Markets Insights

Trade war truce a boost for markets

Trading will likely take on risk-friendly and upbeat note, following Trump-Xi meeting

As investors pivot to the third quarter of 2019, trading is likely to take on a risk-friendly and upbeat note brought about by news of a trade war truce, though temporary, following the meeting between US President Donald Trump and his Chinese counterpart Xi Jinping in Osaka.

At the sidelines of the G-20 summit on Saturday, the leaders agreed to resume trade talks. US firms were given the go-ahead to resume business with Huawei Technologies, reversing a US Commerce Department ban in May and Washington has also decided against implementing tariffs on a further US$300 billion (S$406 billion) worth of Chinese imports.

Vanguard Markets managing partner Stephen Innes said: "The base case scenario was met at G-20 and while we are no worse for wear, let's see what the G-20 hangover brings." As it stands, there is nothing concrete on how the parties will work together to reach a trade deal with thorny issues far from being settled. This could "curb trader's bullish topside ambitions", Mr Innes added.

Investors have, for much of the year, been plagued by the global economic slowdown, geopolitics, and the prolonged US-China trade skirmish. But markets are mostly up over a six-month period owing to rising expectations of a dovish stance by central banks worldwide, led by the United States Fed.

In the half year, Singapore's Straits Times Index gained 8.2 per cent, despite May's sell-off triggered by Mr Trump's threat to raise tariffs on US$200 billion of Chinese imports on May 3. It gained 6.5 per cent last month, fuelled by the valuations of many counters and as real estate investment trusts got their sexy back.

FXTM market analyst Han Tan said a positive outcome from the US-China meeting "is set to lift Asian currencies higher, including the Singapore dollar, as signs of de-escalating tensions between the US and China should brighten the outlook for trade-dependent economies".

In the Singapore economic docket, June's purchasing managers index figures will be out. The Singapore Institute of Purchasing and Materials Management's reading and the Nikkei measurement are due on Wednesday. Elsewhere in Asia, China released its June PMI yesterday. Manufacturing and services figures missed expectations. The private sector's Caixin PMI, which focuses on smaller and medium-sized firms, are due for the manfacturing sector today and for the services, on Wednesday.

ING's Asia economist Prakash Sakpal said China's manufacturing and service sector PMIs will reinforce the bipolar state of the economy - contracting manufacturing but a steady expansion in services. But he cautioned: "This de-coupling may not last for too long though, with services eventually following manufacturing into weakness. The PMIs from the rest of the region will reinforce the weak manufacturing trend."

Investors will also be looking to June inflation data from South Korea, Indonesia, the Philippines, and Thailand. South Korea will also release trade data for June.

A version of this article appeared in the print edition of The Straits Times on July 01, 2019, with the headline 'Trade war truce a boost for markets'. Print Edition | Subscribe