Business

Traders eye Fed's views on inflation

FOMC meeting and release of other key macro data to set direction for local bourse

The US Federal Open Market Committee (FOMC) meeting, key macro data from major economies and the quarterly reporting season are on traders' radar this week.

Although expectations are that the Federal Reserve will hold interest rates, the central bank's views on inflation and its signals on balance sheet reduction will be keenly anticipated.

"The two most important aspects of the July FOMC statement will be if and how the characterisation of inflation is revised, and whether officials use the meeting to signal that balance sheet reduction will be announced in September," said Citi Research.

The research house expects the Fed to "more firmly acknowledge" that some of the slowing in inflation is persistent while expressing confidence that the 2 per cent target will be achieved with likely indication of timing of balance sheet reduction.

Last week, the Straits Times Index added 27 points or 0.8 per cent, finishing above the key psychological mark of 3,300 for the first time in two years on Tuesday.

No one is ruling out more gains this week, and expectations of a continued rally in Wall Street stocks could be a factor.

US stock indexes finished lower last Friday but all three major barometers remain within spitting distance of their all-time highs. The Dow Jones retreated 0.2 per cent while the S&P 500 and Nasdaq Composite finished little changed last Friday.

At those levels, the Dow is just 0.3 per cent below its all-time high, while the S&P 500 is 0.1 per cent below, and the Nasdaq is just 0.04 per cent off its record high.

"Asian markets, which had rallied past the exceptional Q2 GDP figures last week, may be looking at little leads to keep up the excitement ahead of PMI (Purchasing Managers' Index) updates in the following week," said IG Market strategist Jingyi Pan, adding that US second-quarter GDP figures expected at the end of the week would also likely be a focus.

At the start of the week, preliminary July Markit PMI figures could be of interest. "The market is once again expecting the gap between manufacturing PMI in the US and eurozone to close," said Ms Pan.

More macro data expected from Asia include manufacturing figures in Singapore and Taiwan, jobs data from Singapore and Japan, and inflation numbers in Australia and Japan.

Asia's bellwethers, South Korea and Taiwan, are due to release preliminary June quarter GDP data.

According to Moody's Analytics, South Korean GDP growth likely cooled as exports did not maintain their burly first-quarter pace. Consumption likely improved a little towards the end of the quarter thanks to soaring sentiment in anticipation of newly elected President Moon Jae In's generous spending programme.

It also expects Taiwan's GDP growth to have softened on the back of renewed weakness in domestic demand.

Earnings reporting season will crank up in Singapore this week, with OCBC being the first of the city state's three banking stalwarts to roll out its report card on July 27.

The Singapore Exchange will report full-year numbers on Thursday. This follows what stock market and investing website Motley Fool Singapore described as "pedestrian" third-quarter numbers, with earnings for the stock exchange operator having slipped 6.8 per cent.

Other biggies scheduled to issue their quarterly scorecards include SIA Engineering, Ascendas Reit, Sembcorp Marine and Singapore Airlines.

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