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Trade war blows to set tone for week

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The exchange of trade blows by China and the US over the weekend will undoubtedly set the tone for Asian trading in the last week of August, a month already shaping up as one to forget for equities.

As Oanda's Asia-Pacific senior market analyst Jeffery Halley noted, attention had been squarely on US Federal Reserve chairman Jerome Powell's speech at Jackson Hole at last Friday's session in Asia.

But in a move probably timed for impact, China imposed additional tariffs on US$75 billion of American goods including soya beans, cars and oil prior to Friday's US session.

Beijing's response came a fortnight after Washington indicated that tariffs will be placed on essentially all remaining Chinese imports.

US President Donald Trump jabbed back quickly. He has asked US companies to stop doing business in China, and raised tariffs by another 5 per cent on Chinese imports.

Unsurprisingly, the latest bout, which puts the likelihood of trade talks between the two in jeopardy, hit risk sentiment, sending Wall Street sharply lower on Friday.

The Dow sank more than 600 points, or 2.4 per cent, to 25,628.90, with the index clocking a fourth straight week of losses.

The broad-based S&P 500 fell 2.6 per cent to 2,847.11, while the tech-rich Nasdaq Composite Index tumbled 3 per cent to 7,751.77.

"If Trump's play book is to inflict pain ahead of negotiations so as to extract complaisance, it will be a costly lesson that China is not about to play ball," said Mr Vishnu Varathan, Mizuho Bank's head of economics and strategy for the Asia & Oceania treasury.

"The fact is, the White Paper in May suggests that Beijing would much rather grit its teeth, bear with the pain, but dig its heels in. And what this means is that prospects for a US-China deal on the horizon have dwindled dramatically."

Last Friday, Singapore's Straits Times Index ended the week at 3,110.35, down 17.39 points or 0.6 per cent.

The past week saw the benchmark index lose 4.68 points or 0.15 per cent from Aug 16's close of 3,115.03.

"With trade tensions heating up, markets in Asia and Singapore are likely to take a further hit come Monday morning," a trader said.

In the Singapore economic docket, the city-state's industrial production data will be released today, and the usual end-of-the- month bank lending and monetary aggregates data are due on Friday.

UOB economist Alvin Liew noted that July's industrial production figures are widely expected to resume its month-on-month (m-o-m) slide but the bank is more bearish than street estimates.

According to a Bloomberg poll, industrial production is expected to clock in at a 1.7 per cent m-o-m decline and drop 5.8 per cent year-on-year (y-o-y).

This compares with UOB's expectation of steeper declines of 2.8 per cent m-o-m and 8.2 per cent y-o-y.

Of the key economic data releases for the rest of the Asia-Pacific, Hong Kong - which has been blighted by 11 weeks of protests that have continued to garner headlines - will reveal trade data for July today.

Meanwhile, industrial profits for the Chinese economy in July will be out tomorrow.

Amid the backdrop of slowing global growth, economic growth figures for the second quarter in India are due on Friday with expectations that growth will clock in at 5.7 per cent.

Among regional central banks, South Korea's central bank has a monetary policy meeting on Friday.

The expectation is that the Bank of Korea is unlikely to change its 1.5 per cent policy rate after a 25 basis point cut at its previous meeting in July, ING economists wrote.

"This means all attention will be on governor Lee Ju Yeol's post-meeting press conference for hints about the timing of the next cut," ING said.

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