'Thanksgiving rally' may boost local market

This article is more than 12 months old

There are reasons to be optimistic this week, but impact from Wall Street might be negative

This week, "revenge rebound" or a "Thanksgiving rally" could materialise in the local bourse after the key Straits Times Index (STI) lost 1.1 per cent over the previous week as the earnings season wound down - that is, if this year's persistent trend of a correction followed by a bullish trend is anything to go by.

That could however be challenged by Wall Street's outing last Friday with US key stock indices having slipped and, with that, logging their second straight week of declines after a marathon two-month long stretch of gains fuelled by corporate earnings and upbeat macro data.

The Dow fell 0.4 per cent and the S&P 500 fell 0.3 per cent while the Nasdaq Composite retreated 0.2 per cent last Friday.

The catch-up rally has already begun in the Singapore market, with the STI snapping a five-day losing streak on Friday - prior to the correction, the index tested multi-year highs - to rise 1.23 per cent on the back of broad gains in regional markets.

There is reason for optimism, with Prudential Financial predicting that major US indexes could hit new record highs as long as the retail renaissance (going into the critical holiday-shopping season) continues and the US Congress makes more progress on tax legislation.

"This week is 'Black Friday', the bumper sales day when American stores traditionally cover their costs and start making money on the year," it said.

US President Donald Trump's tax cuts will continue to hog investors' wish list.

As for oil prices, an upcoming decision by Opec on Nov 30 on whether to extend production cuts and the continued production growth of shale in the US will be closely watched.

DBS Research expects a rise in global demand, still lagging shale gas investment in the US and uncertainties stemming from Saudi Arabia to be compelling factors to support oil prices in the short term.

The house added, however, that given the prevalence of many moving parts, "price gyrations" could persist.

The week's data docket includes third quarter gross domestic product numbers expected out of Singapore, Thailand, Germany and the United Kingdom and key jobless and manufacturing data from the US amid a week shortened by the Thanksgiving holiday.

US financial markets will be shut down on Thursday for the Thanksgiving Day holiday, with early close for Friday.

Singapore's economy grew 4.6 per cent year-on-year over the third quarter, the fastest pace since the first quarter of 2014, said Moody's Analytics, adding that it expects little to no change in the final estimate.

US Federal Reserve chair Janet Yellen is due to speak at Stern Business School and minutes from the latest Federal Open Market Committee meeting will be released mid week, with most pundits expecting a December rate hike.

The encouraging global macro backdrop has been a major soothing theme for investors this year and this is unlikely to change as we move towards the end of the year.

Global economic strength seen so far this year shows little sign of abating, but it's hard to ignore the "incipient rise" in market volatility, said DBS Research in a weekly wrap.

"To say the markets are on edge may be overstating the current dynamic. Fundamentals are strong, investor position is thinning as the year comes to an end, and further upside may well be in the pipeline on the investment front, as leading indicators have begun to hint at a pick-up in the cap-ex cycle.

"But volatility may be here to stay nonetheless as a slowing China and some commodity-related uncertainty give bulls and bears room to tussle," the research house added.

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