President Trump surprised markets again by announcing another US$200 billion tariffs on Chinese exports, following Beijing’s hard stance to counter punishment US$ 50 billion tariffs earlier this week.

Things are not moving towards the right direction, and funds were seen to fleet to safe-havens – such as gold and Japanese yen overnight. The Dollar Index retraced a slightly to the 94.3 area as Yen strengthened. Australian dollar dropped to one-year low of 0.740 against the greenback as trade tension hammered commodity currencies. This trend could carry on if neither Washington nor Beijing are willing to step back from moving towards a massive trade war.

Asian equity markets are positioned to open lower, with Hang Seng and Simsci futures trading 0.5% lower before market open. Against the backdrop of strong dollar and high treasury yield, emerging market equity and currencies are most vulnerable and susceptible to fund outflows.

Singapore’s STI took a deep dive to the 3,300 area before climbing back to 3,323 points, or 1% lower on Monday. 898.5 million shares, or S$ 1.381 billion in dollar value changed hand, which suggests that blue-chip shares were heavily sold in spite of relatively muted overseas markets for the Tuen Ng Festival.

Local markets were dampened by the threat of Sino-US trade war as well as weak oil prices. Sentiment was very fragile, especially in the banking, offshore & marine and property sectors, which are coming off their recent peaks due to heavy profit-taking activities. Escalating trade tension between US and several key countries – G7 and China has driven up demand for safety, and triggered ‘risk-off’ liquidation globally. If Washington were to push ahead further with protectionism, the US dollar may enjoy more upside in the days to come, which is not necessarily a good thing for their exports.  

Moreover, hawkish Fed tone and dovish ECB were among the key drivers behind a strong dollar. Incoming comments from Fed policymakers may boost further upside as recent inflation and unemployment readings were supportive to more rate hikes.

USD/JPY dived to 110.1 area as trade tension drives up demand for safety. Its immediate support and resistance could be found at 108.8 (38.2% retracement) and 111.30 area respectively.

USD/JPY

By Margaret Yang in Singapore

 

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