Markets Insight

US hogging the limelight, with rate hike a lingering issue

Dr Yellen (right) will host a town hall meeting with educators on Thursday but US President-elect Donald Trump's news conference the day earlier may have a greater impact on markets.
Dr Yellen (right) will host a town hall meeting with educators on Thursday but US President-elect Donald Trump's news conference the day earlier may have a greater impact on markets.PHOTO: AGENCE FRANCE-PRESSE

Events unfolding in the United States are likely to lead the markets in the coming days.

"The week ahead will carry appearances from several Fed officials. Most notably, Federal Reserve chair Janet Yellen will host a town hall meeting with educators on Thursday," IG market strategist Pan Jingyi said.

This will follow the December non-farm payrolls data out last Friday, which showed a lower-than- expected number of jobs created, but a rebound in wages still suggested the labour market is healthy and conducive to interest-rate hikes.

"Trumping Dr Yellen's appearance in importance for the economy could be President-elect Donald Trump's news conference on Wednesday. Details have been kept vague, but investors would likely keep their eyes peeled for any policy mentions," she added.

Expectations that the Trump presidency - set to start on Jan 20 - will herald new fiscal stimulus and pro-business policies have excited the US market for weeks.

Wall Street's key indices again broke new highs, and the Dow Jones Industrial Average closed just a hair under the anticipated milestone of 20,000 points.

This bullish backdrop has helped the local market start the new year on a high note. The benchmark Straits Times Index rose 2.84 per cent in the first week of this year, the best stretch since July.

There is hope that this will set the tone for the coming months. DBS retail market strategist Yeo Kee Yan, for instance, believes that corporate earnings have bottomed out, pegging the STI at 3,150 by mid-year.

It last closed at 2,962.63.

But others are less certain. KGI Securities Singapore trading strategist Nicholas Teo emphasised that investors should not sleep on the US rate hikes.

"Unlike events such as Brexit, faster-than-expected rate hikes will have an immediate and tangible impact on regional corporates, which have built up a lot of debt in the current low-rate environment. Rising interest rates and US dollar could spell trouble for those highly leveraged companies," he said.

In Singapore, one of the sectors that are closely watched is property developers and real estate investment trusts (Reits) because of their typically high level of debt.

"Noteworthy is the close to $6.3 billion of bonds - $4 billion among developers - expiring over 2017 and 2018, where issuers will need to source for refinancing or alternative means to repay the bonds," DBS research team said in a note last week.

"These are Reits that provide higher confidence in earnings sustainability and visibility, stronger relative growth and lower gearing which limits impact of rising rates on distributions," DBS said.

These include Ascendas Reit, Keppel Reit and Mapletree Commercial Trust.

A version of this article appeared in the print edition of The Straits Times on January 09, 2017, with the headline 'US hogging the limelight, with rate hike a lingering issue '. Print Edition | Subscribe