Markets Insights

Fed rate decision, US-China trade truce to set direction

Risk was back on the agenda late last week, thanks to a temporary truce in the trade conflict and the possible avoidance of a no-deal Brexit.

Their spillover effects could drive sentiment at the start of this week although the main focus globally will be on the United States Federal Reserve's interest rate decision on Thursday. The US economy has stayed fairly resilient until it showed signs of strain last month, prompting talk that rates will be cut by 25 basis points this week.

Wall Street sees it as a done deal and streaked ahead last Friday, with the S&P 500 gaining 0.4 per cent to 3,022.55, near its July 26 record high.

The Dow Jones Industrial Average rose 0.6 per cent to 26,958.06, while the Nasdaq Composite added 0.7 per cent to 8,243.12.

"Fresh record highs will likely be supported if we continue to see positive steps taken in the trade war between the world's two largest economies and if we don't see the Fed deliver a hawkish cut (this) week," Oanda senior market analyst Edward Moya said.

The Straits Times Index (STI) here closed at 3,185.53 last Friday, up 16.66 points or 0.5 per cent, and ahead 2.3 per cent for the week.

Last Friday saw a flurry of activity in the local market, with investors selling off Eagle Hospitality Trust (EHT) despite it refuting reports that suggested its sponsor could default on lease agreements on one of its properties, the Queen Mary cruise liner. EHT units dived 15.5 per cent to close at 54.5 US cents.

One trader said there was scope to buy on the dip. "EHT appears ripe for the picking and I expect some of those losses to be regained since it's trading at attractive valuations."

Markets will be closed here today for Deepavali but the corporate earnings season continues to pick up, with the focus still on property trusts. There will be eight report earnings this week for the July-September quarter, including the STI's Ascendas Reit on Friday. Starhill Global Reit will post results on Tuesday, while Ascott Residence Trust and CDL Hospitality Trusts on will do so on Wednesday.  

United Overseas Bank will release third-quarter results before the market opens on Friday.

The local economic docket is fairly thin, with the producer price index for last month out tomorrow and Friday's usual end-of-the-month bank lending data.

Elsewhere in the Asia-Pacific, key economic data releases for the week will be led by Thursday's official manufacturing and services Purchasing Managers' Index readings from China. The Caixin manufacturing equivalent, which focuses more on smaller and medium-sized firms, will be out on Friday.

Attention among Asia-Pacific central banks will be on the Bank of Japan (BOJ), which has a monetary policy meeting on Thursday.

ING Asia economist Prakash Sakpal noted that there is pressure for the BOJ to provide more policy accommodation, with its decision "hinging on its view of the economic risks against a worsening global backdrop".

Correction note: An earlier version of the story said that Starhill Global Reit, Ascott Residence Trust and CDL Hospitality Trusts will post results on Thursday. This is incorrect. Starhill has since clarified that results will be released on Tuesday, while Ascott and CDL clarified that results will be released on Wednesday.

A version of this article appeared in the print edition of The Straits Times on October 28, 2019, with the headline 'Fed rate decision, US-China trade truce to set direction'. Print Edition | Subscribe