Business

STI slips 0.6% after Powell's first rate hike

Market watchers also concerned over Libor rising to its highest since 2008

Singapore stock prices took a modest dip yesterday after the Federal Reserve, as anticipated, lifted interest rates by a quarter point to the 1.5-to-1.75 per cent range.

Following in the footsteps of Wall Street, the key Straits Times Index fell 19.76 points or 0.56 per cent yesterday to finish at 3,491.37.

Some 1.5 billion shares worth $1 billion were traded, and losers outpaced gainers 225 to 158.

But what caught market watchers' attention more than the Fed's move was the surge in the three-month US-dollar London interbank offered rate, or Libor, which is one of the reference points for setting borrowing rates worldwide.

That has risen steadily from about 1.7 per cent at the start of the year to 2.25 per cent on March 20, the highest since 2008.

Meanwhile, the Libor-OIS (overnight index swaps) spread, which measures the Libor's gap over similar-maturity risk-free rates, has more than doubled since the end of January to 55 basis points, a level unseen since 2009.

Morgan Stanley chief strategist for Asia and Emerging Markets Jonathan Garner told Bloomberg this week: "The acceleration in the private borrowing market is the story of the year, not the Fed."

Yesterday, United Overseas Bank senior economist Alvin Liew and rates strategist Victor Yong said in a report that they, too, are "clearly watching Libor-OIS for signs of more serious structural problems in (the) US dollar funding market".

"Developments in the US Libor vs overnight index swaps over the first quarter of this year has overtaken Fed rate expectations as the primary source of concern with regard to our US Libor forecasts."

The widening of the US Libor versus OIS indicates imbalances forming in the offshore US funding markets, they said.

The last time the Sibor was at this level was during the global financial crisis.

One remisier told The Business Times: "This is something that is puzzling the market at the moment, why short-term rates are moving up so quickly, pricing in the rate hike ahead of the Fed's pace.

"If rates keep going up and the Libor rate keeps climbing, then it could point to a liquidity crunch earlier than expected, which could be something that could blow up."

On the local bourse yesterday, commodities trader Noble Group fell 0.4 cent or 3.8 per cent to $0.10 after it lifted its trading halt at 2.30pm.

It had announced in the morning that the company had received notice of default from the trustee of its US$379 million (S$499 million) 3.625 per cent bonds.

The three local banks, DBS Bank, OCBC Bank and UOB, fell between 1 per cent and 1.5 per cent, despite expectations that higher rates are a boon for banks because they translate to higher yields on cash holdings.

Creative Technology continued its price slide, losing 41 cents or 7 per cent to $5.43.

Among the actives was Genting Singapore, which despite finishing flat at $1.12, saw 21.3 million shares change hands.

This came as a Bloomberg story yesterday suggested that acquiring casino-hotel company Wynn Resorts at its current valuation discount could be Genting's "jackpot opportunity".

Meanwhile, other analysts noted that the new Fed chairman Jerome Powell seemed to be toeing the same line as his predecessor, Ms Janet Yellen, which should ease any uncertainty in the stock market.

With one rate hike down and an expected two more - of similar magnitude - to go, this should bring the Fed funds target to 2.25 per cent by end-2018.

The latest news from the war on trade between the two economic giants - rumoured to be as much as US$60 billion of tariffs against China for intellectual property violations - is expected to be announced by the US soon.

But this is expected to have limited impact on the equity market.

For full listings of SGX prices, go to http://btd.sg/BTmkts