Business

US debt ceiling doubts cap prices here

STI trades for most of the session within a narrow band before ending at 3,228.06, down 4.41 points; Rowsley is most active

The local stock market underwent a quiet trading session yesterday, with support coming from a firm overnight Wall Street but with a drag coming from a 40-point slide in the Dow futures that indicated a possibly weak opening for the US market yesterday.

The net result was that the Straits Times Index traded for most of the session within a narrow band before ending at 3,228.06 for a loss of 4.41 points on the day.

Turnover was two billion units worth $1.14 billion - almost exactly the dollar value done on Wednesday - and rounding off a mixed session was an advance-decline score of 194-192, excluding warrants.

US stocks rose on Wednesday after the improbable news that US President Donald Trump and Democrats in Congress had agreed to a three-month deal to raise the government's debt ceiling and to pay for hurricane relief.

Macquarie Warrants (MW), in its daily newsletter, said a failure to reach an agreement could lead to a government shutdown, which would be "catastrophic".

MW noted: "Should the deal on a three-month debt extension be passed in the Republican-dominated Congress, a US government debt default will be averted.

"It will also keep the government afloat at the beginning of the fiscal year starting on Oct 1 and provide relief to the victims of Hurricane Harvey."

However, some observers have pointed out that the agreement is only a short-term solution. US newspaper Barron's quoted one analyst as saying this guarantees that this issue will come up again this year and, importantly, will continue to distract legislative attention away from tax reform.

Another observer pointed out that House Speaker Paul Ryan described a three-month extension as "unworkable" and characterised the action of tying debt limit legislation to an aid bill as "disgraceful".

Whatever the case, the average value per unit traded here in a muted session amounted to $0.57, with the actives list headed by trading favourite Rowsley Holdings, which ended $0.002 firmer at $0.115 on volume of 143.3 million.

Also in the upper echelons of the actives list was Yangzijiang Shipbuilding, which has been weak since announcing at the end of last month a placement of 137 million shares at $1.53 each. Yesterday, the stock fell $0.03 to $1.405 with 29.6 million traded.

The Reit sector turned in a mixed showing yesterday with rebounds for Cache and Manulife US Reit, the two whose rights issues had been blamed for pressure on the whole sector on Wednesday.

Phillip Securities, in a report on the US market, said that it thinks the current economic expansionary cycle is in its late stage and that although multiple indicators have yet to indicate an imminent correction, caution is warranted.

The broker added that it would be prudent for investors to adopt a defensive posture as "valuations scale higher and to hedge their positions against any significant market correction".

Bank of America Merrill Lynch, in its Sept 6 Global Cross Asset Strategy titled "Believe in the synchronised upswing", said the best year of growth since 2010 is providing support to earnings and equities.

It said: "As long as earnings remain solid so will equity markets. We stay long Emerging Markets (EM) Asia... If the USD can find some footing, Japan and Europe could perform again too."

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

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