STI sinks ahead of Fed meet

Most Asian markets also pull back amid trade war threat following G-7 spat

A cautious mood prevailed in the Singapore bourse with the key Straits Times Index closing 38.18 points or 1.11 per cent lower at 3,392.51l yesterday, as traders shifted their focus to key central bank meetings ahead.

Most Asian markets also pulled back while Japan's key benchmark bucked the trend and closed higher.

Fears over trade wars that escalated after the G-7 summit over the weekend linger, with a growing sense that US' major trading partners - China, the European Union and Nafta countries - may impose retaliatory tariff measures.

First off the bat on investors' radar is the US Federal Reserve's meeting where a 25 basis-point rate hike seems to be a shoo-in while the jury is still out on whether the Fed may take a more hawkish stance on its tightening policy.

Based on the release of key data, including inflation and payrolls which suggest a strong momentum for the US economy, analysts say there is a chance that the Fed may favour quickening its tightening pace.

DBS Research said: "There is an outside chance for another hawkish move in the economic projections or the dot plot. For this year, the Fed may want to employ some flexibility rather than committing to four hikes.

"In any case, the current dot plot already points to a split between three/four hikes this year. The risks largely lie with the number of hikes projected for next year and especially, on the longer term neutral rate."

US stocks shrugged off the outcome of the historic US-North Korea summit that was undermined by a lack of details and with the Consumer Price Index prints coming in largely in line with expectations. The key indices there remained relatively unchanged overnight.

"This (peace) process could take time," said Deutsche Bank Wealth Management in a note, cautioning that the agreement does not mean a complete end to North Korea geopolitical risks in the short or medium term as both US President Donald Trump and Mr Kim Jong Un are "unpredictable leaders in international policies".

Another key event to watch is the European Central Bank's meeting today.

The market is anticipating the quantitative easing tapering process to conclude completely by year-end but ECB chief economist Peter Praet's remarks that it "will have to assess whether progress so far has been sufficient to warrant a gradual unwinding of our net purchase" altered the narrative ahead of the upcoming meeting.

The Bank of Japan will meet this Friday for its policy meeting, where the central bank is expected to remain static.

Economists polled by the Monetary Authority of Singapore for its latest quarterly survey maintained their GDP forecast for Singapore's economy at 3.2 per cent this year versus official forecasts of growth between 2.5 per cent and 3.5 per cent, while a labour report showed slight improvements in the first quarter of this year.

Turnover came in at 1.48 billion shares worth $1.21 billion versus Tuesday's 1.69 billion worth $968 million. Losers outpaced gainers with 285 counters down and 143 counters up.

Losses were led by declines in all three banks with United Overseas Bank falling the sharpest by 76 cents or 2.7 per cent to $27.10.

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