Markets Insights

Oil prices, China PMI data in focus this week

The electronics segment has been a key driver behind Singapore's strong manufacturing growth this year, on the back of robust global demand for semiconductors and related equipment.
The electronics segment has been a key driver behind Singapore's strong manufacturing growth this year, on the back of robust global demand for semiconductors and related equipment.PHOTO: LIANHE ZAOBAO

Results of bank stress test by US Fed will also be closely watched

A short trading week ahead in Singapore plus Wall Street's subdued finish last Friday could dampen initial activity, although a slight uptick in oil may provide some support.

The Singapore market is closed today, but local stocks could get a fillip later this week as this Friday marks the last trading day of June and the end of the second quarter when investors typically conduct their month-end window dressing.

The United States Federal Reserve is announcing the results of the second part of its annual US bank stress test on Wednesday, which is expected to be a key event for stock markets.

In the first round, the Fed found that major US banks have big enough capital buffers to keep trading through an economic meltdown.

Although financial stocks did not react much to the passing of the first round, the second round could be markedly different as investors will find out how much capital banks can return through dividends and share buybacks, IG market strategist Pan Jingyi said.

"This could translate to a boost for bank stocks," she said.

Regional macro data such as China's manufacturing Purchasing Managers' Index (PMI) numbers could provide some direction.

Serving as a bellwether for Asia's manufacturing sector, China's June PMI, to be released on Friday, and last month's industrial profits data to be released tomorrow, will be closely watched.

Some support could also come from Singapore's manufacturing sector's continued output growth last month even as the pace of growth continued to ease.

Singapore's manufacturing output rose 5 per cent last month from a year earlier, weighed down by the pharmaceuticals segment. Excluding biomedical manufacturing, output grew 13.1 per cent.

Electronics output rose by 35.1 per cent year on year last month, down from the 48.2 per cent surge in April, according to figures released by the Economic Development Board last Friday.

The segment has been a key driver behind strong manufacturing growth this year, on the back of robust global demand for semiconductors and related equipment.

It has also helped lift Singapore's export numbers this year.

"Economic growth in the second half could pick up momentum from a low base, as non-oil domestic exports are in recovery mode. Encouraging first-quarter results point to earnings recovery in 2017," UOB KayHian analyst Andrew Chow said in a report.

"In first-quarter earnings, banks provided a lot of comfort in terms of asset quality... Exporters, particularly the likes of Venture Corp and Memtech, also provided solid upside surprises," he added.

Oil prices will likely continue to be closely watched after crashing to fresh 10-month lows last week, with further weakness expected in the near term due to rising supply from the United States and members of the Organisation of the Petroleum Exporting Countries that are exempt from the production cuts. This could negate the oil cartel's efforts to support prices.

Sliding oil prices have added to concerns about the US inflation outlook, which could pose a challenge to the Fed's efforts to hike rates another time this year.

A version of this article appeared in the print edition of The Straits Times on June 26, 2017, with the headline 'Oil prices, China PMI data in focus this week'. Print Edition | Subscribe