a hard-line stance to save face. China has previously threatened to retaliate and has already retaliated for previously imposed tariffs.
Tariffs have put the U.S. in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country – and yet cost increases have thus far been almost unnoticeable. If countries will not make fair deals with us, they will be “Tariffed!”
— Donald J. Trump (@realDonaldTrump) September 17, 2018
The Straits Times index ended Monday up down 0.63 percent at 3141.40; September futures for the index were at 3141 on Monday, while October futures were at 3145.
Hong Kong’s Hang Seng Index fell 1.30 percent to end at 26,932.85 on Monday, while China’s CSI 300 fell 1.15 percent to 3204.92.
The Dow Jones Industrial Average ended down 0.32 percent at 26,062.12 on Monday, the Nasdaq Composite shed 1.47 percent to 7895.792 and the S&P 500 lost 0.56 percent to 2888.80.
The U.S. dollar index was at 94.59 at 8:01 A.M. SGT after touching levels as high as 94.98 in early Monday trade, according to ICE futures index data.
The 10-year U.S. Treasury note yield was at 2.982 percent at 8:14 A.M. SGT after touching levels as high as 3.015 percent on Monday, according to Tullett Prebon data.
“Softer U.S. data may finally be catching up to the greenback but the primary reason for the dollar’s slide was the improvement in risk appetite,” Kathy Lien, managing director of foreign-exchange strategy at BK Asset Management, said in a note late Monday U.S. time, before the Trump administration’s announcement.
She pointed to reports that tariffs would “only” be 10 percent, instead of the threatened 25 percent as easing some investors’ fears, but she added that she didn’t see how that could be positive for U.S.-China relations.
“If the U.S. proceeds with 10 percent tariffs and China stays silent, the dollar will extend its slide against all of the major currencies except for the yen which also benefits from risk appetite. However if they opt for 25 percent tariffs or China retaliates, risk aversion could return quickly,”
The euro/dollar was at 1.1674 at 8:17 A.M. SGT, after trading in a 1.1616 to 1.1695 range on Monday, according to DZHI data.
The dollar/yen was at 111.74 at 8:18 A.M. SGT, after trading in a 111.73 to 112.122 range on Monday, according to DZHI data.
The dollar/yuan ended Monday at 6.8539 after trading in a 6.8527 to 6.8750 range on Monday, according to DZHI data.
The Singapore dollar was fairly steady in early trade. The dollar/Sing was at 1.3746 at 8:21 A.M. SGT, after trading in a 1.3700 to 1.3755 range on Monday, according to DZHI data.
Nymex WTI crude oil futures for October were down 0.49 percent at US$68.57 a barrel at 7:50 A.M. SGT, while ICE Brent crude oil futures for November were off 0.05 percent at US$78.05 a barrel at 5:59 A.M. SGT, according to Bloomberg data.