Markets jittery over impending Fed rate hike, plunging oil; STI closes 20 points down

About 80 per cent of the market is pricing in a Fed rate hike based on the continuous economic growth.
About 80 per cent of the market is pricing in a Fed rate hike based on the continuous economic growth.ST PHOTO: LIM YAOHUI

SINGAPORE - Plunging oil prices and jitters ahead of the first United States interest rate hike in nearly a decade kept Singapore shares in the doldrums.

The Straits Times Index fell 0.69 per cent or 19.59 points to 2,815.04, with 953.3 million shares worth S$827.8 million changing hands on Monday. Trading volumes were paltry with investors mostly sidelined ahead of the US Federal Open Markets Committee (FOMC) meeting on Dec 15-16, or already on holiday.

"It's going to be a jittery week ahead, with no recovery in sight for oil prices, and the Dow collapsed on Friday ahead of the looming rate hike this week," remisier Alvin Yong said.

"We are hoping for anything between 25 and 50 basis points or less. That will be seen as a mosquito bite. Anything more than 50 basis points becomes a tiger's bite," he said.

About 80 per cent of the market is pricing in a Fed rate hike based on the continuous economic growth, according to ABN Amro.

"If the Fed increases interest rates as we expect, the US dollar could appreciate further, which would further weigh on US dollar-denominated oil prices," it said.

Crude fell for a seventh straight session, its longest losing streak since mid-2014, after the International Energy Agency forecast that the global supply glut was likely to deepen next year, while OPEC output remained high.

Brent fell below US$38 (S$53.6) a barrel for the first time since December 2008 on Friday. US crude, West Texas Intermediate, settled in the US$35 territory for the first time since February 2009.

Wall Street's 1.8 per cent plunge last Friday also weighed on STI constituents.

Singtel was the leading laggard, sinking 1.3 per cent or five cents to S$3.79; Keppel Corp fell 2.2 per cent or 14 cents to S$6.22. Banking counters DBS fell 0.5 per cent, or nine cents to S$16.32, OCBC slipped 0.93 per cent or eight cents to S$8.54, and UOB was flat S$19.16.

Even though expectations are rife for a rate hike this week, there may not be much room for the local banks' net interest margins (NIM) to rise significantly, DBS Group Research Equity, said in a report last week.

For one, funding costs could catch up. And with the Singdollar loan-to-deposit ratio now at a high of 87 per cent, from 79 per cent two years ago, there may be little room left for banks to leverage on, the report said.

"If the excitement of the NIM spike for the Singapore banks cools off, there leaves hardly any drivers for growth in 2016," DBS said.

Weaker oil prices took their toll on oil plays including Ezra, which slipped 4 per cent or 0.4 cents to 9.6 cents, with 34.7 million shares traded. Slow demand for palm oil and weak crude prices also took their toll on commodities.