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Central banks could upstage trade as key sentiment driver

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The whipsawing trade relationship between the United States and China was the main driver of market sentiment in the past fortnight. But it could be upstaged by central banks.

Tensions between Beijing and Washington have eased now that talks will take place in the US capital early next month, even though all it takes is a tweet from US President Donald Trump to destabilise markets.

On Friday, US job creation in August missed expectations, with 130,000 new jobs. It was weighed down by lacklustre hiring in industrial sectors, a sign that the US economy could be facing weakness.

Before the US Federal Reserve's blackout ahead of its next policy meeting on Sept 19, Fed chair Jerome Powell said he does not believe the US economy will face a recession, but will continue to monitor significant risks to it and act appropriately to extend the bull run.

Even though his comments are being taken as a positive that rates could be cut this month, Wall Street closed mixed.

The Dow Jones Industrial Average rose 0.3 per cent to 26,797.46, the S&P 500 was little changed at 2,978.71 and the Nasdaq fell 0.2 per cent to 8,103.07.

The European Central Bank (ECB) will meet on Thursday and is expected to cut interest rates and introduce a stimulus package to arrest the issues faced by the eurozone, IG market strategist Pan Jingyi said.

According to a Reuters poll, the ECB will commit to a 10 basis points cut to -0.50 per cent, a record low.

On the local market, Singapore's Straits Times Index (STI) slipped late on Friday because of profit-taking, to end at 3,144.48, down 2.58 points or 0.1 per cent. If there is any consolation, the blue-chip index is up 37.96 points or 1.2 per cent from the end of August.

Among Singapore equities, a dealer told The Business Times that he expects Hutchison Port Holdings Trust (HPH Trust) to continue its downtrend due to global economic slowdown effects and funds closing positions ahead of it being dropped from the STI on Sept 23.

"We should see interest in Mapletree Commercial Trust, which will replace HPH Trust on the STI, pick up. Retail investors might be taking profit after units gain more than 40 per cent this year," he added.

The local economic docket is rather light this week with just today's reading of August's foreign reserves data and Thursday's retail sales figures for July.

"On the domestic front, Singapore's July retail sales data should speak to domestic economic conditions as the city-state contends with external headwinds," FXTM market analyst Han Tan said.

With regard to drivers of the Singapore dollar's performance this week, he noted: "Given Singapore's exposure to global trade, the Singapore dollar's performance will be primarily influenced by extraneous factors, amid prolonged US-China trade tensions."

Over the weekend, China's August trade figures missed street expectations. Exports fell one per cent last month from a year earlier.

Analysts polled by Reuters had expected a 2 per cent rise in exports following July's 3.3 per cent advance.

"August's export figure was unexpected and imports are now on a four-month downward trend. This suggests further stimulus measures by Beijing might be needed to give a lift to the economy," a trader said.

China will be releasing August's inflation data tomorrow. Elsewhere in the region, Taiwan's August trade data is out today and July industrial production numbers for Malaysia will be revealed on Wednesday.

Among regional central banks, Malaysia has a monetary policy decision to make this week.

"The consensus is skewed towards no change to the 3 per cent overnight policy rate but we are in the minority (seven out the 23 participants in the Bloomberg poll conducted on Aug 22) expecting a 25 basis point rate cut to 2.75 per cent," ING Asia economist Prakash Sakpal said.

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