After a 10.2% Q1 rise, consolidation likely
If last week was all about whether Wall Street would view the Trump glass as being half-full or empty, this week should be about whether that view, which is that the glass is possibly half-full, will be vindicated.
There is also the matter of "Brexit" to consider. UK Prime Minister Theresa May last week triggered Article 50 of the Treaty of Lisbon, which gives any European Union member the right to quit unilaterally, and outlines the procedure for doing so.
But because there is a two-year window for the withdrawal to be completed, markets will probably not place too much emphasis on it for now, so Brexit will likely fade from sight for the next few months.
In contrast, what will be in focus at least on Wall Street will be the ability of the Trump administration to deliver on its budget promises. To be honest, there is little to suggest the present "glass is maybe half-full stance" is justified but market rallies are always built on hope and this time is no different.
Despite the spectacular failure of President Donald Trump to overturn Obamacare as he promised repeatedly during his election campaign, Wall Street looks like it is prepared to give him the benefit of the doubt when it comes to his budget. It has as its centrepiece large defence and homeland security spending increases, but with cuts in the State Department, aid to the lower income and elderly, and the Environmental Protection Agency.
So far there is no indication that the budget will pass in its original form and it isn't clear what impact the healthcare collapse will have on the budget's numbers. The only thing we do know is that there is plenty of resistance to overcome, not just from Democrats but also from Republicans.
It's also worth mentioning at this stage that the latest forecast of US first-quarter GDP growth by the Atlanta Federal Reserve's "GDP Now" model is just 0.9 per cent. Although not an official figure, it comes from a mathematical model that is updated every week when new economic data is released and is the March 31 estimate. This will be revised in the weeks ahead but it is unlikely to be changed significantly.
Readers would no doubt appreciate that for all the talk about a robust economy and the likely need for more interest rate hikes, a figure of 0.9 per cent, if it does become official, would be hugely disappointing.
If the US economy may surprise on the downside, the opposite may be the case with the Singapore economy, with large jumps in electronics and pharmaceutical exports prompting economists to revise 2017 growth estimates to around 2.8 per cent.
This is a more likely reason why, rather than any Trump-related factor, the Straits Times Index (STI) has risen to its highest since August 2015 and has gained 10.2 per cent so far in 2017. It is the second-best performance throughout the whole of Asia, only just losing out to India, which gained 11 per cent.
For the week ahead, though, a consolidation of sorts can be expected after the flurry of window-dressing activity that drove the STI up 58 points over Tuesday and Wednesday. Friday's volume of S$1.6 billion was high by any standards, which indicates a fair amount of "portfolio rebalancing" went on, though the weak index showing suggests that those who bought midweek then sold into strength on the 31st.
If the play on blue chips does taper off as expected, as players wait for more economic data or direction from Wall Street, traders here will likely expend their energies by rotational punting of small stocks, as they have done over the past few weeks.
Here, the criteria is the lower the better, so extremely low-priced issues will be targeted.
This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts