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No rest for markets despite China holiday

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The US-China trade conflict may be taking a back seat this week as China goes on a week-long holiday, but markets are unlikely to breathe easy just yet.

Investors will be served with "another stark reminder" of the trade conflicts that still plague the world's economies, according to Mr Han Tan, a market analyst at FXTM.

For one thing, the World Trade Organisation is set to give the green light for a US request to impose tariffs on billions of dollars of European goods, which is likely to trigger retaliatory measures from the European Union.

The EU is reportedly considering slapping tariffs on more than US$4 billion (S$5.5 billion) of US exports.

"Tit-for-tat tariffs will only serve to drag global trade lower while threatening to snuff out hopes for a worldwide economic rebound in 2020," Mr Tan said.

This week, analysts are also keeping their eyes peeled for the latest manufacturing data out of major economies, including Singapore, which may keep risk appetite subdued.

In Singapore, key figures will be the September official Purchasing Managers' Index (PMI) expected on Oct 3 and the Nikkei Singapore PMI, to be out on the same day.

Equally significant will be the September Caixin manufacturing PMI scheduled for today - before China's National Day holiday from Oct 1-7 - which may see a dip, according to United Overseas Bank economists.

Those readings will be accompanied by the release of official September manufacturing and non-manufacturing PMI surveys.

From the US, Institute for Supply Management (ISM) manufacturing figures to be released tomorrow are expected to show a slight recovery. But ISM non-manufacturing may moderate, according to economists at Citi. Non-manufacturing data is slated for Thursday.

On the central bank front, there is no monetary policy decision from any G-7 central bank this week but market attention will still be on them, especially the US Federal Reserve, as several Federal Open Market Committee voters will be speaking in public forums.

Fed chair Jerome Powell's speech at the end of the week will be a keenly watched affair as market watchers look for more clues on the outlook on US interest rates.

Political unrest should not be overlooked too, pointed out CMC Markets analyst Margaret Yang. Whether or not Hong Kong protesters will demonstrate en masse on Oct 1 to "embarrass" China during its 70th year anniversary celebrations remains to be seen.

"How Beijing responds remains a key event to watch out for."

The protests have affected the businesses of some Singapore-listed companies with a presence in Hong Kong, such as retailer Dairy Farm and hotel operator Shangri-La.

As it heads into the new month, the Singapore stock market may continue to see trading rocked by trade-related headlines.

Currently, the Singapore market is inexpensive, said DBS equity analyst Yeo Kee Yan. The Straits Times Index (STI) currently trades below 12 times its 12-month forward price-to-earnings.

However, "October's directional trend hinges on outcome of US-China trade talks", he added.

A positive outcome would see additional tariffs halted or postponed, with progress towards a trade deal, providing pivotal support to the STI at 3,110.

A converse outcome would send the local benchmark index down to 3,080, the analyst predicted.

In this scenario, cyclicals should underperform, according to Mr Yeo, while defensive and yield stocks would continue to outperform.

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