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Kim-Trump summit: limited impact on markets

Kim-Trump summit: limited impact on markets

The highly anticipated 'on-again-off-again' meeting between North Korean leader Kim Jong-un and US President Donald Trump is on track to take place on Tuesday.

Both leaders arrived in Singapore two days before the historic summit to discuss the denuclearization of the Korean peninsula and other issues of mutual concern.

While the tête-à-tête is expected to result in various stock market movements this week, the impact will be limited says Tai Hui, Asia Pacific chief market strategist at JP Morgan Asset Management.

‘Although the summit in Singapore is capturing public attention, the direct impact on markets is likely to be limited,’ Hui said.

‘Ongoing dialogue between Washington and Pyongyang is positive, since this implies military action is on hold, limiting any economic implication for South Korea and surrounding region.

‘Investors will hope to see steady progress with opportunities for more discussion in coming months,’ he continued.

‘On the other hand, a breakdown in talks wouldn’t necessarily mark the start of more serious confrontation. Instead, this could represent an opportunity to both sides to re-position their approach.’

Hui warned that the critical events this week for investors will be central bank meetings, especially the Federal Reserve (Fed) and the European Central Bank (ECB), as the Fed is expected to raise policy rates by 25 basis points.

If investors start to feel more confident about the end of policy rate hikes in the next one to two years, this could provide some stability to US Treasury yields after their surge in the last six months, he added.

As for the ECB, it is scheduled to continue with its quantitative easing (QE) program until September. But comments from its chief economist Peter Praet signals that the ECB could announce plans to taper its QE program after September.

‘Despite political problems in Italy and Spain, and temporary softening of European economic data, the ECB faces both technical and political pressure to reduce asset purchases,’ Hui said.

‘This could put pressure on European government debt, which has so far been stable despite higher US government bond yields.’

In other news, Asian stock markets traded cautiously on Monday in morning session as Trump backed out of a joint communiqué at the G7 summit.

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