MARKETS INSIGHT

Volatility likely as worries over growth and oil persist

A metal processing factory in Tokyo. There is speculation that the Bank of Japan, which meets next week, will unveil more stimulus measures to boost the country's stalling growth.
A metal processing factory in Tokyo. There is speculation that the Bank of Japan, which meets next week, will unveil more stimulus measures to boost the country's stalling growth. PHOTO: REUTERS

Investors seeking clarity from central banks in US, Japan which are meeting next week

After a bullish week that saw Singapore shares recording their strongest rally in a month, analysts expect market sentiment to turn volatile in the coming weeks as uncertainties around oil prices and global economic growth persist.

Investors will keep their wary eyes on key messages and potential easing moves from major central banks, while hoping that oil producers would agree to freeze production at their Doha meeting over the weekend.

"The Straits Times Index (STI) had a strong week due partly to the oil price recovery, itself triggered by expectations of an output freeze agreement at the Doha meeting. But that hope has dimmed after Iran's refusal to play ball," remisier Alvin Yong said, referring to Teheran's unwillingness to curb its own production.

This spooked traders into a selloff that sent Brent crude futures down 1.7 per cent to US$43.10 a barrel last Friday, following an 18 per cent surge since April 5.

Regardless of the outcome at the Doha meet, OCBC economist Barnabas Gan said the fundamentals for oil prices are in fact holding up despite the current volatility.

"It is still encouraging to see stronger net-long speculative oil positions, while US oil production maintained its decline for the fourth consecutive month in March," he said. "We remain bullish on oil prices, with both Brent and West Texas Intermediate pencilled at US$50 per barrel by year end."

But investors will remain cautious for now, Mr Yong noted.

He added: "I see the STI staying range-bound and unlikely to touch 3,000, as people also wait for more clarity from the Bank of Japan and the FOMC (Federal Open Market Committee) meetings in April."

Both central banks will hold their April meeting next week, and speculation is rife that the Bank of Japan will unveil more stimulus measures to boost the country's stalling growth.

A 6.7 per cent first-quarter growth rate in China - its weakest since 2009 - is also stoking hope for another rate cut in the country.

Over in the United States, while an April interest rate increase by the Fed is off the table after its chairman Janet Yellen advised caution, the meeting will send signals on the timetable for rate hikes this year as well as a reading of the growth outlook.

The latest key data - a 0.6 per cent month-on-month drop in March industrial production - gave no ground for a hawkish monetary stance.

Meanwhile, back in Singapore, first-quarter results will provide more signs on where the corporate sector is heading, with blue chips such as Keppel Corp, Singapore Exchange (SGX) and Hutchison Port Holdings Trust issuing their financial reports this week.

Keppel Corp will announce its January-March results today, and market expectations are for another set of weak earnings hemmed in by the languishing energy and marine industry.

"Massive number of deferments and potential cancellations are taking a toll on yard efficiency and balance sheets while new orders are few and far between," DBS said earlier this month when Keppel Corp won a $190 million contract from MODEC - its first this year.

Hutchison Port Holdings Trust will also announce its first-quarter results today, followed by SGX on Wednesday.

A version of this article appeared in the print edition of The Straits Times on April 18, 2016, with the headline 'Volatility likely as worries over growth and oil persist'. Print Edition | Subscribe