Markets Insight

All eyes on Yellen after gloomy report on US jobs data

Markets globally, including Singapore, will be eyeing a key speech by Federal Reserve chairman Janet Yellen tomorrow, after Friday's release of data showing shockingly low payroll growth.

Dr Yellen will speak at the World Affairs Council of Philadelphia in the United States.

Market participants are divided over the impact of the weakest monthly gain of 38,000 US jobs in over five years, with many analysts saying it will likely cause the Fed to push back another interest rate hike.

At home, some market observers expect the Straits Times Index (STI) to trade within a range until the next Federal Open Market Committee (FOMC) meeting on June 15. Until the latest jobs report, global and US economic developments had satisfied the preconditions for raising rates this month. Now, many traders believe that has been pushed back.

Capital Economics, however, said in a Friday report that investors are unlikely to stay on the sidelines for long as "low valuations indicate that a lot of bad news is already priced into emerging market equities".

Although the weakdata took a toll on Wall Street on Friday, emerging markets including Singapore are expected to react positively, on hopes that the Fed may be less inclined to tighten policy further in the near term, Capital Economics added.

Meanwhile, the outcome of the Brexit referendum on June 23 - on whether Britain remains in the European Union - could cause a ripple effect on global financial markets, said IG market strategist Bernard Aw.

DBS Group Research said last week that it has turned "neutral or even cautiously optimistic" on local shares despite uncertainties such as weak economic data and downward revisions in local corporate earnings. "Until the June 23 referendum passes, the initial STI recovery is likely guarded. We see near-term technical resistance at 2,835," it said.

Both DBS and Citi Research say the timing of the June FOMC meeting, which occurs just a week before the Brexit referendum, is another potential obstacle to a rate hike this month. "But a July hike is possible if economic data is supportive of one," DBS said.

DBS, which has "hold" calls on OCBC and UOB, said the strength of local bank stocks could be underpinned by expectations that the Fed may hike rates at the July FOMC meeting, and possibly do so one more time before the year end.

"Bank stocks are sector leaders in the event of an economic recovery. While it is still early days, bank stocks could eventually rise to or even take out their April highs, if Singapore's economic data improves and the downward revision trend in corporate earnings halts, or reverses," it said.

Meanwhile, shares of Noble Group are seen to be weighed down by news of a new rights issue, and a series of top management changes. Just days after the commodity trader announced the resignation of its chief executive Yusuf Alireza, founder Richard Elman said he was stepping down as executive chairman.

The US$500 million (S$679 million) one-for-one rights issue, together with a planned sale of energy retailer Noble Americas Energy Solutions and working capital reduction measures, is expected to yield US$2 billion in additional liquidity over the next year.

DBS, which has a "hold" call on Noble, said investors will be cautious until the firm is able to achieve "positive operating cashflows on a sustained basis".

A version of this article appeared in the print edition of The Straits Times on June 06, 2016, with the headline 'All eyes on Yellen after gloomy report on US jobs data'. Print Edition | Subscribe