Singapore market trends Friday: Easing trade war tensions, positive US data may bolster shares

Singapore two-dollar billsSingapore two-dollar bills

Singapore’s shares may get a fillip to close the week, getting support on Friday from a rally on Wall Street amid signs that U.S. trade war tensions could ease as China limited the scope of its retaliation.

Stephen Innes, head of Asia Pacific trading at OANDA, said in a note on Friday that regional risk would be supported by higher global equity markets, a slightly weaker U.S. dollar and news that North Korea’s Kim Jung Un was seeking another summit with U.S. President Donald Trump and had agreed in talks with South Korea to “verifiable” dismantling of a missile testing site.

Others pointed to easing trade war jitters and positive U.S. data as helping to support a rally in U.S. stocks.

“While a stronger-than-expected Philadelphia manufacturing index and lower jobless claims report contributed to the rally, trade relief is the main reason why investor sentiment is so strong today,” Kathy Lien, managing director of foreign-exchange strategy at BK Asset Management, said in a note late Thursday U.S. time.

“The trade war hasn’t disappeared, but aside from limited retaliation by China, tensions did not escalate further this week. The economy is strong and earnings have been great and there’s a good chance that the Federal Reserve will give the market a break after raising interest rates next week,” she added.

China may cut tariffs

China plans broad cuts to average tariffs on imports from most of its trading partners as soon as October, Bloomberg reported on Thursday, citing two people familiar with the matter. The report did not include which countries would be included, Reuters said. This would be the second tariff cut for the mainland after an earlier move in July.

Scotiabank said in a note on Thursday that this move will allow China to further retaliate against the U.S. tariffs.

“China’s move to lower import tariffs across the board motivates a relative price change in favor of imports from countries other than the U.S.,” Scotiabank said. “This relative tax lever is an example of how China could have further room to retaliate against U.S. protectionism by opening up a tax wedge on imports that tilts the playing field in favor of exports from places other than the U.S. China’s scope to retaliate
against U.S. tariffs is therefore not limited to the volume of goods it imports from the U.S.”

Unlike previous rounds of tariffs, the Trump administration hasn’t allowed a process for companies to seek exemptions from the latest tariffs of 10 percent on an additional US$200 billion of Chinese imports, Bloomberg reported on Thursday, citing four people familiar with the matter. That means the impact will be felt broadly across the U.S. economy and U.S. businesses as they face what is essentially a tax increase.

Trump had 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.

China on Tuesday put retaliatory tariffs on US$60 billion of products imported from the U.S., with the measures also taking effect on 24 September.

Indexes

Japan’s Nikkei 225 index was up 0.64 percent by 8:35 A.M. SGT, while South Korea’s Kospi was up 0.35 percent by 8:40 A.M. SGT.

The Straits Times Index ended Thursday up 0.12 percent at 3180; September futures for the index were at 3179 on Thursday, while October futures were at 3183.

Read more: Singapore stocks to watch Friday: SGX, Noble, Olam, SoilBuild, China Jinjiang

Hong Kong’s Hang Seng Index was up 0.26 percent at 27,477.67 at the close on Thursday, while China’s CSI 300 was off by 0.07 percent at 3310.126.

The Dow Jones Industrial Average tacked on 0.95 percent to 26,656.98 by Thursday’s close, while the Nasdaq Composite was up 0.98 percent at 8028.23. Futures for the three indexes were nearly flat in early trade.

Currencies

The U.S. dollar index, which measures the greenback against a basket of currencies, was at 93.90 at 7:53 A.M. SGT, down sharply from as high as 94.52 early on Thursday, according to ICE futures data.

The 10-year U.S. Treasury note yield was at 3.066 percent at 7;59 A.M. SGT, off from levels as high as 3.093 percent on Thursday, according to Tullett Prebon data.

Some analysts pointed to a Bloomberg article on how Federal Reserve chief Jerome Powell is lobbying Congress to protect central bank independence from Trump’s verbal attacks as affecting the U.S. dollar’s moves.

Euro

The euro/dollar was at 1.1781 at 8:06 A.M. SGT, after trading in a 1.1667 to 1.1785 range on Thursday, according to DZHI data.

BK Asset Management’s Lien said the euro strength was due to U.S. dollar weakness and improved risk appetite.

“No major Eurozone economic reports were released but the euro tends to have a decent correlation with stocks,” she said.

The dollar/yen was at 112.502 at 8:07 A.M. SGT, after trading in a 112.03 to 112.584 range on Thursday, according to DZHI data.

The dollar/yuan closed Thursday at 6.8454 after trading in a 6.8390 to 6.8570 range during the session, according to DZHI data.

“The yuan rallied further on news that mainland authorities are reportedly cutting import tax from most of its trading partners,” Innes said. “This move triggered more unwinding of trade war hedges as China will get creative to counter the adverse economic effects of U.S. tariffs.”

The Singapore dollar extended its strengthening trend. The dollar/Sing was at 1.3645 at 8:10 A.M. SGT, after trading in a 1.3637 to 1.3696 range on Thursday, and touching levels as high as 1.3815 earlier this month, according to DZHI data.

Oil

Nymex WTI crude oil futures for November were down 0.45 percent at US$70.80 a barrel at 2:29 A.M. SGT, while ICE Brent crude futures for November were 0.88 percent lower at US$78.70 a barrel at 5:59 A.M. SGT, according to Bloomberg data.

Read more: US rig count data eyed for cues to crude prices as Trump criticizes OPEC

This article was originally published on Friday 21 September 2018; it has since been updated to include the Nikkei and Kospi index moves. 

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