BULLS AND BEARS

Santa Claus rally unlikely to happen

The price of US crude has dropped 17 per cent over the past three weeks, its biggest percentage decline over that period in nearly a year.
The price of US crude has dropped 17 per cent over the past three weeks, its biggest percentage decline over that period in nearly a year. PHOTO: REUTERS

Caution in the air after oil price plunge caused stocks to skid on Wall Street

Wall Street's 2.1 per cent plunge last Friday in the wake of the oil price rout could send Asian bourses, including Singapore, sliding further this short trading week.

Caution is expected to rule ahead of the Christmas holiday on Friday. Traders are hoping for a Santa Claus rally, even though it looks increasingly remote.

The Dow industrials plunged 2.1 per cent to its lowest closing level in about two months as a rally spurred by the Federal Reserve's move to raise interest rates fizzled out and a strengthening US dollar and oil glut fears sent oil prices skidding. The S&P 500 dropped 1.8 per cent, while the Nasdaq Composite fell 1.6 per cent.

"There are growing doubts over whether the timing of the rate hike is correct," remisier Alvin Yong said. "Let's hope (today) won't be Black Monday for the STI. In the best-case scenario, we may see a 20-point drop from current levels. In the worst-case scenario, a 50-point drop."

The Straits Times Index (STI) fell 0.29 per cent to 2,852.84 last Friday, though it managed to eke out a 0.6 per cent gain for the week.

Crude oil lost 0.6 per cent to US$34.73 a barrel, while Brent shed 0.5 per cent to US$36.88 a barrel. The price of US crude has fallen by 17 per cent over the past three weeks, its biggest percentage decline over that period in nearly a year.

Oil-related counters such as Keppel Corp and Sembcorp Marine are expected to come under further pressure this week.

According to RHB, Ezion Holdings is one of many casualties in the depressed oil and gas sector, where markets are pricing such stocks as though oil prices will stay under US$40 a barrel for the long term.

But RHB maintains a buy call on Ezion, noting that the offshore marine logistics firm has entered into an agreement with a Chinese state- owned enterprise to support windpower installation projects in China.

"This opens up another avenue of growth for the company, whose assets and management skills are well suited for wind-farm installation projects," RHB said.

Fears are growing that the Fed is starting to tighten in an economy that is beginning to weaken, Mr Yong said. The flash Markit US Services Purchasing Managers' Index for this month fell to 53.7 - the lowest in 12 months - compared with the final November data of 56.1.

Investors are eyeing US gross domestic product and core personal consumption expenditure data due tomorrow as well as new home sales and personal income spending data due on Wednesday for signs about the health of the US economy.

Clues to the health of Singapore's economy will likely come from the Consumer Price Index data due on Wednesdayand industrial production data due on Thursday. Major trading partners in the Asia-Pacific region, including Singapore, will see the largest negative impact on growth in the face of a Chinese slowdown, according to Fitch Ratings.

A version of this article appeared in the print edition of The Straits Times on December 21, 2015, with the headline 'Santa Claus rally unlikely to happen'. Print Edition | Subscribe