Singapore shares rise amid mixed Asian markets after Fed rate hike

The Straits Times Index was trading up 0.6 per cent or nearly 20 points to 3,259.03 as of 11am.
The Straits Times Index was trading up 0.6 per cent or nearly 20 points to 3,259.03 as of 11am.PHOTO: ST FILE

SINGAPORE - Singapore shares advanced on Thursday morning (Sept 27) after the Federal Reserve raised US interest rates as expected for the eighth time since 2015, raised its forecasts for the US economy and signaled the end of the "accommodative" policy era.

The Straits Times Index was trading up 0.6 per cent or nearly 20 points to 3,259.03 as of 11am. Regional marekts were mixed with Tokyo down 0.13 per cent, Shanghai 0.3 per cent weaker while Seoul rose 0.4 per cent and Sydney inched up 0.04 per cent.

The US dollar ticked slightly higher against the Singdollar as investors saw signals in the statement that rates will rise enough to further strengthen the US currency. The dollar hit a morning high of S$1.3667 from Wednesday's close of S$1.3653, before giving up most gains to trade at S$1.3655 at 11am.

Fed policymakers boosted the benchmark overnight lending rate by a quarter of a percentage point to a range of 2.00 percent to 2.25 per cent. The central bank policy statement also omitted the word "accomodative."

Mr Richard Jerram, chief economist, Bank of Singapore, noted that the Fed "remains optimistic on the growth outlook and evidently sees little impact from tariffs. The current gradual tightening path is set to continue into 2019."

"Perhaps the most striking change was that the Fed no longer describes policy as 'accommodative', Mr Jerram added. "But that just seems to tell us that interest rates are not too far from neutral, at which rates neither stimulate nor restrict the economy, he said.

Fed Chair Powell has emphasised that it does not suggest tightening is near an end.

Remisier Chung Chun He said the local market opened on a slightly positive note but expects profit taking to come in later in the day as the local market has already made gains in the run up to the widely anticipated quarter point hike in the fed funds rate and may "sell on the news."

"The overall trend is still for the STI to come down because of the emerging markets' problem and escalating US-China trade war, he said.

Increasing US interest rates can raise borrowing costs, especially for the emerging countries with large dollar-denominated debts, and can drive investors out of those economies toward increasing yields on US assets.

This is the eighth increase since the Fed began normalizing policy in December 2015. The FOMC also continued to project one more hike before the end of the year and three in 2019.

Meanwhile, local bank stocks may continue to rally on expected rise in interest income, which could provide some momentum to the rebound in local stocks, traders say.

"But whether that can offset a possible drop in property loans due to the cooling measures remains to be seen," Mr Chung said.