Encouraging Fed minutes had little effect, STI down 0.86%

Date: November 28, 2022

  • The STI fell 28 points in low volume to 3,244.55 despite seemingly positive Fed minutes
  • On closer look at the minutes, some interest rate concerns remain
  • Market now betting on 50-points rate hike in December
  • China’s lockdowns also weighed on sentiment
  • Singapore’s 2023 growth expected to be a low 0.5-2.5%
  • Factory output shrank 0.8% in Oct, further contraction expected
  • 100 most traded stocks enjoyed net fund inflows of S$730m in past month
  • Voluntary cash offer for Chip Eng Seng turns mandatory

STI fell 28 points in low volume despite seemingly positive Fed minutes

As far as Wall Street was concerned, the most important event last week was the release of the minutes of the US Federal Reserve’s recent Open Markets Committee meeting which showed that although most members favoured a slowing of the pace of rate hikes, there was still much work to be done on the inflation front.

As far as the local market was concerned, China’s fresh lockdowns and news that Singapore’s official 2023 growth forecast at 0.5-2.5% is worse than expected were probably the main developments.

As it turned out, the nett effect was a 28 points or 0.86% loss for the Straits Times Index to 3,244.55, albeit in subdued volume. Average daily value traded came to S$895m, a far cry from the previous week’s average of S$1.44b.

Fed minutes gave some relief but did not necessarily indicate a dovish stance

Minutes released Wednesday from the Fed’s Nov. 1-2 meeting show US central bank officials see some early signs of progress against inflation as financial conditions tighten, the economy cools, and some of the most interest-rate-sensitive sectors, including housing, begin to slow.

Furthermore, they are increasingly taking into consideration the cumulative impact of how much the federal funds rate has climbed so far, and the lag with which monetary policy operates.

As a result, “a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,” the minutes say.

But beyond the discussion of a near-term slowdown, other details show that Fed officials remain laser-focused on returning the economy to price stability and are poised to tighten monetary policy further than they had initially anticipated.

While a few participants began to raise concerns that the risks of tightening too much were rising, the dominating view appeared to be that the central bank still had considerable work to do, adding that “a period of below-trend real GDP growth would be helpful.”

Market is now betting on 50-basis points hike in Dec instead of 75

The Fed minutes reinforced a view that had been growing in recent weeks that the central bank will raise interest rates by 50 basis points, or half a percentage point, at its next meeting in mid-December, rather than the 75 basis-point hike it voted for at each of its past four meetings. As of Friday, the futures market was pricing in a 71% probability of a 50-points hike, versus 29% for 75 points.

However, not all observers believe that the worst of the tightening is over. “We remain sceptical that the recent rally marks the start of a new market regime,” wrote Mark Haefele, the chief investment officer at UBS Global Wealth Management.

“The priority of the Fed is likely to remain the fight against inflation, pending a more consistent stream of softer prices and employment data.”

China lockdowns also played a part

Beijing shut parks and museums on Tuesday and Shanghai tightened rules for people entering the city as China grapples with a spike in Covid-19 cases that has deepened concern about the economy and dimmed hopes for a quick reopening.

“Not only would fresh lockdowns in major cities take a sledgehammer to growth into year-end, but it could also complicate any plans that are being put in place to soften the zero-Covid policy next year,” wrote Craig Erlam, senior market analyst at Oanda. “We’re back into uncertain territory which could slow the recovery in stock markets.”

Singapore’s 2023 growth forecast 0.5-2.5%, recession not on the cards

The Ministry of Trade and Industry on Wednesday said next year’s growth is expected to be between 0.5-2.5%, a range that private sector economists were quoted saying as being surprisingly low.

The Business Times on Thursday quoted ANZ Bank’s head of Asia research Khoon Goh saying the estimate was below consensus market expectations, adding “the cautious outlook reflects the challenging global backdrop which is expected to weigh heavily on Singapore’s export-oriented sectors’’.

Despite the low forecast, the authorities do not expect Singapore to enter a full-year or technical recession, defined as two consecutive quarter-on-quarter contractions.

Factory output shrank 0.8% in Oct, further contraction expected

Singapore’s factory output shrank 0.8% year-on-year in October, reversing the previous month’s gain of 1.6%. Excluding the volatile biomedical cluster, factory output grew 1.9%, though this was lower than September’s 3% growth.

The Business Times quoted RHB senior economist Barnabas Gan saying “October’s contraction on a year-on-year basis paints a gloomy start to Singapore’s overall economic prognosis in Q4 2022’’ and adding that the manufacturing slowdown is likely to persist into the first half of 2023.

Maybank economists were quoted saying manufacturing is expected to contract for the rest of the year and into 2023. “After 2 years of robust manufacturing growth, the electronics cluster will likely be the laggard in 2023 due to the chip downturn and slowing global growth’’.

In Oct, electronics shrunk for the fourth consecutive month, though at a slower pace of 0.7% compared to September’s 5.7% fall.

100 most traded stocks enjoyed net fund inflows of S$730m in past month

In a Market Update last week, the Singapore Exchange said from 21 Oct to 21 Nov, the STI rallied 9.4%, with Singapore’s 100 most traded stocks averaging 8.0% total returns. The 100 stocks also saw S$730 million of combined net fund inflows over the month, taking their 2022 YTD net fund inflows to S$1.2 billion.

“Among the 100 stocks, the 10 stocks that saw the most net fund inflows, proportionate to their current market capitalisation, included four Technology stocks – Frencken, UMS, iFAST and Venture, in addition to Sembcorp Marine, CDL Hospitality Trusts, UOB, Acesian Partners, Genting SG, and YZJ Shipbuilding’’ said SGX.

“The Telecommunications, Banks, and Technology Sectors book the highest net fund inflows, proportionate to their respective current market capitalisation over the month’’.

“The Telecommunications Sector net inflows were driven by Singapore Telecommunications which saw S$154 million net fund inflows over the month, bringing its 2022 to 21 Nov net fund inflows to S$942 million. Together the three banks saw S$502 million of net fund inflows for the month, which represents 0.25% of their combined current market capitalisation of S$197 billion’’.

Voluntary cash offer for Chip Eng Seng turns mandatory

Chip Eng Seng chairman Celine Tang’s voluntary conditional cash offer for the property player has turned mandatory after she and husband Gordon Tang bought 6.3m shares on Friday.

The couple bought the new shares at S$0.72 per share, bringing their total shareholding in the company to about 42.3%, triggering a mandatory general offer. Chip Eng Seng’s shares closed at S$0.725 on Friday. The plan after the takeover is to take the company private.