US equities rebounded overnight despite China’s retaliation on US$ 60 billion American imports with 5-10% tariffs, which will take effect on next Monday.

Market participants probably had expected something worse than that, as Beijing has threatened to slap 25% tariffs on those goods in August.

China’s tariff list covers US imports from meat to wheat and textile, but excluding soybean – a key agricultural product that linked to President Trump’s approval rate in Midwest farms, and thus his midterm success. Nonetheless, Soybean price has fallen to its lowest price in nearly a decade due to trade concerns.

Besides US agricultural products, technology giant Apple also felt the pressure from trade tensions due to its reliance on China factories in its assembling of Apple products. If tension escalates into a total trade war and ultimately hurt Apple’s supply chain, things will likely turn sour. A total shift from China factories to the US will take a few years and the manufacturing cost will soar as a result of higher labour cost. Whether or not Apple can maintain its current profit margin is largely questionable, if that happens.

Technically, a few bearish signs are flagging on Apple’s day chart. SuperTrend (10,3) and 10-Day SMA have both flipped downwards, suggesting near term trend is turning bearish. Momentum Indicator MACD, RSI and DMA have all suggested for a correction to come.

Asian equities rebounded sharply yesterday afternoon, led by China A-shares in response to ‘a second shoe to drop’ on US trade tariffs announced on Monday evening. Sell the expectation and buy the news. A relief rebound spiralled into strong rally in the afternoon, which was widely suspected a move by the Chinese ‘National Team’ – state owned funds. Shanghai composite rebounded 1.8% to 2,699.95 points. Hang Seng rose 0.5% to 27,084 points, swung up over 400 points from intraday low of 26,648. Japan’s Nikkei 225 index soared 1.4% to 23,420 area, breaking out a key resistance level of 23,000 with strong momentum.

Singapore’s STI erased earlier losses and closed marginally lower for the day to 3,137 points. Bearish elements from trade have been priced-in over the past few month, although we have yet to seen solid impact of US-China trade war on domestic economy yet. STI has strong support at around 3,100 points, and the current valuation is probably attractive for long term investors to back to the market.

Soybean - Cash

Apple

CSOP China A50 ETF

By Margaret Yang in Singapore

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