Business

STI rebounds, albeit in lower volume

Analysts certain Fed will raise rates next week, amid growing consensus that there could be two more hikes afterwards

Although the Straits Times Index (STI) managed an 8.93-point rebound to 3,130.44 yesterday, most likely in tandem with a rise in the Dow futures and Hang Seng Index, perhaps the more important feature of trading was that volume amounted to 2.5 billion units worth only S$1.12 billion, a sharp drop from last week's S$1.5 billion daily average. Excluding warrants, there were 255 rises versus 198 falls.

Brokers suggested that traders had suddenly turned cautious ahead of next week's US Federal Open Market Committee meeting, at which an interest-rate hike is virtually certain. In the federal funds futures market, the implied probability of a 25 basis points rise in interest rates is now 96 per cent.

The average value per unit traded was S$0.45. Of the 20 most active stocks, 15 were priced below S$0.20. Most active was men's apparel retailer Vashion Group, formerly known as Startech Electronics. The stock rose S$0.001 to S$0.004 on volume of 127.6 million.

In the technology services and manufacturing sector, shares of Venture Corp shot up S$0.44 or 4.1 per cent to S$11.22 on volume of three million, drawing a query from the Singapore Exchange.

Elsewhere, Singapore Post (SingPost) shares fell S$0.02 to S$1.36 on volume of 14.9 million. The company on Monday said its chief executive officer (SP Commerce) Marcelo Wesseler had resigned. OCBC Investment Research, in its March 7 "hold" report, said SingPost is investing for the future and time is required for the efforts to bear fruit.

"After correcting post its Q3 FY17 results, the stock has been trading within a range of S$1.37 and S$1.40, likely due to lack of catalysts," said the broker. "Meanwhile, the market will likely look forward to 1 Jun 2017, which is when the new CEO joins the group. We fine-tune our estimates and our fair value estimate drops slightly from S$1.42 to S$1.39."

Deutsche Bank Wealth Management's chief investment officer Christian Nolting, in his March 3 Insights, noted that US President Donald Trump's speech to Congress last week was short on details, although the style resonated with Wall Street as stocks rose to all-time highs.

"We remain cautious on the surge in US and global equity prices as valuations remain near the highest level since 2004 and we think markets will eventually be irked by the lack of content and implementation detail," said Mr Nolting. "Even so, markets increasingly reckon that a rate hike is possible at the March Federal Reserve meeting."

Analysts are certain that rates will be raised next week and there is a growing consensus that there could be two more hikes afterwards. Bank of America Merrill Lynch in its US Economic Weekly "Marching a little faster to the exit" said it expects hikes in September and December after one in March, Nomura shared the same view and timing in its March 6 Asia Roundup, and Rabobank said its senior US strategist Philip Marey has revised his forecast from one to two hikes, with the chance of a third in June.

"The Fed's urge to hike only three months after the December hike, being very hesitant only a month ago at a meeting that revealed a lot of uncertainty regarding the fiscal policy plans of the new administration and its impact on the economy, suggests that the Fed is now making the same bet on fiscal policy as the markets," said Mr Marey in his March 3 "Yellen accepts the invitation for a free lunch" report.

"So the 'animal spirits' that have lifted the markets have penetrated the walls of the Fed as well. If we are right in our assessment that the market rally is overdone and that it will be difficult for President Trump to deliver on his promises, then the Fed joining the party could make the bubble even more dangerous, ending in an even larger reversal," he said.

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