• We expect volatility to remain in the near term driven by the following issues:

1. Noises that the Trump administration is moving ahead with discussions around possible restrictions on capital flows into China — focus on investments made by US government pension funds remains. More so, with the US having blacklisted 28 Chinese companies, including artificial intelligence firms due to their alleged role in human rights violations against the Uighur Muslim minority ahead of the high-level discussions this Thursday. The move to expand the blacklist is another crank-up of tensions between the US and China when all investors want to hear are sweet nothings and conciliatory promises.

2. Investors will remain focused on the resumption of trade talks between the US and China with import tariffs set for US$250bil worth of Chinese goods at a rate of 30% from 15 Oct. Meanwhile, China lowered its expectations for a breakthrough in the trade talks with the US.

• In summary, it can turn out to be an “ugly day” for those seeking peaceful resolutions on the trade talks. It will continue to outweigh the US Fed chairman’s speech where he felt the current economic expansion can be sustained, and that the Fed intends to expand its balance sheet by purchasing short-term US government debt in exchange for bank reserves, in an attempt to quell recent stress in the market for overnight bank-to-bank lending.

• The Fed is of the view that its act should not be confused with the large-scale asset purchases programme, known as quantitative easing (QE), which was aimed at lowering long-term interest rates. However, we believe it is still a QE only that it is one that is not getting the full effects of the bank buying 10-year treasuries. The Fed is still expanding the balance sheet and putting liquidity into the system.

Source: AmInvest Research - 9 Oct 2019