Asian markets soared on Wednesday as the ‘second shoe to fall’ on trade drama series, resulting in relief rebound amongst risk assets globally.

Beijing’s retaliation on US imports came below market expectations, and the impact on US economy is likely to be limited. The negative impact from $200 billion Chinese imports, however, will become significant when the duty raise to 25% on 1st Jan 2019, three months from now.

According to a research report by Citic Securities, sensitivity analysis model suggests that raising tariffs to 25% next year will bring down China’s GDP growth by 0.32- 0.44percent, and result in a 1.7-2.4 percent drop in China’s export growth. The trade surplus with US is likely to shrink by 13.9 - 19.5%, or 38 - 54 billion USD. The US tariff list is likely to hurt China’s high-end manufacturing products such as motor, electrical equipment and parts, machines and industrial parts, with concession in consumer product to minimize the direct impact to American households.

Singapore, HK and China A shares embraced a relief rebound this week, with bearish news on trades fully digested and investors’ focus shifting back to fundamental elements, which have yet to show any tariff pain yet. Chinese technology giants listed in the US rebounded sharply overnight, with Alibaba (+3.8%), NetEase (+2.86%) and JD.COM (4.54%) outperforming benchmark Nasdaq.

Brent oil price is close to US$ 80 mark – a key psychological resistance level – backed by US sanction on Iranian oil exports and Saudi Arabia’s view on higher oil price. The US DoE commercial crude inventory fell for a fifth consecutive week, despite that last week’s decline of 2.05 million barrels came above market consensus of a 2.5 million drop. Falling US crude stockpile suggests the demand side is strong and inventory is usually negatively correlated to oil prices.

Technically, Brent is riding an uptrend with its SuperTrend (10,2) and 10-Day SMA both trending upwards. Immediate resistance level can be found at around $80.8 area, with this Sunday’s OPEC and Russia meeting potentially a catalyst for more volatility.

Recently, Singapore’s oil & gas sector has ridden the tailwind of higher crude prices. Sembcorp marine, Sembcorp Industry and Keppel Corp registered 15%, 10% and 2% gain respectively in September. For Sembcorp Marine, its near term trend has turned bullish, suggested by SuperTrend (10,3), 10-Day SMA and DMI. By drawing Fibonacci retracement, we can find its immediate resistance levels at 1.90 and 2.08 respectively. Rising oil & gas stocks is part of the broader rally across Singapore equities, which are embracing the window period of a recovery rebound. The sustainability of this Bull Run is linked to underlying economic matric as well as how China and HK markets are moving next.

Sembcorp Marine

By Margaret Yang in Singapore

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