Markets Insights

Trade deal hopes, earnings season to drive week ahead

US President Donald Trump with a letter from Chinese President Xi Jinping, presented by China's top trade negotiator Liu He (left), in Washington on Friday. The US and China agreed to the first phase of a deal to end the trade war, with the agreement
US President Donald Trump with a letter from Chinese President Xi Jinping, presented by China's top trade negotiator Liu He (left), in Washington on Friday. The US and China agreed to the first phase of a deal to end the trade war, with the agreement including the US holding off on a tariff hike and China boosting purchases of US farm goods.PHOTO: EPA-EFE

Sino-US trade truce a plus; quarterly results may weigh on sentiment

The Singapore bourse may extend last Friday's gains into this week as it continues to be buoyed by hope of a de-escalation in the trade war between the United States and China after both countries struck a partial trade deal.

Last Friday, the two economic powerhouses agreed to the first phase of a deal to end the trade war, following two days of high-level negotiations in Washington.

The agreement includes the US holding off on ramping up tariffs, with China boosting its purchases of US farm goods.

With trade remaining a key driver for markets, the latest truce is likely to spur markets higher, said Ms Esty Dwek, head of global market strategy, dynamic solutions, at Natixis Investment Managers.

Mr Han Tan, a market analyst at FXTM, agreed, saying risk assets are set to extend gains into this week, with investors finding comfort knowing that at the very least, the previously threatened tariff hike tomorrow will be delayed.

But equity gains may still be capped as the agreement has yet to be put on paper.

"Markets have experienced such elevated levels of optimism over a US-China trade deal before, only for it to all come crashing down," Mr Tan pointed out.

"Until the deal is signed and there's enough compliance and follow-through to appease all stakeholders, investors can't fully rule out the risk of another flare-up in US-China trade tensions," he added.

Meanwhile, corporate earnings could weigh on sentiment, as companies in Singapore swing into another season of quarterly results reporting.

"Expectations have been slashed, but results are likely to be only mildly encouraging," Ms Dwek said.

About three in five Singapore-listed firms posted poorer results in the previous quarter, prompting analysts to expect earnings to deteriorate further when the full impact of the trade war filters through in the next few quarters.

The week's reporting season starts with the Keppel group of companies: Keppel Infrastructure Trust is scheduled for today, followed by Keppel DC Reit and Keppel Pacific Oak US Reit tomorrow, Keppel Reit on Wednesday and Keppel Corporation on Thursday.

A handful of other Reits are also slated to release fiscal results this week, including Mapletree Commercial Trust on Wednesday and Soilbuild Business Space Reit on Thursday.

Maybank Kim Eng, in a Sept 18 report, remained positive on Singapore Reits (S-Reits).

The brokerage wrote: "We see potential distribution per unit growth levers arising in the coming quarters as the Monetary Authority of Singapore (MAS) seeks feedback on its proposal to increase the leverage limits for S-Reits, which should help support valuations."

As for this week's data docket, key items on the local front include the MAS' October monetary policy statement and preliminary third-quarter gross domestic product data from the Ministry of Trade and Industry. Both are due today.

Most economists are expecting Singapore's central bank to ease monetary policy at its semi-annual review. "There is also a growing risk that the MAS may ease the policy slope all the way to neutral, a signal that a looser monetary policy is needed to cushion both inflation and growth risks into 2020," said United Overseas Bank senior economist Alvin Liew.

Meanwhile, Singapore's economy likely skirted a technical recession in the third quarter even as growth stayed subdued, according to a Reuters poll of economists.

A version of this article appeared in the print edition of The Straits Times on October 14, 2019, with the headline 'Trade deal hopes, earnings season to drive week ahead'. Print Edition | Subscribe