Both confusion and relief for Singapore share market after Fed holds fire on rates

People walking past a stock board showing stocks in red outside the Singapore Exchange on Aug 12, 2015.
People walking past a stock board showing stocks in red outside the Singapore Exchange on Aug 12, 2015. PHOTO: REUTERS

SINGAPORE - Local shares rallied mid morning after an initial muted response to news that the US Federal Reserve held off pulling the trigger on raising interest rates on Thursday (Sept 17).

Hopes that the era of easy money may be extended for a while longer and a recovery in Chinese equities helped fuel a relief rally this morning across many Asian bourses except Japan.

As at 11.32 am, the Straits Times Index was up 0.58 per cent or 16.88 points to 2,912.69. The index fell 0.2 per cent at the opening bell and traded sideways for about an hour before rising on the back of a recovery in Chinese equities.

"Confusion is the word of the day because we don't know if it's good that rates are kept low, or if it's bad that their economic projections are so weak," Phillip Futures investment analyst Howie Lee said.

"Judging by the way the STI was fluctuating at the opening, and the way the Dow swung from gains to losses yesterday, it shows equity investors are confused. We are in a grey zone, until we get a clearer picture from the next big economic data, which will be US nonfarm payrolls on Oct 2," Mr Lee said.

The Fed stayed its hand on its first rate rise in nearly a decade as it admitted that "uncertainties abroad" had made it more risky to tighten policy.

Financial market volatility in recent months, after a global stock market sell-off triggered in part by fears over a slowing Chinese economy, "may restrain economic activity", it warned. The Fed's policymakers said that this could put "downward pressure on inflation in the near term".

Most Asian bourses rallied on hopes that the Fed will hold off raising rates until next year, traders said.

Reactions to the Fed's non-action were mixed. "The delay in raising rates should be a positive, so we were puzzled by the muted response of the STI initially. But Wall Street's performance was uninspiring, and traders tend not to want to hold positions over the weekend," remisier Alvin Yong said.

"My clients were relieved there wasn't a rate hike, and many are bargain hunting the property counters and Reits because the delay will put a short-term lid on the Sibor," he said.

The three-month Singapore interbank offered rate (Sibor), which is used to set mortgage rates, rose to 1.13958 per cent yesterday from 1.13100 per cent on Monday. The three-month swap offer rate (SOR), which prices commercial loans, was quoted at 1.33757 per cent, down from 1.56100 per cent on Monday.

Gold prices, meanwhile, rallied for a second straight session on the delayed rate hike. As at 11.20am yesterday, gold jumped nearly 1 per cent to US$1,128.18, and was up 1.3 per cent on Wednesday to US$1,119.50 per ounce.