Markets Insights

Singapore likely to see weak start to trading week

A nearly empty food court in a shopping mall in Milford, Connecticut. The US' first-quarter growth is the weakest since the first quarter of 2016 and follows a robust 2.1 per cent expansion in the fourth quarter.
A nearly empty food court in a shopping mall in Milford, Connecticut. The US' first-quarter growth is the weakest since the first quarter of 2016 and follows a robust 2.1 per cent expansion in the fourth quarter.PHOTO: AGENCE FRANCE-PRESSE

Mood set to be hit by flat Wall St close and oil price turbulence after Opec meeting

The trading week in Singapore is likely to start on a weaker note after Wall Street closed almost flat ahead of the Memorial Day holiday in the United States and oil prices hit turbulence following last week's Opec meeting. The S&P 500 Index added 0.75 point on Friday, while the Dow Jones dipped 2.67 points. The Straits Times Index (STI) finished the week a hair higher at 3,219.42.

DBS Group Research said the STI has "priced in recovery optimism".

"While it is possible for the index to head for 3,350 by year end, we keep our view for near-term resistance at 3,250 with pullback support at 3,150," it said.

Investors are watching to see how markets will react to US President Donald Trump backing a pledge to fight protectionism, under pressure from the Group of Seven meeting on Saturday, but refusing to endorse a global climate change accord for now.

Analysts say there is also caution after US first-quarter gross domestic product came in at 1.2 per cent instead of the 0.7 per cent growth reported last month.

While the first-quarter reading is not as bad as feared, it is the weakest performance since the first quarter of 2016 and follows a robust 2.1 per cent expansion in the fourth quarter. The government cited smaller-than-expected US inventory investment, raising doubts over Mr Trump's ambitious goal to lift annual growth to 4 per cent.

Also keenly watched is the release of the US May non-farm payrolls on Friday, with Bloomberg's market consensus pointing to an addition of 176,000 jobs, down from April's 211,000 rise.

While US equity markets have staged a seven-day rally, these positive leads may hit roadblocks in the week ahead, especially with politics likely to be back in the spotlight this week, IG market strategist Pan Jingyi said.

A potential market dampener is a Reuters report that Mr Trump's son-in-law and close adviser, Mr Jared Kushner, had at least three previously undisclosed contacts with the Russian ambassador to the US during and after the 2016 presidential campaign. Mr Kushner has become a focus of the FBI investigation into whether there was any collusion between the Trump campaign team and the Kremlin.

"Should we find any aggravation of the situation in the Trump-Russia investigation, this could trigger a sell-off in global markets again," Ms Pan said.

Thin trading is also expected at the start of the week as the China and Taiwan markets are closed today, and Hong Kong will close tomorrow. Investors will likely keep a close eye on China's official manufacturing numbers to be released midweek, as concerns over China's growth slowdown have intensified with Moody's latest credit-rating revision of the world's No. 2 economy.

Capital Economics, in a report on Friday, noted that Asia's "current credit binge is unsustainable, and that credit growth in a number of countries will need to slow for a crisis to be avoided".

It added that interest rates in Singapore have already started to rise, and are likely to increase further "if we are right" that the US Fed will hike rates fairly aggressively in the next couple of years. "There is a risk that higher borrowing costs may set off a sharp rise in defaults that eventually leads to a banking-sector crisis. But Singapore's banking sector is well capitalised, which should help reduce the risk of a hard landing," it said.

A version of this article appeared in the print edition of The Straits Times on May 29, 2017, with the headline 'Singapore likely to see weak start to trading week'. Print Edition | Subscribe