Uncertainty over looming US Fed rate decision weighs on Singapore market

The Singapore Exchange building at the financial district in Singapore.
The Singapore Exchange building at the financial district in Singapore. PHOTO: AFP

SINGAPORE - Uncertainty over whether the US Federal Reserve will implement its first rate hike in almost a decade this week weighed on investors here, who put aside Singapore's election results.

The Straits Times Index slipped 0.5 per cent at the opening bell on Monday (Sept 14) - the first trading day after the election - and remained in negative territory. The STI was down 0.39 per cent or 11.17 points to 2,876.86 as of 11.26 am.

"Singapore investors look at global events rather than domestic ones, unlike other countries where elections have an impact on stock markets," IG Market analyst Bernard Aw told the Straits Times.

"Unless the opposition wins a lot more seats or erodes the ruling party's ability to make regulations then we could see negative effect." he said. "If it's a positive result, like a landslide victory, then it has little impact on markets."

Investors instead were focused on this week's long-awaited and key Fed rate decision with sentiment cautious ahead of the announcement on Friday (Sept 18) morning, Singapore time. The decision is seen as too close to call with economists and pundits split down the middle on whether the Fed will raise rates on Sept 17.

"The FOMC decision could be history in the making this week because it is the first in 10 years. The key support for STI is at 2,780 and resistance at 3,000," Phillip Futures analyst Howie Lee said.

Citi Research said in a note this morning to expect volatility to remain high across asset classes as investors await the US Fed decision.

"Low market expectations of a September Fed lift-off has helped risk assets over last few sessions. But, it is unlikely that market positioning will turn significantly bullish ahead of the event."

Despite soft Chinese economic data reinforcing fears of a harder than expected landing, traders say this is offset by hopes that Beijing will likely implement further stimulus measures to support the economy including more required reserve ratio and lending rate cuts.

China's fixed-asset investment rose at the slowest pace in 15 years and industrial production continued to drift lower, while August retail sales topped projections, reports published over the weekend showed.

"Such data suggest that the Chinese economy is slowing and that the buttoning may take longer than initially expected despite the raft of stimulus measures implemented since the beginning of the year," Mizuho Bank said.

Meanwhile, the Singapore dollar is trading at 1.4108 to the greenback, up from 1.4157 on Friday, bolstered by the ruling PAP's landslide victory. "The improved score highlights policy continuity and political capital which is SGD positive," Mizuho Bank said.