Wading through the trade waters

For markets, this waffling of prices may well sustain into a day seeing a vacuum within the data docket.

The saying that we are a tweet away from the next trade escalation between US and China had certainly grown to become the broad view. To a large extent, this is likewise discounting any good news, particularly ones that had also been disputed by the counterparty. China sounding out on the lack of phone calls suggested by President Donald Trump had thrown a spanner in the works for the market recovery earlier in the week.

As a result of the above, the issue of the credibility of President Donald Trump had taken centre stage. This is perhaps significant at this point. While the baseline view that both US and China will eventually resolve the trade conflict to avoid sustaining a lose-lose situation remains, President Donald Trump’s mercurial temperaments have now been perceived to be a factor likely to invite China to hold their horses on a deal. For markets, this added sense of uncertainty could also translate to further volatility and the immediate intraday action as seen on both the Wall Street and the S&P 500 index had certainty reflected this contempt.

US consumer confidence surprise

Some good news in the form of the latest string of data releases had been seen. The August conference board consumer confidence had notably surprised on the upside coming in at 135.1 in Tuesday’s release and marks a smaller drop from the 135.8 figure seen in July. Given the stronger focus on the labour market, this reflects the resilient condition in both the consumer sector and hiring into August and perhaps the positive impact for the economy with the latest Fed rate cut buoying sentiment. That said, given the abovementioned trade uncertainties, Fed cut bets for the upcoming September meeting were seen little changed.

Expect the sense of caution to persist into the upcoming light data day. As it is, the comprehensive S&P 500 had seen to little changes in its 1-month and 1-week price trends amongst sectors with the defensives reigning and the cyclicals suffering on the back of the trade escalations. Look to the likes of these sector ETF for short-term safety amid the pulling of funds from North America equities as suggested by the Lipper fund flow data for the week ending last Friday.

Source: Reuters

Asia open

Against the abovementioned backdrop and the scarcity of economic releases in the day, look to Asia markets to trade in a lacklustre fashion while keeping an eye out for any US-China trade updates. MSCI weighting increase for Chinese shares may help to shore up some support for the China market in the day but against the wall of worries, the impact could be blunted.

For the local Singapore market, a muted day is likewise expected with the downtrend continuing. While positive news flows had been seen, the uncertainty in outlook continues to cast a cloud for our trade dependent market that could keep a lid on prices in the near term. Strong support can nevertheless be seen coming in around the 3000 level that should curb further downsides barring any further downturn in US-China trade relations.

Source: IG Charts

Yesterday: S&P 500 -0.32 %; DJIA -0.47%; DAX +0.62%; FTSE -0.08%