Rate hike delay: All eyes on Fed signals

The Federal Reserve headquarters in Washington DC. Besides the Fed delaying a rate hike, markets are also concerned over global growth and, in particular, developments in China.
The Federal Reserve headquarters in Washington DC. Besides the Fed delaying a rate hike, markets are also concerned over global growth and, in particular, developments in China.PHOTO: REUTERS

Market set for more volatility as guessing game resumes; China PMI also on radar

Investors can expect more market volatility this week, as the guessing game resumes over when the United States central bank will raise interest rates.

Market punters will be watching out for signals from Federal Reserve chair Janet Yellen and other Fed officials as they discuss the rationale and implications of their decision to hold fire at their policy meeting last week.

Their comments in the coming days could shed further light not only on why the Fed did not raise rates last week as some had expected, but also when it will do so.

Mr John Williams, the president of the Federal Reserve Bank of San Francisco, has made remarks during the weekend that will raise expectations for a federal funds rate lift-off within the next few months.

"It was a close call in my mind, in part reflecting the conflicting signals we're getting," Mr Williams said of last week's decision.

"I view the next appropriate step as gradually raising interest rates, most likely starting sometime later this year," he said during a speech at a conference in New York on Saturday.

The Fed's policymaking committee gathers next in late October and again in mid-December.

Also weighing on stock markets are concerns over global growth, an issue cited by the Fed for delaying the rate hike.

The Fed statement last week highlighted that it is "monitoring developments abroad", which many market observers have said is likely to be a euphemism for China.

And since China has become quite a focus for the Fed, investors will be looking out for the country's latest Purchasing Managers Index (PMI), an indicator of manufacturing health, scheduled to be released on Wednesday.

They will also keep a close watch on US manufacturing figures and data on durable goods orders, due out on Thursday. These numbers will give investors some sense of the health of the world's two largest economies.

In the meantime, China's stocks might see a "relief rally" after the Fed's decision to hold rates, Nomura analyst Wendy Liu told Bloomberg.

At home, however, remisier Alvin Yong said the Straits Times Index - which was down 0.3 per cent last week - is likely to trade between 2,800 and 3,000 this week, until there is more clarity on China's economic situation and whether there will be further stimulus.

Mr Howie Lee of Singapore-based brokerage Phillip Futures sees further downside, with support seen at between 2,820 and 2,850.

"We haven't had the first rate hike yet, and if the PMI data comes in weaker than expected for China and the US, that will likely drag equities down," he said.

Market participants will also be watching local inflation and industrial production data, due on Wednesday and Friday respectively.

According to Citi Research, Singapore's industrial production in August is likely to have fallen 6.4 per cent from a year ago, compared with a drop of 4.1 per cent in July.

The new make-up of the benchmark STI will also hold some interest for local punters this week.

From today, the UOL Group, Yangzijiang Shipbuilding and SATS will replace Jardine Matheson Holdings, Jardine Strategic Holdings and Olam International as constituents.

The change, which comes after a semi-annual review, was prompted by new rules that require counters on the STI to have a reasonably high level of turnover or liquidity.

"With the changes, the STI should be better diversified through exposure to the marine and shipbuilding sectors," Mr Yong said.

A version of this article appeared in the print edition of The Straits Times on September 21, 2015, with the headline 'Rate hike delay: All eyes on Fed signals'. Print Edition | Subscribe