Business

Domestic factors to take centre stage

While the trade tiff between the US and China dominated headlines all of last week, domestic factors may just steal the limelight this week.

In Singapore, all eyes will be on the release of the advance first quarter gross domestic product figure and the semi-annual monetary policy statement by the Monetary Authority of Singapore (MAS) on Friday.

"Growth is expected to come in at 4.4 per cent year-on-year, accelerating from the previous quarter, just as quarter-on-quarter figures slow," Ms Pan Jingyi, market strategist at IG, said.

UOB economists expect the MAS to start policy normalisation by allowing the SGD nominal effective exchange rate (NEER) on a mildly appreciating path, expected at 0.5 per cent per annum, from its neutral stance of zero appreciation.

For the rest of Asia, two key events will be monitored - Malaysia's upcoming elections and Chinese President Xi Jinping's keynote speech on April 10 at the Boao Forum for Asia Annual Conference.

Notwithstanding the tit-for-tat trade threats, Lombard Odier Investment Managers sees a negotiating pattern in which the US makes strong demands that grab media attention, threatens to abandon talks before softening its demands.

"We believe that President Trump's announcements are aimed at showing his base supporters that he is serious about protectionism. However, the ultimate results are much softer than the original demands."

On Friday, the Dow Jones Industrial Average closed 572 points down, or around 2.3 per cent, at 23,932.76.

The US non-farm payroll came in below consensus, with 103,000 jobs added in March, the slowest pace of hiring in six months. But this is not to be taken as a sign of a weak economy, economists say.

"We expect the Federal Reserve to stay on a path of lifting rates three more times this year (so, four times in total). Complacent investors who think the report is a reason to shift toward treasuries and away from equities are going to regret their decisions," said First Trust Advisors economist Robert Stein.

AXA Investment Managers Asia remains comfortable with its overweight call on equities, with the first quarter earnings season the catalyst in the short term. Among the key events in the US this week will be the Federal Open Market Committee (FOMC) minutes.

In its strategy note, CGS-CIMB said four sectors would see some impact from a US-China trade war - technology, commodities, capital goods, and banks.

In the tech space, Memtech International, Valuetronics and Sunningdale face moderate risks as they are involved in the consumer electronics and automotive value chain and have heavy presences in China. AEM Holdings faces low risk, given its status as a sole supplier to a customer. Venture Corp is insulated by its minimal presence in China and customer diversification benefits.

Rising trade tensions and potential disruption to trade flows could cast a pall on banks' cash management and loan activities. CGS-CIMB estimates that trade and transaction services accounted for 5 per cent of DBS's FY2017 total income, 2 per cent of OCBC's and 3 per cent of UOB's.

Wilmar International's oilseeds and grains division made up 46 per cent of its profit before tax (PBT). Assuming its soybean business in China accounts for 60 per cent of its oilseeds and grains PBT and about 35 per cent of its raw material costs for its crushing business comes from US, CGS-CIMB estimates that a 25 per cent import tariff on US soybeans to China could hit its total PBT by about 10 per cent.

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