Investors headed into the new year confident on the back of a broad trade deal between the United States and China, but fast-escalating tensions in the Middle East look set to derail the positive sentiment.
The US air strike that killed Iranian commander Qassem Soleimani in Baghdad has certainly injected new uncertainties into the market, which has been underpinned by renewed optimism about the global economy.
AxiTrader chief Asia market strategist Stephen Innes said: "Iran will surely respond but could fall short of a typical military strike on US hard assets.
"Teheran needs to have just enough flame to mobilise local nationalist support."
Any further developments on this front are likely to drive sentiment this week.
"Financial and oil markets will closely follow the US-Iran developments as Iran is expected to retaliate against the US for the killing of one of the most powerful men in the Iranian government," United Overseas Bank senior economist Alvin Liew noted.
The aftermath of the attack clearly affected investment sentiment across markets last Friday.
The Straits Times Index was trading as much as 0.5 per cent higher before the news of the killing saw the benchmark close the week at 3,238.82, dipping 13.18 points or 0.4 per cent.
However, the blue-chip index did gain 12.29 points or 0.4 per cent for the week.
FOCUS ON MID-EAST DEVELOPMENTS
Financial and oil markets will closely follow the US-Iran developments as Iran is expected to retaliate against the US for the killing of one of the most powerful men in the Iranian government.
UOB SENIOR ECONOMIST ALVIN LIEW
The Singapore economic docket is relatively empty this week, but investors will be looking to today's IHS Markit Purchasing Managers' Index (PMI) survey for December.
The local economy is continuing to show signs of recovery, along with the other Asian economies, as evidenced by recent PMI readings.
"Singapore was not an exception, as the overall manufacturing PMI also clawed its way out of seven straight months of contraction to eke out a modest expansion of 50.1 in December, suggesting that the sector may have finally turned the corner," OCBC Bank's head of treasury research and strategy Selena Ling said of last Friday's official PMI reading.
One trader said she will be looking to today's IHS Markit reading "for confirmation of improving conditions in Singapore's economy".
Last November's retail sales data will be released on Friday.
In China, the Caixin services PMI, which focuses more on small and medium-sized firms, is due out today. China's foreign reserves data for December will be out tomorrow, while last month's inflation figures will be released on Thursday.
Elsewhere in the Asia-Pacific, Taiwan's December trade and inflation figures will be released tomorrow.
Australia's November trade numbers will be out on Thursday.
More data for November will be released on Friday, including Australia's retail sales and industrial production numbers from Malaysia and India.