Before the Trump-Xi meeting at the G20 summit, US stocks began recovering on renewed hopes of some resolution over the US-China trade war. The media was generally optimistic that there would be some positive developments from the meeting on 1 December 2018.

On 3 December 2018, the US stock market opened higher on news that a tariff truce was reached over the weekend and that the US and China would restart on negotiations. However, just a day later, the US bellwether Dow Jones Industrial Average index plunged 700 points to wipe out all gains before closing on 5 December 2018 to mourn the passing of former President George H.W. Bush.

On 6 December 2018, the Dow reopened to extend losses by shedding another 400 points but later staged a 700-point rebound to close in the green. However, on the following day, the Dow plunged yet again, this time by some 500 points. On 10 December, the Dow opened another 500 points down only to rebound again to close the day in positive territory.

Though, it is becoming incredibly difficult to tell which direction the market is leaning with current volatility, the recent dynamics in the stock market are mainly event-driven.

In the initial rally, Trump agreed to suspend tariffs of 25 percent, for a 90-day period after his meeting with Xi. However, news of Huawei CFO Meng Wanzhou’s arrest in Canada surfaced, sparking a fierce diplomatic protest from the Chinese government. Meng, alleged to have violated US-led sanctions in Iran, was arrested by Canadian authorities on the behest of the US Federal government faces possible extradition to the US.

While Meng’s arrest weighed on equities, some US Federal Reserve officials signalled that interest rates were “just below” the neutral level, a statement investors took as a more dovish outlook. Investors reacted positively to stage a rebound on 6 December. However, the rally was short-lived as more investors were jumping into bonds which sent short-term yields (three-year US treasuries) lower than the long-term rates (five-year US treasuries) for the first time since 2007. Historically, yield inversion of the two-year and ten-year US treasuries was a tell-tale sign of a looming recession.

Later, the US labour department released its latest hiring and unemployment figures for November which showed that new hiring in US has slowed more than expected. Signs of slowdown and delayed effects of higher interest rates are further exacerbating the earnings outlook to weigh on investors’ sentiments.

The Huawei’s incident and the previous sales ban to ZTE were seen as part of the US-China trade war. To be precise, the trade war has transcended to one for global tech supremacy.

The trade war – the result of the US burgeoning current account deficit – was due to Americans’ nature of high consumption. Demand for imports far outweighed the US exports. To support this level of consumption, the Federal government could only rely on printing more and more money in order to pay for goods from around the world. As the US Dollar is the world’s currency, it is of significant strategic importance for the US and would allow it to remain a superpower for a long time to come.

However, a superpower nation like US can only maintain the status quo by developing technology that other countries revere. For many years, China did not develop any technology that could rival the US, but that changed with the 5G. In recent years, it is widely believed that Huawei and ZTE have caught up with the US in terms of 5G telecommunications technology. Huawei and ZTE could have even surpassed US companies in terms of research and development budget and prowess.

The contention for dominance in the global 5G market is perhaps the biggest concern for the US. This is also the reason why the US government ordered ZTE to allow US regulators monitor its operations as part of a reprieve to resume operations. Now, the US government has finally made its move on Huawei.

Apart from the recent arrest of Meng, the US government has already ordered the ban of 5G networking hardware from Huawei and ZTE and is also pressuring major allies like Canada, UK, EU, Australia, New Zealand and Japan to do likewise. While some have already fallen in line, the UK government was more drastic, even ordering the complete overhaul of Huawei-made equipment and hardware in its 4G network.

The day may come when Singapore would face similar pressure from the US. The emerging dichotomy would result in two different systems in the future of 5G – one led by the US and its allies and the other by China’s Huawei and ZTE. In that event, Chinese tech companies would then have to rely on themselves in the development of semiconductor components.

Recently, US Fed Chairman Jerome Powell has changed to a more dovish tone on US interest rates. While the media is speculating that the Fed Chief could be caving in to Trump’s pressure, the real reason could be that the US economy has already started to slow down.

With the US interest rates “just below” neutral indicators, the Fed might hike interest rates again. However, given the recent softening economic data, hiking interest rates could risk overshooting which would result in severe consequences.

For the upcoming Fed meeting on 18-19 December, markets will be closely watching to see if the central bank would take into account the softening economic indicators. If the Fed tweaks its statement from “just below” to “already above” neutral rate and holds off another interest rate hike, animal spirits could reignite in Wall Street.

After many years of friendly relations with our neighbour Malaysia, tensions began to rise again after the Pakatan Harapan took down the Barisan Nasional that held on to power for 61 years. Former PM Mahathir retook the reigns and took on a confrontational stance towards Singapore. During his earlier days, Mahathir has ruled Malaysia as her Prime Minister for 22 years and had  all along been hawkish towards its smaller neighbour. The reason why Singapore’s stock market saw its peak in May was perhaps also due to Mahathir returning to power.

Since Singapore separated from Malaysia, the latter has never been able to depart from racial politics. Now the opposition party UMNO and PAS are joining forces to stop the newly-elected coalition government from abolishing indigenous privileges. After all, the majority of Malaysians are still ethnic Malays.

To control and reduce domestic political pressure, Mahathir often targets Singapore as a form of distraction for Malaysians. First, Mahathir scrapped the KL-SG HSR project and proposed to review the Singapore-Malaysia Water agreement. Now, Malaysian vessels are intruding into Singapore’s waters. These are just a start and more disputes are to come in the future. For Singapore’s fourth generation of leaders, this phase could also be a good form of preparation.

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