Markets Insights

China data, interest rates, trade war to set direction

China's second-quarter GDP expected to be the most closely watched by traders this week

A vegetable stall at a Beijing market. According to a Bloomberg consensus forecast, growth in China is expected to slow slightly to 6.2 per cent year on year from 6.4 per cent in the first quarter. Other key Chinese data, such as June retail sales an
A vegetable stall at a Beijing market. According to a Bloomberg consensus forecast, growth in China is expected to slow slightly to 6.2 per cent year on year from 6.4 per cent in the first quarter. Other key Chinese data, such as June retail sales and industrial production, will also be out today. PHOTO: AGENCE FRANCE-PRESSE

Central banks and their increasingly accommodative stances, US-China trade tensions and worries of the state of the global economy will continue to influence sentiment this week.

UOB economist Alvin Liew noted that US-China trade relations will remain under the spotlight as the US and China have restarted trade negotiations. But he also pointed to US President Donald Trump's tweet last Thursday that China has not been buying the agricultural products which it has promised to.

Investors will also be looking at today's deluge of Chinese data for the second quarter.

The most important of that will be its gross domestic product (GDP), an important barometer for measuring the effects of rekindled trade tensions between the US and China in May. According to a Bloomberg consensus forecast, growth in China is expected to slow slightly to 6.2 per cent year on year from 6.4 per cent in the first quarter.

That said, the growth rate in the second-largest economy is likely to increase slightly to 1.5 per cent from 1.4 per cent in the previous quarter.

China's June retail sales, industrial production, unemployment data and home prices will also be out today.

On the local front, last Friday's disappointing advance estimates of second-quarter GDP showed the effect the US-China trade war and the global tech slowdown had on the Singapore economy.

This week, investors will be looking at last month's non-oil domestic exports on Wednesday. Market watchers are expecting another month of declines, with a Bloomberg consensus estimate of a 9.1 per cent slide year on year and a 15.9 per cent fall on the quarter.

"Should Singapore's export and import figures come in better than expected, that could help solidify the Singapore dollar's recent gains against the greenback," FXTM market analyst Han Tan said.

The US Federal Reserve's swing to an accommodative stance has been followed by other central banks, which has seen investors in the local market stocking up holdings in real estate investment trusts (Reits) since last month.

According to the Singapore Exchange, S-Reits was the top net buy sector in the first half of this year, with net institutional inflows of $396.3 million.

The increasing demand for Reits has also seen unit prices gain, with market watchers noting that many have reached high valuations and compressed yields.

That said, RHB Research Institute analyst Vijay Natarajan said there may be opportunities in Singapore-listed US office Reits, which are "relatively undervalued".

He said last Friday that US office Reits listed on SGX currently offer an average FY2019 dividend yield of 7.4 per cent. This compares with the average yield of 5.2 per cent that Singapore office Reits offer. US-listed office Reits offer a yield of 3.6 per cent.

"In addition, US office Reits' dividends are not subject to Singapore corporate taxes in the hands of institutional unit holders, thus further boosting the underlying yield," Mr Natarajan added.

Among regional central banks, the Bank of Korea and Bank Indonesia both have monetary policy decisions coming up on Thursday. They come at a time when observers are expecting more central banks to lower policy rates amid the global economic slowdown.

"We expect the Bank of Korea to keep rates unchanged in July, while we just revised our Bank Indonesia call, and we now expect (the central bank) to cut rates by 25 basis points in July followed by another 25 basis points in August," UOB's Mr Liew said.

Join ST's Telegram channel and get the latest breaking news delivered to you.

A version of this article appeared in the print edition of The Straits Times on July 15, 2019, with the headline China data, interest rates, trade war to set direction. Subscribe