Markets unfazed ahead of Fed meeting

Trading on the New York Stock Exchange, where the Dow Jones Industrial Average rose last Friday.
Non-farm payroll data showed that 235,000 jobs were created in the US in February, more than the estimated 190,000 jobs.PHOTO: AGENCE FRANCE-PRESSE
Non-farm payroll data showed that 235,000 jobs were created in the US in February, more than the estimated 190,000 jobs.
Trading on the New York Stock Exchange, where the Dow Jones Industrial Average rose last Friday.PHOTO: BLOOMBERG

Interest rate hikes priced in for a while now, analysts say; issue is whether they will be speeded up

After all the handwringing in recent months over the next Federal Reserve interest rate hike, the local stock market is quite calm now that the hike is apparently nearly here.

The almost-certain hike after the Fed meeting this week has been fully priced in for a while, analysts said.

The main issue now is whether the Fed will flag its intention to speed up further hikes.

At the end of the two-day meeting - starting tomorrow morning Singapore time - Fed chairman Janet Yellen is expected to announce this year's first rate hike.

Bloomberg forecasts have given a 100 per cent probability to a 0.25 percentage-point hike at this meeting.

EXPECT THE EXPECTED

After the payroll (data) on Friday - the last piece of data that could derail the hike - and given how well forecast the Fed decision is, I don't think there'll be any surprise and knee-jerk reactions.

BANK OF SINGAPORE CHIEF INVESTMENT OFFICER JOHAN JOOSTE

The Straits Times Index was unfazed, gaining 0.44 per cent yesterday, following the 0.21 per cent rise in the Dow Jones Industrial Average last Friday. Hong Kong put on 1.11 per cent and Tokyo rose 0.15 per cent.

"After the payroll (data) on Friday - the last piece of data that could derail the hike - and given how well forecast the Fed decision is, I don't think there'll be any surprise and knee-jerk reactions," Bank of Singapore chief investment officer Johan Jooste told The Straits Times.

The non-farm payroll data showed that 235,000 jobs were created in the US in February, more than the estimated 190,000 jobs.

"A more important thing to note is whether the Fed shows a more hawkish stance. I don't think that's on the cards now, but even if it is, keep in mind that the Fed rates are still far below the historical level," Mr Jooste said.

A Fed interest rate hike is usually seen as negative for Asian capital markets, as it tends to push up domestic interest rates and leads to a stronger US dollar, both a problem for regional companies.

There is a "50-50" chance that the Fed may aim for more hikes than the three rounds commonly expected for this year, but these are more medium-term concerns, National Australia Bank senior market strategist Julian Wee said.

He expects the greenback to hit 1.45 to the Singapore dollar only in the second half this year - it was around 1.412 yesterday evening.

Still, some market watchers are urging investors to be cautious of how rising interest rates may come into play.

In the local market, this could have a negative knock-on effect on the property sector, CMC Markets analyst Margaret Yang said.

"Notions of quicker hikes may lead to pullback on property stocks and real estate investment trusts, because they are considered more vulnerable to rising interest rates," she noted.

This may disrupt the positive sentiment on local property counters following the Government's surprise move last Friday to relax the rules around the seller's stamp duty, among other changes.

Property stocks' performance turned mixed yesterday after Friday's bullish showing. City Developments added 3.45 per cent, while UOL Group gained a smaller 0.29 per cent. CapitaLand, however, pared 0.27 per cent.

Ms Yang called the excitement around property stocks a display of "animal spirits" that may fizzle out soon.

"The tweaks mainly benefit the sellers' market, which means more sales, more supply and weaker prices. The market view doesn't exactly make sense and I don't see a sustained push," she added.

A version of this article appeared in the print edition of The Straits Times on March 14, 2017, with the headline 'Markets unfazed ahead of Fed meeting'. Print Edition | Subscribe