Trump administration is planning to impose new round of tariffs on China this week, as there is no clear response from Beijing on resuming the trade talks.

Investors are probably tired of the ‘talk – tariffs – threat – talk again’ cycle, as market participants are a bit numb about trade bombs hitting media headlines for months. Asian equity markets have corrected quite a fair bit since May as pessimism on trades and strong dollar caused capital outflow. The markets are probably not as sensitive to bad trade news as they did a few months ago. Therefore, the downside is likely to be limited.

Super Typhoon Mangkhut landed in Guangdong province – a key economic engine along the south coast of China – on Saturday, damaging buildings, roads and infrastructure with strong wind and flooding. The economic damage is estimated to exceed US$ 50 billion. Highlight will be on the mainland insurance companies, which are most exposed to the damage of natural disasters. The impact of the typhoon to stock market, however, is usually short-lived.

Recently released China Industrial production and Retail Sales figures both surpassed market consensus, with y-o-y growth of 6.1% and 9% respectively, official data shows.  Fixed-asset investment growth slowed to 5.3% in the first eight months from the same period of last year, suggesting slowdown in infrastructure momentum. Mixed data shows China is facing downward pressure of economic growth, but overall remains resilient against trade headwinds. There is no sign of a sharp decline or hard landing yet.

In Singapore, the STI rebounded 31 points last Friday but gave out half of that gain this morning due to renewed wave of trade uncertainties. Immediate resistance level can be found at around 3,200 points, which is the previous support level. Immediate support level is at around 3,100 points. Technically, the STI is still on a downward trajectory on its daily chart, but fundamental elements remain resilient. Falling price and steady earnings led to declining valuation, with STI’s average trailing price-to-earnings ratio dropped to nearly five year low 11 times, and blue chips’ dividend yield climbing to 4.5%.

Volatility Index – Oct 2018

By Margaret Yang in Singapore

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