Asian markets are set to open in a cautious mood as US-China trade talks dampens the market outlook this week. Chinese trade representatives expressed unwillingness to accept a broad trade deal, which includes structural reform and government subsidy issues.

Will the Trump administration accept a trade deal with a narrower scope? Or will this dissent spark a new round of tensions and escalation in trade tariffs? Markets seem to be walking on a tightrope again.

Violence in Hong Kong (HK) escalated over the weekend as the emergency law triggered backlash activities, resulting in the temporary closure of the subway, shops and banks. Not only did the riots call for much discussion about HK’s identity and future, but also put the city’s reputation, safety and economy under significant damage. The fading conviction of HK’s future has led to at least US$ 3 billion of capital fleeing into Singapore, a city known for its safety and stability.

Both HK and China markets are closed for a public holiday today.

Trade risks put the sustainability of the S&P 500 index rally into question, albeit last Friday’s non-farm payroll reading and record-low unemployment rate underpinned the strength of the US jobs market. Nonetheless, the futures’ market tend to believe that the Fed will cut rates as soon as end October, a move that will support stock and bond markets. The future implied probability of an October rate cut, according to CME’s FedWatch tool, has surged to 81.8%, from 49.2% a week ago.

In Singapore, the Straits Times Index opened mildly higher with a broad-based rebound. Companies with significant exposure to HK, namely Jardine Strategic, Jardine Matheson and HongKong Land, continued to underperform the benchmark as a result of protests and a bearish economic outlook.

US SPX 500 - Cash