Markets Insight

All eyes now on Budget, Fed's next rate hike

US Fed chief Janet Yellen, seen here on a television screen on the floor of the New York Stock Exchange on Wednesday, signalled a more gradual path of interest rate increases - from four rate hikes to only two. Investors are looking for clues if that
US Fed chief Janet Yellen, seen here on a television screen on the floor of the New York Stock Exchange on Wednesday, signalled a more gradual path of interest rate increases - from four rate hikes to only two. Investors are looking for clues if that will take place as early as June, or be delayed to the second half of the year.PHOTO: BLOOMBERG

With Singapore stocks back in the black this year, investors on lookout for positive signs of rally

After the Federal Reserve signalled last week that it is unlikely to raise interest rates soon, Singapore stocks were sent catapulting back into positive territory for the year.

This week, investors will be watching for clues on the timing of the next rate hike. The Budget, to be delivered on Thursday, will also be on their radar, with hopes of aid to help companies through the slowdown.

By most accounts, the past two weeks has been a good period for markets.

The Straits Times Index erased its losses for the year, closing up 2.8 per cent for the week at 2,906.80 on Friday.

Whether the STI can sustain its upward trajectory will depend in part on the performance of bourses on Wall Street, China and Europe. The Dow Jones Industrial Average rose 0.7 per cent on Friday, and is up 1 per cent for the year.

NO BULL MARKET

Recent (stimulus measures) by the European Central Bank, Bank of Japan and the Fed will support the risk-asset market rally a bit longer... But a new bull market? No. Sooner rather than later, the markets are going to refocus on the desperation of these moves.

MR LIM SAY BOON, chief investment officer, DBS Bank.

"Recent (stimulus measures) by the European Central Bank, Bank of Japan and the Fed will support the risk-asset market rally a bit longer, The rallies may even break out of the downtrend they have been trading within in recent months," Mr Lim Say Boon, chief investment officer, DBS Bank, noted.

"But a new bull market? No. Sooner rather than later, the markets are going to refocus on the desperation of these moves."

Investors are likely to track what the US central bank will do with its interest rates hikes.

After the Federal Reserve last Wednesday signalled a more gradual path of interest rate increases, from four rate hikes to only two, investors are on the lookout for clues if that will take place as early as June, or be delayed to the second half of the year.

"Investors are also interested to see if voting members of the Fed would be open to introducing a negative interest rate policy should inflation data continue to fall short of expectations," remisier Alvin Yong said.

Meanwhile, Singapore companies will be eyeing Thursday's Budget statement for measures to help them cut costs, which could be in the form of corporate tax cuts, manpower cost rebates or even lower property tax, or GST rebates at the corporate level.

"While Budget 2016 could be marginally positive for Singapore equities, the key factors driving equities remain the global trade environment and crude oil prices," according to Nomura Global Markets Research.

The new Government's first budget is likely to "err on the side of caution", despite the weak growth outlook, it said.

"The anaemic economy arguably needs a fiscal shot in the arm, particularly sectors that are vulnerable. We expect the Government to run a small fiscal deficit of 0.2 per cent of GDP in full year 2016, down from 0.5 per cent in full year 2015."

Meanwhile, the rally in oil prices came to a halt after a marginal rise in actively drilling US rigs raised concerns that a decline in output may not happen. Brent ended down 0.8 per cent at US$41.20 on Friday.

DBS Group Research warned that the recent rally of oil and gas stocks, alongside the bounce in oil prices, could be shortlived absent a "meaningful change in fundamentals".

"A near term pull-back in oil prices is likely, as talks of output freeze may have hit a roadblock with Iran's resistance to take part, and refineries entering their maintenance period in April," it said.

A version of this article appeared in the print edition of The Straits Times on March 21, 2016, with the headline 'All eyes now on Budget, Fed's next rate hike'. Print Edition | Subscribe