Business

Inertia as Fed's rate decision nears

Asian equities were mostly in the red with STI finishing the session down 5.97 points at 3,137.43

It was popcorn Wednesday as investors paused and waited, preferring to watch events unfold from the sidelines ahead of the United States Federal Reserve's interest rate decision to be announced today (about 2am Singapore time), even though implied probability of a rate hike has hit 100 per cent.

Their inertia held firm - even a rally in US oil prices that erased losses in Wall Street's previous session failed to energise energy equities in Singapore nor in the region.

Asian equities were mostly in the red yesterday with the benchmark Straits Times Index (STI) finishing the session down 5.97 points, or 0.19 per cent, at 3,137.43, dragged by losses in heavyweights including Jardine Matheson and related firm Hongkong Land, DBS and ST Engineering.

The laggers more than offset the gains made by counters such as Wilmar International, OCBC, Singapore Press Holdings and Keppel Corp.

Turnover was rather thin, amounting to 2.3 billion worth S$1.2 billion.

Excluding warrants, there were 203 risers versus 247 falls. IG market strategist Pan Jingyi said on Wednesday morning: "Early movers in the region, including the Nikkei 225, were found in red, despite positive triggers from USD/JPY movements.

"This could leave Asian investors with little to take comfort in and for the local STI, the 3,150 resistance could remain a firm cap for prices today."

The most active counter was Healthway Medical Corporation, whose shares gained 0.3 cent to end the day at S$0.045, with over 72 million units traded. This, after private equity fund Gateway Partners threw a S$70 million lifeline to the beleaguered medical group, saying the aim is to stabilise the company and create a platform for its future growth.

While the actives list included various sectors, such as commodities, food and beverage, marine and offshore, and property, penny stocks were in play on Wednesday.

Over in the East, what helped allay some concerns for the markets was the wrap-up of the China's National People's Congress where Premier Li Keqiang made the point that Beijing does not want a trade war between China and the US. He also reassured that China has the tools to deal with internal and external risks its economy faces.

For the West, the Dutch election appears to be the litmus test to see if anti-EU parties would provide enough of a push for Ms Marine Le Pen, the far right candidate challenging to become president in the upcoming French vote.

But all eyes are now on the US Fed's decision. Ms Margaret Yang of CMC Markets Singapore on Wednesday said a higher interest rate "will increase the government's and corporations' borrowing cost, raise the debt-servicing burden and make companies less valuable, when their future cash flows are discounted by a higher required rate of return".

Mr David Lafferty, chief market strategist at Natixis Global Asset Management, believes a 25-basis point (bps) hike (to 0.75-1 per cent) is effectively priced in for Thursday's The Federal Open Market Committee (FOMC).

"The Fed standing pat (that is, no hike) or a 50 bps hike would be truly newsworthy for its hawkish or dovish implications, but neither is likely (less than 5 per cent chance for either in my view).

"The stock market's reaction will be dependent on the perception (not necessarily the reality) of whether this process is a 'good tightening' (consistent with real economic growth) or a 'bad tightening' (falling behind the curve on inflation)," Mr Lafferty wrote in a March 14 report.

He noted though that this is taking place "in an environment where the future of equity gains is being handed off from monetary policy to fiscal policy in the US".

"What the FOMC says and does remain important, but the market has rallied strongly on fiscal hopes and promises from the Trump administration.

"In the near term, we view a 'Trump letdown' as a more plausible cause for a market sell-off than an overly-aggressive Fed," he said.

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