Business

Comey episode may keep investors wary

One should expect little inspiration to energise the local bourse at the start of the week with Wall Street posting its first weekly retreat in a month last week, capped by a lower close on Friday.

Pockets of concerns over potential political uncertainty in the US after President Donald Trump's shocking dismissal of the Federal Bureau of Investigation director James Comey could continue to weigh on investors' psyche.

For now at least, pundits have shrugged off such impact on corporates and, by extension, financial markets, although prolonged anxiety over the episode won't augur well for markets, particularly if the turmoil distracts Mr Trump from implementing market-friendly measures such as tax cuts.

Soft economic data out of the world's largest economy and weak corporate earnings from brick-and-mortar retail giants that fuelled concerns over consumer spending led the Dow Jones Industrial Average to fall 0.1 per cent while the S&P 500 slipped 0.2 per cent last Friday; the Nasdaq Composite edged 0.1 per cent higher.

For the week, the Dow and S&P were off 0.5 per cent and 0.4 per cent respectively while the Nasdaq advanced 0.3 per cent in its fourth straight weekly gain, although it was the most modest gain in the streak.

DRAMA

For this week, apart from the back-to-back drama unfolding in the political realm in the US, it is likely to be relatively calm in terms of data.

Developments in Europe may also be in the crosshairs of investors after Sunday's German state elections, which Citi Research said will be a significant signpost for the national election in September.

In the UK, soon-to-be released wage growth and inflation data will be crucial for the Bank of England, said Citi Research, adding that it will look for any hints from the central bank's chief economist Andy Haldane, who will speak at an annual lecture in mid-week.

FXTM vice-president of market research Jameel Ahmad pointed out that there is a major political event risk in the UK with the general election just a month away.

"Just because Theresa May is seen as the most likely candidate to win the election next month, it doesn't mean that there won't be volatility," he said.

"My view is that investors have underpriced the risk of May not being victorious, meaning there could be some serious shuffling of positions if preliminary polls suggest that Theresa May does have a fight on her hands."

Mr Jameel was commenting on the pound's outlook in the forex market, but it is a key development that may also impact equities.

Data on tap for the week includes first quarter gross domestic product (GDP) figures from Malaysia, the Philippines, Japan and Thailand.

FORECAST

China, the world's second largest economy, is set to release April's manufacturing, retail sales and fixed asset investment figures.

As for Singapore, Maybank Kim Eng Research has raised its full year GDP growth forecast this year to 3 per cent from 2.5 per cent - and 2.4 per cent from 2.3 per cent for 2018.

This is based on the premise that what was a narrowly based electronics and transport and storage services-led recovery late last year is broadening out to include financial, business and wholesale trade services.

Maybank pointed out that the STI has rallied on the GDP growth recovery, mirroring past recovery cycles.

But even with the current rally, the STI's price to book is still trading at some 9 per cent below the five-year average of 1.3 times.

A decisive break above this five-year average will probably require a stronger job recovery, it added.

This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts