Market Watch

Expect some volatility amid earnings season

Bank stocks had a turbulent week, but remained on the investment radar screens despite some selldown.PHOTO: ST FILE

SINGAPORE - After a volatile week, all three major Wall Street indices surged to record high closes last Friday.

Ironically, their gains were underpinned by signs that the United States jobs market was still weak.

First-time weekly jobless claims for the week ended July 3 rose to 373,000, higher than market estimates of 350,000. This came on the heels of a report a week earlier suggesting that US unemployment edged up to 5.9 per cent last month, above the estimated 5.6 per cent.

This translates into the US Federal Reserve sticking to its quantitative easing bias and eliminating the risk of a "taper tantrum" any time soon. Meanwhile, the closely watched 10-year US Treasury yield remains below 1.4 per cent.

What all this means is this: Easy money will continue to slosh around, providing ample liquidity for stocks.

After a 260-point drop last Thursday, the Dow surged 448.23 points on Friday to end the week 0.2 per cent higher at 34,870.16 points.

The S&P 500 logged its sixth straight week of gains, closing at a record 4,369.55 points to notch a 0.4 per cent weekly gain. The Nasdaq closed at a new high of 14,701.92, or a 0.4 per cent gain, despite President Joe Biden signing a Bill blocking anti-competitive pricing practices by Big Tech.

In Singapore, the Straits Times Index closed flattish at 3,131.40 points, though the index is technically at its highest weekly close in three weeks. Still, the 0.1 per cent return for the week meant the STI remains Asia-Pacific's second-strongest benchmark after the Jakarta Composite, which rose 0.7 per cent.

There was noticeable rotation on the local bourse, with Keppel DC Reit rallying 5.3 per cent to $2.58, while Yangzijiang saw a 2.8 per cent decline to $1.40.

Bank stocks had a turbulent week, but remained on the investment radar screens despite some selldown.

Still, they have been among the strongest performers worldwide during the first half of the year. Although DBS, OCBC and UOB declined 0.5 per cent last week, they have recorded an average 19 per cent total returns during the first six months of this year.

Another sector which appears to be seeing some activity is the offshore and marine segment. Stocks such as restructured Marco Polo Marine and Kim Heng were in play during the week, with volumes rising amid expectations that rising oil prices would translate a return to normality for an industry battered by a global slump for the last six years.

This week is likely to see continuing rotation and some volatility. Situational factors will continue to drive stock-picking.

On the news front, the earnings season is just around the corner.

Singapore's advance gross domestic product (GDP) estimate for the second quarter will be released on Wednesday. Strong numbers could signal a play in sectors which have suffered the most over the past 18 months, such as retail, travel and hospitality.

China's second-quarter GDP will be released on Thursday, with Bloomberg estimates projecting an 8 per cent year-on-year gain, following a 18.3 per cent annual gain during the previous quarter. China will also be releasing its June industrial production and retail sales data at the same time.

As Mr Ben Powell, chief Asia-Pacific strategist at Blackrock, told ST last week that a slowdown in the Chinese numbers does not mean that an economic slump is imminent.

He said: "There is more emphasis on productivity and capital allocation. China is extremely serious and committed to becoming a high-quality economy. There is a discernible shift away from raw quantity-driven growth to a more nuanced blend of quality and quantity."

Friday will see the release of Singapore's June external trade data, with Bloomberg's consensus estimate at an 8 per cent year-on-year gain, following a 8.8 per cent gain in May.

Meanwhile, the focus here and in much of the world will be on the speed of vaccine roll-outs. General sentiment could also be lifted by the easing of Covid-19 restrictions in Singapore starting today.