A hawkish Fed puts the brakes on the market’s rise

Date: June 21, 2021

  • The STI fell 13 points or 0.4% over the week to 3,144.16;
  • A hawkish FOMC raised inflation worries and sent gold prices sliding;
  • Wall St on Friday dropped sharply after the Fed’s Bullard said tightening could start soon;
  • OTS posted a solid start as a listed company;
  • SPH could see a substantial shareholder emerge: CGS-CIMB;
  • Top Glove was removed from 3 ESG indices;
  • Singapore’s GDP could grow 6.5% this year: MAS survey

A choppy week for the STI

The local stock market last week fell victim to signs from the US Federal Reserve that it is considering interest rate hikes sooner rather than later.

The outcome was a choppy week for daily trading, the net result being a 13 points or 0.4% loss for the Straits Times Index at 3,144.16.

There was, however, sufficient activity in the second line to keep punters happy – on Friday for example, volume done was a healthy 2.1b units worth S$1.84b.

US inflation, the Fed and gold

For several weeks Wall Street and markets around the world have wondered whether US inflation is a problem and if so, when the Federal Reserve might start to tighten its monetary policy.

Recent data showing surging prices had led many to believe the Fed would at least begin early discussions about reining in some of its ultra-accommodative policy aimed at cushioning the economy from the Covid-19 pandemic. However, the consensus view was that inflation was only “transitory’’ and therefore benign.

Last week the Fed held its latest Open Markets Committee meeting. It surprised markets with an outcome that was far more hawkish than some expected.

While the central bank held policy steady at its meeting last week, it also signalled faster and sooner interest rate increases, with its forecast suggesting two increases in 2023. And the Fed increased its inflation forecasts for this year and next.

Gold took a hit, with the price plunging almost 5% or US$85.70 an ounce to US$1773.80.  Observers say higher yields and interest rates increase the opportunity cost of holding non-interest-bearing gold, and prospects of a further rise in yields could cap any bounces in the price.

“The Fed’s hawkish pivot is a major buzzkill for gold bulls that could see some momentum selling over the short-term. Short-term Treasury yields will continue to rise and that should provide some underlying support for the dollar, which will keep commodities vulnerable,” said Oanda analyst Edward Moya in a note to clients on Wednesday.

Could the Fed start tapering sooner rather than later?

On Friday, the Dow Jones Industrial Average closed down 533 points, or 1.6% while the S&P 500 declined 1.3% and the Nasdaq Composite lost 0.9%. The Dow’s 3.4% loss for the week was its biggest decline since the last week of October 2020, right before the presidential election.

Speaking on CNBC on Friday morning, St. Louis Fed President Jim Bullard acknowledged that the central bank has been surprised about the quick recovery in inflation and that policy will get tighter sooner as a result.

He said that he could see an interest-rate increase as soon as next year and that discussion about tapering or reducing the size of the Fed’s monthly bond purchases, had begun.

OTS posted solid Catalist debut

Food manufacturer OTS Holdings ended its debut on Catalist on Thursday at S$0.29, a S$0.06 or 26% premium over its S$0.23 offer price. A total of 25.7m shares were traded. The counter’s solid run continued on Friday when it jumped S$0.065 or 22.4% to S$0.355 on volume of 34.3m.

The company specializes in ready-to-eat and ready-to-cook meat products and is known for its Golden Bridge brand luncheon meat. Other brands include Kelly’s. which focuses on Western-style meat, the Golden Lion brand that serves various food service businesses and its Orchid brand which has a range of ready-to-eat meat products for overseas markets.

SPH could see substantial shareholder

In a research note released on Thursday, local broker CGS-CIMB said the next possibilities for media and property firm SPH may include the emergence of a substantial shareholder and the unlocking of value from its assets.

SPH last month announced plans to transfer its media business to a not-for-profit company limited by guarantee. Once this is done, it will no longer be bound by the provisions of the Newspaper and Printing Presses Act, which states that no single shareholder can own more than 5% without approval of the minister.

CGS-CIMB said this means that interested parties, who may be attracted by the company’s quality portfolio, might then decide to acquire a substantial stake as income is supported by stable earnings.

As for who might be interested in SPH without the media business, CGS-CIMB noted the “endless possibilities’’ ranging from strategic investors to anyone who wants exposure to the real estate management business. The broker also speculated that SPH could also be a good fit for Keppel Corp as both have the same chairman.

Top Glove was removed from three indices

Malaysian glove maker Top Glove was last week removed from three indices based on environmental, social and governance (ESG) factors – the FTSE4Good Bursa Malaysia Index, ASEAN 5 and Emerging Markets Index following the FTSE4 Good Index Semi Annual Review in June.

In a Monday note, UOB-Kay Hian said the removal was possibly because of the detention and withhold release order (WRO) issued by the US Customs and Border Protection (CBP) because of forced labour concerns. However, the broker also noted that both FGV Holdings and Sime Darby Plantations are still in the FTSE4 Good Index despite having received US CBP detention orders.

Top Glove’s shares fell S$0.03 to S$1.55 on Tuesday after the announcement. They also lost RM0.03 at RM4.74 in Malaysia on the same day. They ended the week at S$1.53.

Singapore’s GDP tipped to grow 6.5%: MAS Survey

The Monetary Authority of Singapore’s survey of private sector economists released on Monday last week showed that they expect the local economy to grow 6.5% this year. In the March edition of the survey, the figure was 5.8%.

“A stronger global recovery led by the US and Europe’s reopening is boosting the outlook, even as Singapore and Asean are struggling with a virus variant wave’’ said Maybank Kim Eng’s senior economist Chua Hak Bin.

The survey found that economists appear most bullish about manufacturing and non-oil domestic exports. The former is now expected to expand 8.3% and the latter by 7.5%.