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Trade issues to remain the focus

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The start of the month sees the usual packed data calendar but investors will probably focus on trade developments between the US and China, which have been the main driving factor on sentiment in recent weeks.

Tariffs imposed on US$300 billion (S$416 billion) worth of Chinese imports to the US have been raised from 10 per cent to 15 per cent with effect from Sept 1.

FXTM market analyst Han Tan said: "The heightened barriers to trade come amid US-China trade tensions which have already dragged global growth and market sentiment lower.

"Any further escalation in the US-China trade conflict will dampen demand for riskier assets, while boosting safe haven assets such as gold and US Treasuries."

Ahead of the tariff implementation, Wall Street had a mixed session as traders preferred to exercise caution, cashing in on their positions after early-week gains.

As a result, the Dow posted modest gains last Friday.

Meanwhile, the S&P 500 was flat and the tech-heavy Nasdaq dipped slightly.

Locally, August has kept its reputation as a month to forget for equities, in which the Straits Times Index (STI) has not posted a monthly gain in more than a decade. This August, the benchmark index lost 5.8 per cent.

At least the STI ended the month on a better note, finishing up 0.8 per cent or 24.69 points at 3,106.52 on Friday.

But that last-gasp surge still left the STI down 3.83 points or 0.1 per cent for the week.

DBS Group Research is of the view that September might be a calmer month for equity markets.

This is likely down to September being a seasonally benign month compared with August, the intensity of protests in Hong Kong possibly lessening as the university term begins, and equity markets being supported by the expectation of another rate cut by the US Federal Reserve after its mid-September meeting.

Key data releases for the local market include August Purchasing Managers' Index (PMI) figures, with the Singapore Institute of Purchasing and Materials Management's reading tomorrow and the Markit measurement on Wednesday.

"The Singapore dollar's exposure to external drivers will remain in focus, even as investors await the city-state's August PMI figures over the coming days," FXTM's Mr Tan said.

He added that risks for Asian currencies are also tilted to the downside, "given the resilience of the US dollar, along with growing concerns over the state of the global economy".

Given that it is the start of a new month, the Asia-Pacific economic docket is filled with trade, manufacturing and inflation data.

Over the weekend, China released official manufacturing PMI figures for August.

While contraction for a fourth straight month was expected, the reading of 49.5 was below street expectations.

The continued contractions indicate lasting fundamental weakness, Citi Research wrote. Non-manufacturing PMI clocked in at 53.8.

The Caixin manufacturing and services PMI for August, which focuses more on smaller and medium-sized companies, is out today and Wednesday, respectively.

United Overseas Bank economist Alvin Liew is expecting the manufacturing reading to drop to 49.8 from 49.9 in July, while the reading for services is likely to see an expansion to 54 from 53.7 in the previous month.

August inflation data will also be out for a number of key economies in Asia including Thailand and Indonesia today, South Korea tomorrow and Taiwan on Thursday.

South Korea and Australia will release second-quarter gross domestic product figures tomorrow and Wednesday, respectively.

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