Markets Insights

Trade talks between US, China still main concern

Investors in the dark as Phase I trade deal looks elusive and more tariffs on Chinese goods loom

The US is set to impose 15 per cent additional tariffs on $213 billion of Chinese products on Dec 15, including video game consoles and computer monitors. PHOTO: REUTERS
The US is set to impose 15 per cent additional tariffs on $213 billion of Chinese products on Dec 15, including video game consoles and computer monitors.PHOTO: REUTERS

Singapore's stock market may see a tepid week as investors continue to grapple with uncertainty over a US-China trade deal and markets wind down for the Thanksgiving holiday.

It will be a short week for the US financial markets, which will be closed on Thursday for Thanksgiving and will close early on Friday.

Federal Reserve chairman Jerome Powell will be speaking on the US economy tonight. Economic reports, including those on October trade and consumer spending, are also expected.

"Considering the Fed's data-dependent stance, a marked deterioration in US economic indicators may force policymakers' hands in lowering US interest rates again," said FXTM analyst Han Tan.

But developments on trade talks between the US and China are likely to remain the most important event for markets by far.

Headlines on US-China trade have been mixed over the past week, leaving some traders happier to wait and watch.

The Wall Street Journal reported last Thursday that Chinese Vice-Premier Liu He had invited US trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin to Beijing for further talks. But it was not clear whether the Americans had accepted the invitation. Later, the Hong Kong-based South China Morning Post said both countries are on the "doorstep" of reaching a deal, citing a source close to the Trump administration.

AxiTrader chief Asia market strategist Stephen Innes said: "This tangled web of trade talk confusion has investors in that all-too-familiar predicament of trade war limbo. Surely both sides aren't going to walk us down the garden path only to take us down the rabbit hole again with Trump and Xi?"

The US is set to impose 15 per cent additional tariffs on US$156 billion (S$213 billion) of Chinese products on Dec 15, including video game consoles and computer monitors.

ANOTHER CUT?

Considering the Fed's data-dependent stance, a marked deterioration in US economic indicators may force policymakers' hands in lowering US interest rates again.

FXTM ANALYST HAN TAN, on a possible cut in US interest rates.

In the meantime, it is back to "rolling thumbs waiting for the elusive Phase 1 deal to evolve while playing headline dodge ball", Mr Innes said.

On the local front, the Straits Times Index had traded mostly mixed last week before ending at 3,225.65 points last Friday, dipping 13.21 points or 0.4 per cent from the previous week's close of 3,238.86.

DBS analysts Yeo Kee Yan and Janice Chua said the correction was triggered by concerns - after much anticipation previously - that a US-China Phase 1 deal may miss the Dec 15 US tariff deadline.

"Technical support is at 3,175 and 3,145; we think the 3,175 level should hold.

"While the outcome remains unclear, we believe that if a Phase 1 deal is inked this year, there should be upside to 3,320 or slightly above by year-end."

Separately, there are a few local data releases set for this week. Singapore's October inflation data and industrial production figures will be released today and tomorrow, respectively.

A Bloomberg poll shows that headline consumer price index or overall inflation is expected to come in at 0.5 per cent year on year, unchanged from September. Likewise, core inflation - a Monetary Authority of Singapore gauge that excludes accommodation and private road transport costs - is expected to stay at 0.7 per cent year on year, unchanged from September.

And October's industrial production may record another decline of 1.2 per cent year on year, according to UOB's Global Economics & Markets Research team, following a surprise 0.1 per cent year-on-year increase in the previous month.

A version of this article appeared in the print edition of The Straits Times on November 25, 2019, with the headline 'Trade talks between US, China still main concern'. Subscribe