Markets Insights

Short but volatile week likely for S'pore market

Traders at the New York Stock Exchange. The Dow Jones Industrial Average fell 2.1 per cent on Friday after Mr Rosengren said there was a reasonable case for gradual rate increases.
Traders at the New York Stock Exchange. The Dow Jones Industrial Average fell 2.1 per cent on Friday after Mr Rosengren said there was a reasonable case for gradual rate increases.PHOTO: BLOOMBERG
Traders at the New York Stock Exchange. The Dow Jones Industrial Average fell 2.1 per cent on Friday after Mr Rosengren (above) said there was a reasonable case for gradual rate increases.
Traders at the New York Stock Exchange. The Dow Jones Industrial Average fell 2.1 per cent on Friday after Mr Rosengren (above) said there was a reasonable case for gradual rate increases.PHOTO: BLOOMBERG

Fed president's remarks on rate hikes spark Wall Street's biggest sell-off since Brexit

More volatility is expected on the local bourse this short trading week after Wall Street suffered its biggest sell-off on Friday since the shock Brexit referendum in June.

The Singapore market is closed today for Hari Raya Haji.

The Dow Jones Industrial Average plunged 2.1 per cent on Friday after Boston Fed president Eric Rosengren - a voting member on the United States Federal Reserve's interest-rate setting board - said there was a reasonable case for gradual rate increases.

This, along with more "Fedspeak" this week from three more voting members of the Fed, could inject more volatility in the market ahead of the Sept 20-21 meeting of the policy-setting Federal Open Market Committee.

Traders are waiting to hear from Fed governor Lael Brainard, who is seen as "someone inside the (Fed chair Janet) Yellen circle who tends to want to wait" and will stay firmly in the dovish camp, a dealer said.

SLUGGISH

For the rest of the year, we see the Singapore market exhibiting the same range-bound trading behaviour that we have seen for most of this year, as subpar profitability due to a weak macro outlook caps upside.

MS KUM SOEK CHING, head of South-east Asia research, private banking research at Credit Suisse, on the local bourse.

In Singapore, market watchers are eyeing August non-oil domestic exports and retail sales due out later this week for signs of the local economy's health.

It was no surprise that the second-quarter reporting season was uninspiring, with earnings falling short of forecasts across the commodity, palm oil and offshore marine sectors. Any potential recovery in local earnings continues to be stifled by weak macroeconomic factors, weakening domestic demand and sluggish export growth.

Ms Kum Soek Ching, head of South-east Asia research, private banking research at Credit Suisse, said: "The most significant earnings downgrades were made in consumer staples and discretionary sectors, while telco services and healthcare saw upgrades.

"For the rest of the year, we see the Singapore market exhibiting the same range-bound trading behaviour that we have seen for most of this year, as subpar profitability due to a weak macro outlook caps upside."

Local banks are expected to be weighed down in the third quarter by rising credit costs and muted loan demand due to a weak economy. But they are set to benefit from higher short-term rates once the Fed resumes rate tightening .

Ms Kum said: "We reiterate that the banking sector is facing a dry season in earnings rather than a systemic crisis, given the banks' strong capital positions.

"The risk of a deterioration in asset quality and credit cost uncertainty is likely to put a dampener on Singapore banks' performance in the weeks ahead.

"However, we believe that an actual increase in provisions would set the stage for a bottoming in stock prices. The experience of other Asean banks also suggests that share prices recover on signs of a peak in provisions."

A long-drawn-out bottoming process for offshore and marine players is on the cards, she added.

"Swiber's application for judicial management topped months of bad news in the local O&M sector... We do not think that the slide in O&M earnings has reached an end, as order wins are below 2015 levels and rig deliveries are delayed.

"Nevertheless, we believe that stock prices of the O&M leaders have factored in most of the negative news, with valuations at historical lows, although in the absence of a catalyst, we see the O&M leaders trading at current distressed levels for the next three to six months," she said.

Traders will continue to watch the US Energy Information Administration report this week for cues on oil prices. A sustained fall in supply following last week's surprise massive drawdown in US oil inventories may be unlikely, given that the disruption in production and shipment was due to bad weather, IG market strategist Bernard Aw said.

A version of this article appeared in the print edition of The Straits Times on September 12, 2016, with the headline 'Short but volatile week likely for S'pore market '. Print Edition | Subscribe