Close watch on economics, earnings

Economic prospects are looming over the markets, as traders head into May.

The Singapore central bank's half-yearly review has reiterated that full-year gross domestic product (GDP) growth is expected to come in "slightly above the middle of the forecast range" - that is, 1.5 per cent to 3.5 per cent.

Last month's factory output numbers showed a year-on-year rise of 5.9 per cent, slightly higher than predictions but lower than the revised February growth figure of 6.7 per cent.

Research analyst Lukman Otunuga at currency broker FXTM wrote in a note: "The industrial production report is considered an indicator of future inflation, so a further sign that Singapore's manufacturing output is building momentum could stimulate expectations of rising inflation ...

"With the US dollar likely to remain heavily supported by rising US bond yields and rate hike expectations, the Singapore dollar has scope to weaken further. Technical traders will continue to closely observe how the US dollar-Singapore dollar (exchange rate) behaves around the 1.33 level."

Concerns also remain over the possibility of a coming semiconductor slump, even as Singapore posted strong growth in that key electronics segment in March.

According to RHB Securities, semiconductor production growth is likely to ease from the previous quarters' double-digit levels, amid a cyclical slackening in smartphone demand, "although it would be supported by higher production of radio frequency chips and testing activities".

ING's Asia economist Prakash Sakpal noted that the 10 per cent month-on-month growth in semiconductor output "was a recovery from a 16 per cent crash in February".

"Unlike South Korea and, to a smaller extent, Taiwan, whose semiconductor exports held up well in the first quarter of 2018 ... Singapore's semiconductor exports contracted about 10 per cent from a year ago," he wrote. "The prospects are clouded by the recent downgrade of sales revenue forecasts by key chipmakers in Asia and abroad."

More light could be shed by this month's official purchasing managers index data, a key gauge of business sentiment due for release on Wednesday.

Meanwhile, on the equities front, DBS strategists said last Friday that Singapore is the least volatile market in South-east Asia "and we believe it will continue to be so".

"Singapore's economic growth is firm as it continues to ride on the global recovery, which appears to be peaking. But Singapore's recovery, which has extended to the services sector, should pre-empt any significant slowdown, in our view," they wrote.

Daiwa Capital Markets argued in a recent note that, "while it appears tempting to turn towards 'defensive' stocks during the interim period before the resolution of trade issues, we continue to believe that investors should still look to longer cyclicals during the ongoing market correction".

Its analysts added: "In our opinion, the fundamentals of traditional 'defensive' sectors like telecoms and the Reits remain poor."

The earnings season continues with DBS Group Holdings and CapitaLand reporting today while United Overseas Bank, Sembcorp Industries and StarHub will do so on Thursday.

The impact on general investor sentiment can, however, be hard to predict.

Keppel Corporation and the Singapore Exchange both got a lift after turning in strong statements. But electronics services provider Venture Corporation tanked despite a 72 per cent rise in first-quarter net profit.

The market shuts for Labour Day tomorrow.

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