MarketsInsights

Trade tensions, US earnings expected to impact markets

A Ford Motor plant in Hangzhou, China. Mr Eli Lee, head of investment strategy at Bank of Singapore, says investors should watch for trade tensions, noting that they had escalated last week with "fiery rhetoric" from the Chinese in response to report
A Ford Motor plant in Hangzhou, China. Mr Eli Lee, head of investment strategy at Bank of Singapore, says investors should watch for trade tensions, noting that they had escalated last week with "fiery rhetoric" from the Chinese in response to reports that the US is considering the possible use of a law known as the International Emergency Economic Powers Act to curb Chinese investments in sensitive technologies.PHOTO: NYTNS

Interesting days ahead with US Fed meeting, growth data and rhetoric on trade curbs

United States earnings, continued trade tensions, and inflationary fears ahead of next month's meeting of the Federal Reserve will continue to drive investor sentiment and trading this week.

IG market strategist Pan Jingyi expects the impact of the US earnings season to continue trickling down to Asian markets. This week promises to be a significant one for global equity markets, she said.

"Approximately 35 per cent of the companies on the comprehensive S&P 500 index will be due to deliver their earnings report... Of the 15 per cent that had reported thus far, we have certainly seen a pleasing 88 per cent that had either met or exceeded consensus, though the impact had been rather limited for a cautious market."

Meanwhile, there will also be central bank meetings in Europe and Japan. Both central banks are expected to keep the status quo due to the recent bout of soft data - weak industrial activity in the Euro zone and subdued inflation in the Euro zone and Japan, she said.

Mr Eli Lee, head of investment strategy at Bank of Singapore, believes that investors should watch for trade tensions, noting that they had escalated last week with "fiery rhetoric" from the Chinese in response to reports that the US is considering the possible use of a law known as the International Emergency Economic Powers Act to curb Chinese investments in sensitive technologies.

Mr Lee said: "In terms of their stance on trade, we see China standing between a rock and hard place. On one hand, a tough response to US tariffs is necessary as a deterrent, yet on the other hand, the Chinese also need to show a degree of openness to bilateral negotiations and concessions. President Xi Jinping's recent speech at the Boao Forum leaned towards the latter objective.

Other key data that could guide markets include the first-quarter growth figures from the US on Friday after Asia hours, with market consensus pointing to a moderation in growth to 2 per cent quarter on quarter, as well as April consumer confidence, new and existing home sales and March trade balance.

"Ultimately, the risk of a full-blown trade war, which will severely dent global growth, must be taken seriously and cannot be ruled out. That said, we are hopeful that a path to bilateral negotiations and compromises will emerge"

He also believes that investors should brace themselves for inflationary fears and a rapid rise in the 10-year Treasury yields, which were the primary triggers for the correction in February this year.

"These risks remain live in the backdrop. Given recent rallies in crude oil and metals prices, the market is re-examining the outlook for inflation, and the US 10-Year Treasury yield is once again pressing towards its one-year high of 2.95 per cent after rising about 20 basis points over the last three weeks."

Other key data that could guide markets include the first-quarter growth figures from the US on Friday after Asia hours, with market consensus pointing to a moderation in growth to 2 per cent quarter on quarter, as well as April's consumer confidence, new and existing home sales and March's trade balance.

For the Asia-Pacific region, Japan's inflation, employment and retail sales are coming out on Friday. Preliminary April Nikkei Purchasing Managers Index (PMI) will also be seen on Monday, and the releases of Markit PMIs for the Euro zone and the US thereafter. Singapore's inflation and industrial production numbers are also expected today and Thursday respectively.

A version of this article appeared in the print edition of The Straits Times on April 23, 2018, with the headline 'Trade tensions, US earnings expected to impact markets'. Print Edition | Subscribe