Trade war worries + Cohn’s resignation = more volatility

Date: March 12, 2018

Last week’s trading picked up where it left off the week before – towards the downside because of US President Trump’s announcement on 2 March of import tariffs on steel and aluminum, an announcement which kindled fears of a global trade war if other nations retaliate. The selling on Wall Street eased on Monday after House Speaker Paul Ryan voiced serious objections to the tariffs because of the potential damage to the US economy, but it resumed on Tuesday when the White House’s chief economic advisor Gary Cohn announced his resignation, presumably because he too opposed the tariffs.

On Friday though, US stocks rose, reportedly because February wage growth was slower than expected, thus leading to the suggestion that the US Federal Reserve might not raise interest rates as aggressively as previously thought.

However, investors should note that jobs growth at 313,000 was far more than the 200,000 that had been expected, that bond prices fell with the 10-year Treasury’s yield adding 3 basis points at 2.896% and that the probability that the Fed will raise rates by 25 basis points at next week’s Open Markets Committee meeting to achieve its target rate of 1.5-1.75% is now 88.8%.

They should also note that Wall St on Friday selectively choosing to focus on slower wage growth to the exclusion of the bigger picture could have been a one-off, and that later data could lead to a different story being spun.

Trading here for the week ahead is therefore expected to be choppy and volatile, as it was last week when the Straits Times Index posted large, double-digit movements daily. On Monday, it fell 41 points, on Tuesday it bounced 53 but then dropped 41 again on Wednesday.

Movements each day were largely dictated by US futures and it was rises in the Dow futures on Thursday and Friday that helped the STI to close in the black for both those days. Friday’s 5.13 points rise to 3,485.57 meant the index gained about 6 points or 0.2% for the week.

In the news was Creative Technology, the stock shooting up to a 10-year high when it gained S$3.62 or 71 per cent at S$8.75 on Monday. Seven trading sessions earlier on 22 Feb, Creative sold for S$1.25. Its run started on 23 Feb when it doubled that day after a news story appeared in Business Times describing the company’s forthcoming Super X-F1 headphones which promises to deliver a 3-D listening experience that the company says, “is as good as the real thing’’.

That rise prompted a query from the Singapore Exchange (SGX) to which the company replied on the same day by drawing attention to its 17 January announcement that the headphones had won an award at a consumer electronics show. Creative also cited the Business Times story. The stock then collapsed on Wednesday and Thursday – the latter reportedly after news that the company’s co-founder had sold some of his shares – but managed to rebound $0.63 or 10.7% on Friday to S$6.54, making it the day’s largest dollar gainer. Around 1.8m shares were traded.

Also, in the news was Datapulse Technology, which is grappling with governance issues relating to the entry of a new major shareholder, the appointment of a new board and a significant purchase of a new business. On Tuesday Datapulse announced it is taking legal action against hedge fund Ascapia Capital for alleged “baseless allegations’’ that Ascapia made in a 25 January open letter to minority shareholders. Ascapia on the same day announced it was considering making a partial takeover of Datapulse.

Elsewhere, it was announced that a projected mandatory takeover of IPC by Asia-Pacific Strategic Investments (APSI) will not proceed because key IPC shareholder, well-known businessman Oei Hong Leong earlier in the month withdrew his acceptance. APSI in its 1 March announcement of the withdrawal said it is currently seeking professional advice.

Troubled commodities firm Noble Group was on Thursday directed by SGX to appoint an independent financial adviser (IFA) to assess whether Noble’s proposed debt restructuring plan and resulting share allocation to shareholders, management and creditors are “fair and reasonable and not prejudicial to the interests of shareholders’’. Noble’s shares on Friday dropped S$0.002 to S$0.133 with 4m done.

As for the reaction so far to the Mr Trump’s tariffs, the European Union said it will hit back with levies on US agriculture, steel and industrial products. According to analysts, US products likely to be most affected would be Harley-Davidson motorcycles, Levi’s jeans and bourbon whiskey. Roberto Azevedo, director-general of the World Trade Organization, said “An eye for an eye will leave us all blind and the world in a deep recession. We must make every effort to avoid the fall of the first domino’’.

China’s foreign minister Wang Yi said “choosing a trade war is a mistaken prescription’’ and that “the outcome will only be harmful’’ whilst International Monetary Fund Managing Director Christine Lagarde said on Thursday that she feared a “tit-for-tat” escalation of trade retaliation that would sap business confidence and investment.