5 things to know before the Singapore market opens this week: Sept 14-20

Pedestrians walking past the Marriner S. Eccles Federal Reserve building in Washington, DC.
Pedestrians walking past the Marriner S. Eccles Federal Reserve building in Washington, DC. PHOTO: BLOOMBERG

1. Finally, the Fed's big decision

The world will be on edge this week with the US Federal Reserve to announce the decision from one of its most anticipated policy-setting meetings of the year. The US Federal Open Market Committee will say on Thursday (Sept 17) if it is putting up the benchmark federal funds rate from 0 per cent, where it has been frozen since the financial crisis of 2008. The announcement is due at 2am Singapore time on Friday (Sept 18) morning.

A rate hike will have repercussions globally on stocks, bonds, currencies, commodities and the real economy.

The decision looks to be a nail-biter, with traders and investors globally glued to their screens and monitors, because, based on recent comments and speeches by Fed officials, FOMC members have not reached any consensus on what their decision will be.

Analysts had long expected a hike at this week's meeting but the August stock market turmoil and worries over a China slowdown has reduced the probability of a rate move this week to only around 28 per cent.

FOMC members base their decisions primarily on the US jobs market and inflation. The former has been strong, the unemployment rate falling to 5.1 per cent in August, the lowest since April 2008. But inflation, which the Fed wants to see climb to around 2 per cent as a sign of steady economic growth, has sagged. The main reason has been the drop in the prices of oil and other commodities, rather than weak US growth. But the slowdown in China and other emerging economies, and the strong US dollar, continue to pull prices lower.

If the Fed holds off this week, the text of its decision will be important in determining whether it is on course to lift rates in December.

2. Weak China data - is more stimulus on the way?

Data last Sunday showed growth in China's investment and factory output missed forecasts in August. Growth in fixed-asset investment, a crucial economic driver, slowed to 10.9 per cent in the first eight months of 2015 - the weakest pace in nearly 15 years. Factory output rose 6.1 per cent last month from a year earlier, less than the 6.4 per cent expected but up from July's 6 per cent.

The data followed weak trade and inflation readings, raising the chances that China's economic growth may dip below 7 per cent in the third quarter for the first time since the global financial crisis. Some economists believe growth is already much weaker than official data suggests.

Fears of a hard landing, the prospect of deflation and billions of dollars spent on keeping the yuan steady raise the prospect of more rate cuts and currency devaluation by Beijing, setting markets up for more volatility.

3. Greeks return to polls in cliffhanger election

Greeks are voting for the fifth time in six years as former prime minister Alexis Tsipras seeks a fresh mandate to push through tough reforms pledged under a new €86-billion (S$137.6 billion) international bailout.

But the Sept 20 election could deliver a hung Parliament with the latest opinion polls last Sunday giving the Mr Tsipras' leftist Syriza party only a razor-thin lead over its conservative rivals. With neither Syriza nor New Democracy expected to win an outright majority, at least three other smaller parties - centrist To Potami, the Pasok socialists and the nationalist Independent Greeks - could find themselves in government.

In addition to Greece's deep economic woes, migration is set to become a key campaign issue with the Greek islands struggling with a huge influx of refugees from war-torn Syria, in addition to economic migrants from Afghanistan, Pakistan and other poor nations. Another tragedy struck last Sunday, with at least 34 migrants drowning in the Aegean Sea, many of them babies and children.

4. GE2015 is over but Singapore's economic woes remain

In the days before Polling Day, credit rating agency Moody's and DBS Bank cut their forecasts for Singapore's economic growth this year to below 2 per cent - the lower threshold of the government's forecast range - citing global market turbulence and China's economic slowdown.

More clues as to how much these factors are weighing on the economy will come this data-heavy week, especially with the release of August non-oil domestic exports on Thursday (Sept 17). July retail sales, August new private home sales and final second-quarter jobless rate figures will be released on Tuesday (Sept 15).

5. Other central bank moves

The Bank of Japan announces its rate decision on Tuesday (Sept 15) and Governor Haruhiko Kuroda is expected to offer a bleaker view on overseas economies and may lower its assessment on the country's exports this week.

The Swiss National Bank is also expected to keep policy steady but markets expect the bank to say that it is ready to cut the deposit rate even further into negative territory if necessary.