5 things to know before the Singapore market opens this week: Dec 14-20

A Federal Reserve police officer walks past the Marriner S. Eccles Federal Reserve building in Washington.
A Federal Reserve police officer walks past the Marriner S. Eccles Federal Reserve building in Washington.PHOTO: BLOOMBERG

1. The Fed awakens - rate lift-off at last (most probably)

As Reuters put it so well: After years of waiting, it is finally here. No, not Star Wars: The Force Awakens, but the Federal Reserve's first rate hike in nearly a decade.

At least that is what almost everyone is expecting: 90 per cent of economists in the latest Reuters poll predict the US central bank will "use the force" and raise its benchmark federal funds rate by a quarter of a percentage point, taking it to 0.25-0.5 per cent.

Fed officials will meet for two days, starting on Tuesday (Dec 15), with the rate decision and announcement coming at 3am on Thursday, Singapore time.

The same Reuters poll saw a very gradual pace of subsequent increases, with the rate rising to between 1 and 1.25 per cent by the end of 2016 and to 2.25 per cent by end-2017.

And there's the rub. While a rate lift-off - after all the economic data and signals from Fed officials - will come as no surprise at all to financial markets, what will matter more is what the Fed chair Janet Yellen says about the pace of subsequent rate hikes.

Economists are expecting Ms Yellen to give market-calming comments underlining the Fed's patience in raising rates because any hints of an aggressive schedule of future rate increases could send already volatile stock markets plummeting.

A handful of other US bellwether economic indicators will also be released this week, including the inflation-measuring consumer price index on Tuesday and a report on housing starts on Wednesday.

2. Emerging markets also face rate decisions

This week also sees rate decisions from the central banks of Japan, Uganda, Sweden, Norway, Hungary, Mexico, Indonesia, the Philippines, Egypt and Chile, some of which are already battling to support currencies hit by expectations of a US rate hike. Higher interest rates make US assets more attractive to investors who might then pull put funds from weaker economies.

Franklin Templeton's star bond investor Michael Hasenstab told Reuters that higher US rates would magnify differences between emerging market economies in 2016, although he said concerns about a "systemic crisis" were exaggerated.

Mr Hasenstab said stronger economic fundamentals should make countries like South Korea, Mexico and Malaysia resilient but that weaker Turkey and South Africa, both of which have hefty current account deficits, could be more negatively affected.

3. Singapore exports and retail data in focus

Figures on non-oil exports for November are due on Thursday, with October retail sales and November new private home sales scheduled for Tuesday.

Private sector economists have downgraded their outlook for the Singapore economy this year, with slower growth predicted across all sectors. Growth should come in at about 1.9 per cent for the year, down from the 2.2 per cent previously forecasted, according to the majority of the 22 economists polled by the Monetary Authority of Singapore.

With the Fed likely to raise rates this week, interest rates here are also likely to edge up. The three-month Sibor could hit 1.25 per cent, the poll said.

4. Slew of business sentiment and PMIs this week

After unexpectedly strong readings in November, the monthly Ifo and ZEW surveys are expected to show German business and economic sentiment remain relatively robust although they may fall short of last month.

Purchasing managers' index (PMIs) for the manufacturing in France, Germany and the euro zone are due on Wednesday, hours before the Fed announces its rate decision.

Thursday's survey of French business sentiment will be the first taken in the euro zone's second-largest economy since the Paris Islamist attacks that killed 130 people on Nov 13.

Wednesday also brings the final reading of November euro zone inflation, after an initial release on Dec 3 showed annual price growth at a lower than expected 0.1 per cent and core inflation - excluding volatile energy - unexpectedly slowing.

That helped prompt further stimulus measures from the European Central Bank last week, one of 43 central banks which in contrast to the Fed have loosened monetary policy this year to help spur inflation and growth.

5. Here we go again: Will the US avoid a government shutdown?

Another government shutdown is looming in the US. Congress delayed it for five days when they passed a stopgap spending Bill on Friday. However, that just brought the deadline forward to this week when US lawmakers will have to agree on a US$1.1 trillion (S$1.55 trillion) long-term Bill to keep government agencies funded through most of 2016. So far, the Bill has been delayed by political debates over issues such as Planned Parenthood funding and Syrian refugees.

The last US government shutdown was in 2013. While history shows shutdowns do not hurt the US stock market in the long run, they do cost the economy and add to volatility - something markets want to avoid this week with the Fed move in sight.

Sources: Reuters, Wall Street Journal, Fox Business News