Bulls And Bears

Fed's reaffirmation of dovish stance lifts STI

Asian bourses close higher; rate cut of 25 basis points or more on cards this month

The local equities market, like most others, had been in limbo since last Friday's US jobs data exceeded expectations and sent investors second-guessing the extent of rate cuts by the United States Federal Reserve.

But yesterday, market participants were reassured of the Fed's dovishness, after its chairman Jerome Powell's testimony before US lawmakers on Wednesday.

This translated to a risk-on session in Asia, with the Straits Times Index (STI) gaining 10.03 points, or 0.3 per cent, to close at 3,350.45.

Following the testimony, which market watchers said signalled a confirmation of a rate cut of at least 25 basis points (bps) this month, other markets in the Asia-Pacific, including Australia, China, Japan, Hong Kong and South Korea, closed higher.

Mr Eli Lee, Bank of Singapore's head of investment strategy, said the private bank's baseline scenario is that the Fed will cut rates by 25 bps this month, with another similar cut likely to follow in September "since a single cut alone would not help the Fed achieve much".

"Historically, insurance rate cuts by the Fed have been around 75 bps in total, so we could expect another in December or later," he added.

Similarly, Schroders chief economist and strategist Keith Wade believes that rate cuts this month and September are on the horizon, with both likely to be "presented as 'insurance' against the downside risks facing the US economy".

In Singapore, trading volume clocked in at 1.42 billion securities, 19 per cent above the daily average in the first six months of this year. Total turnover reached $1.22 billion, 5 per cent more than the January-to-June daily average.

Across the broader market, advancers beat decliners 237 to 191. The benchmark index had six of the STI's 30 components closing in the red.

Mr Powell's confirmation of a dovish stance saw real estate investment trusts (Reits), often billed as key beneficiaries of reduced borrowing costs, stage gains. That said, gains appear capped as many Reits are already trading at high valuations after last month's rally.

Among the gainers were CapitaLand Mall Trust, which closed four cents or 1.5 per cent higher at $2.69; Keppel Reit, up one cent or 0.8 per cent to $1.27; and Mapletree Industrial Trust, which closed three cents or 1.3 per cent higher at $2.32.

Local banks were mostly higher. DBS Group Holdings gained 21 cents or 0.8 per cent to $25.61, United Overseas Bank edged up three cents or 0.1 per cent to $26.44, and OCBC Bank closed flat at $11.48.

A version of this article appeared in the print edition of The Straits Times on July 12, 2019, with the headline 'Fed's reaffirmation of dovish stance lifts STI'. Print Edition | Subscribe