Markets Insights

Investors await Fed, BOJ meetings

While this week's US Federal Reserve meeting may not result in a rate hike, investors are looking for the Fed's message on the state of the US economy. What is more nerve-racking is the outcome of Bank of Japan's July meeting starting this Thursday.
While this week's US Federal Reserve meeting may not result in a rate hike, investors are looking for the Fed's message on the state of the US economy. PHOTO: AGENCE FRANCE-PRESSE
While this week's US Federal Reserve meeting may not result in a rate hike, investors are looking for the Fed's message on the state of the US economy. What is more nerve-racking is the outcome of Bank of Japan's July meeting starting this Thursday.
What is more nerve-racking is the outcome of Bank of Japan's July meeting starting this Thursday. The Nikkei index plunged 3.1 per cent on June 16 after the BOJ's last meeting. PHOTO: REUTERS

Stock markets likely to be more cautious over next few days, after previous weeks of gains

After another week of gains across the global bourses, stock-market bulls may turn hesitant in the coming days as they await the outcome of key central bank meetings.

The United States Federal Reserve is set to start its two-day July meeting tomorrow, bringing the questions around the next interest rate hike back to the fore.

Judging from the recent Fed official comments, a decision to raise rates is very unlikely to be taken at this meeting, IG markets strategist Bernard Aw said.

"What the investors will look out for is (the Fed's) post-decision statement, where we could see the message saying that the US economy is on a more solid footing than it was in June," he said.

The orderly return to normalcy in the financial markets after the Brexit vote and the better-than-expected June job data are likely to be factors that will determine if another hike takes place by the year end.

The Dow Jones Industrial Average added 0.3 per cent last week to mark four straight weeks of run-up, while London's FTSE 100 saw five straight weeks of gains in the post-Brexit rally, helped in part by expectations of imminent stimulus from the Bank of England.

In Asia, the Bank of Japan's July meeting - starting on Thursday - is also in focus, but there is less clarity on this front. "Instead of the Fed hike, investors are now more concerned about the BOJ's upcoming decision. If it disappoints the market expectation for easing, expect some volatility just like last month," remisier Alvin Yong told The Straits Times, referring to the Nikkei's 3.1 per cent plunge on June 16 after the last BOJ meeting.

"So it'll be a nail-biting wait for investors, Singapore's included, and the STI (Straits Times Index) will likely stay range-bound this week. But it'll still be on track to finish the year at 3,200 if both the Fed and BOJ act as expected," Mr Yong added.

The local benchmark STI rose a further 0.68 per cent last week, pushing the recovery since Brexit to some 7.7 per cent in line with the recent global momentum.

But a slew of result announcements revealed the bumpy business environment in the backdrop. Among them, Keppel Corp's 48 per cent drop in second-quarter net profit triggered a further sell-off on the firm. It shed 1.43 per cent last Friday and was down 2.1 per cent for the week to $5.50.

Investors have also been bearish on Sembcorp Marine - its shares dropped 4.5 per cent last week to $1.48, ahead of its second-quarter results this Thursday.

Poor sentiments surrounding the offshore and marine segment are not helped by the fragility of oil prices, with crude oil Brent futures now below US$46 a barrel.

The sluggishness of the oil and gas industries has also created issues for other segments, including the local banks.

With both OCBC Bank and United Overseas Bank releasing their second-quarter results on Thursday, the non-performing loans (NPLs) exposure of the banking sector to the oil and gas companies will again grab the market's attention.

OCBC's total NPL was $2.15 billion in the first quarter, up 60 per cent year on year, while UOB's rose 16.3 per cent to $2.84 billion. DBS Group Holdings - which is scheduled to announce its second-quarter results on Aug 8 - also reported higher first-quarter NPL, up 7.6 per cent to $2.69 billion.

A version of this article appeared in the print edition of The Straits Times on July 25, 2016, with the headline 'Investors await Fed, BOJ meetings'. Print Edition | Subscribe