MARKETS INSIGHTS

Muted trading 'likely to continue'

A Glencore plant in Germany. The Swiss mining giant saw a massive sell-down last Monday over debt worries and low commodity prices, although it has since recovered.
A Glencore plant in Germany. The Swiss mining giant saw a massive sell-down last Monday over debt worries and low commodity prices, although it has since recovered. PHOTO: BLOOMBERG

Traders still jittery this week amid ongoing concerns over global economy, say analysts

Analysts expect traders to steer clear of risk on the local bourse this week amid ongoing concerns over the health of the global economy.

The Straits Times Index (STI) endured a rough week last week, sliding 1.41 per cent for the week to close at 2,793.15 points last Friday.

The benchmark index entered bear territory last Monday as it sank below the 2,800 support level, pummelled by worries over China's slowing economy and the timing of the United States interest rate hikes.

So far this year, the STI has tumbled more than 20 per cent from its peak of 3,550 points in April.

Commodity stocks, in particular, had a choppy week as Swiss mining giant Glencore saw a massive sell-down last Monday over debt worries and low commodity prices, although it has since recovered.

Trading firm Noble Group was battered, falling 3.7 per cent to 39.5 cents last Friday - adding up to a heavy weekly loss of 15.2 per cent.

The three local banks were shaky as well. DBS Group Holdings, for instance, continued on its downward trajectory to shed 0.86 per cent to $16.13 last Friday, losing nearly 4 per cent over the week.

"We may see the STI do another leg downwards," said remisier Desmond Leong. He added that more volatility may be coming, with the Chinese markets set to react to one week's worth of news when they resume trading on Thursday.

"The next support level is 2,700 - if the market continues to be weak, we could hit that," said Mr Leong

Traders will be keeping an eye out for the minutes of the Sept 16 to 17 Federal Open Market Committee (FOMC) meeting, to be released this week, for more clues on the impending interest rate hikes.

"Given the impact of the September decision, market watchers will dissect the minutes for further clues of the timing of the first rate hike," said IG market strategist Bernard Aw.

While Federal Reserve officials held off raising interest rates last month, they suggested previously that the economy is strong enough for higher rates to kick in by the end of this year.

Said Mr Leong: "If the FOMC minutes do indicate that a rate hike will happen in December, this should give the banks some relief."

Real estate investment trusts (Reits), on the other hand, could suffer.

He said: "People are still investing in Reits because the current interest rates are low. But when the interest rates go up, the Reits will have more competition."

In the US, Wall Street jumped 1.23 per cent last Friday, lifted by a rally in energy and materials stocks, even though a highly anticipated

US jobs report fell short of expectations.

"The silver lining with this disappointing jobs number is that, possibly, this could push the rate hike off to the first quarter of 2016," Mr Jake Dollarhide, chief executive of Longbow Asset Management in Tulsa, Oklahoma, told Reuters.

The Fed is scheduled to meet this month and again in December, with the final month of the year touted by market watchers as the most likely time for the rate hike.

A version of this article appeared in the print edition of The Straits Times on October 05, 2015, with the headline 'Muted trading 'likely to continue' MarketsInsights'. Print Edition | Subscribe