Business

Market up on upbeat Yellen testimony

STI recoups part of two days' losses, with banking and Jardine stocks spearheading the rise

Wall Street on Wednesday rose sharply in response to an upbeat congressional testimony on the US economy and interest rates given by Federal Reserve chair Janet Yellen. So the Straits Times Index, which had lost 37 points on Tuesday and Wednesday, reacted yesterday by rebounding 26.76 points or 0.8 per cent to 3,235.67.

Turnover amounted to 2.4 billion units worth S$1.1 billion and, excluding warrants, there were 255 rises versus 198 falls.

Not surprisingly, banks and Jardine stocks that have been the main drivers over the past year were once again chiefly responsible for the rise in the STI.

In the property sector, CapitaLand's shares gained S$0.04 at S$3.57 on volume of 10.4 million shares. The company announced yesterday that it had formed a joint venture with CapitaLand Commercial Trust (CCT) and Mitsubishi Estate Co to redevelop Golden Shoe Car Park in Raffles Place.

CCT rose S$0.02 to S$1.67 with 11 million units traded.

In the second line, shares of Duty Free International dropped S$0.015 to S$0.315 on volume of 4.8 million shares. The company on Wednesday reported its figures for its first quarter ended May 31 - a 24.1 per cent drop in net profit attributable to shareholders to RM15.1 million (S$4.85 million) on the back of a 13.1 per cent fall in revenue to RM167.5 million.

The company said revenue fall was due to lower customer demand for certain products and the Malaysian government's imposition of Goods and Services Tax at border outlets and duty free zones.

In her testimony to the US Congress, Ms Yellen was described as sending dovish signals, mentioning "subdued inflation" as a key concern despite robust jobs market growth and saying that "the evolution of the economy will warrant gradual increases in the federal funds rate over time". But she added that rates "would not have to rise all that much further".

As a result, the implied probability in the federal funds futures market of a rate hike this month is now zero, 10.1 per cent in September, 12.7 per cent in November and 43.4 per cent in December. One day earlier, the market was pricing in a 47 per cent chance of a December hike.

CMC Markets noted Ms Yellen's speech but added that the sustainability of the rally in the US would depend on the upcoming earnings season as the market shifted its focus to the companies' mid-year reports.

"Big banks including JP Morgan, Citigroup and Wells Fargo are among the first batch to announce earnings at end of this week," said CMC.

In Singapore, among those releasing results this and next week are Singapore Press Holdings, Keppel Corp, CapitaLand Commercial Trust, Hutchinson Port, CapitaLand Mall Trust and SATS.

ING Asia-Pacific's head of Asia research Rob Carnell said ING's house view is one more Fed rate hike this year in the third quarter and two hikes in 2018, with the balance sheet reduction starting by end of 2017.

BlackRock's chief investment officer of global fixed income Rick Rieder said, however, that although the media and market observers interpreted Ms Yellen's speech as dovish, he thought little new information was gleaned as the Fed had been abundantly clear in laying out its policy path before.

"We think that longer-term interest rates now pivot more off international rate policy, such as that stemming from the European Central Bank and the Bank of Japan, and not solely on what the Fed is doing," wrote Mr Rieder.

"Thus the communications and actions coming from these other central banks will warrant that close attention be paid to them from investors, as the hunt for yield and returns is a global endeavour and excessive focus on policy in one region can result in misapprehending the total picture."

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