Markets Insights

Central banks get full attention of investors

Wall Street in New York. The Dow Jones Industrial Average is up by almost 25 per cent for this year, and the rally is almost certain to continue this week, said Bank of America Merrill Lynch Global Research in a note.
Wall Street in New York. The Dow Jones Industrial Average is up by almost 25 per cent for this year, and the rally is almost certain to continue this week, said Bank of America Merrill Lynch Global Research in a note.PHOTO: BLOOMBERG

Raised expectations of interest rate hike from US Fed this week

It's going to be all about the central banks this week with the big picture of global monetary policy decisions from the United States, United Kingdom, Europe to Asia taking up investors' full attention.

For starters though, the Singapore bourse could be set for a relief rebound after shedding 25 points over the previous week, spurred by last Friday's gains in US stocks on the back of robust hiring data for November and the prospect of tax cuts.

The key Straits Times Index (STI) has generated a 23 per cent total return in the 2017 year as at Dec 8 with five sectors - information technology, financials, real estate, consumer discretionary and industrials - outperforming the key index. The STI is up 19 per cent this year.

The solid payrolls report out of the US cemented optimism over the prospects of the US - the world's largest economy - and raised expectations for an interest rate hike from the US Federal Reserve this week.

With the Dow Jones Industrial Average up by almost 25 per cent for this year, this is one of the biggest stock market rallies of the current cycle, said Bank of America Merrill Lynch Global Research in a note.

"The rally is almost certain to continue this week, fuelled by seasonal bias and the likely outcome of a central bank meeting. With a strong jobs report, the Federal Reserve is expected to raise interest rates for the first time since June and that will likely push shares of banks, among the leaders of the Dow's rally, higher still," the house added.

IG Markets strategist Jingyi Pan said: "The FOMC will likely capture the bulk of the attention and is expected to deliver their last rate hike of the year and also serve up an updated version of their summary of economic projections."

ALL EYES ON FED

The FOMC (Federal Open Market Committee) will likely capture the bulk of the attention and is expected to deliver their last rate hike of the year and also serve up an updated version of their summary of economic projections.

IG MARKETS STRATEGIST JINGYI PAN

While a rise in rates is widely expected, the item that could hold an element of surprise would be the Fed's summary of economic projections, one that looks primed for upward surprises in growth, potentially generating a lift for the US dollar by strengthening future rate hike expectations, she added.

"Underpinning this likelihood includes the resilient economic figures and to a very small extent, the acceleration in tax overhaul pace raising the prospect of improved growth momentum," said Ms Pan.

Similarly, traders will also be watching for any hints of the monetary stances at the Bank of England and European Central Bank meetings on Thursday.

Key events in Asia this week are the central bank meetings in the Philippines and Indonesia with pundits expecting decision makers to maintain their current policy stance.

Japan will release its Tankan business sentiment survey for the December quarter which is largely expected to be firm. "The mood among Japan's largest manufacturers reached a decade high in the September quarter as they brushed aside the threat of North Korea and enjoyed the sustained lift from buoyant global demand... However, we expect a slight pullback in sentiment in the final quarter on the back of cooler manufacturing conditions," said Moody's Analytics.

The docket also includes key economic data including manufacturing activity and retail sales out of the world's two largest economies - US and China.

A version of this article appeared in the print edition of The Straits Times on December 11, 2017, with the headline 'Central banks get full attention of investors'. Print Edition | Subscribe