Fading US recession worries enabled STI, led by DBS, to recover 3,350 mark

Date: August 19, 2024

• Robust US economic data helped push the STI up 2.8% to 3,352.89
• DBS led the way with a 5.9% jump, OCBC, UOB and Singtel also contributed
• US indices posted their best weekly gains since 2023
• Helping soothe nerves were mild US inflation and strong retail numbers
• Probability of a rate cut in Sep is 100%, of which 73% is that it will be 25-basis points
• All eyes at this Friday’s Jackson Hole summit where Fed chief Powell will speak
• Singapore’s 2024 GDP growth expected to be 2-3%
• NODX jumped better-than-expected 15.7% in July

 

Led by a 5.9% jump in DBS, the STI rebounded to end above 3,350

What a difference two weeks make in stock markets! Just a fortnight ago markets were reeling under waves of selling pressure that originated in the US, following the release of weak economic data that suggested the economy might be headed for a hard landing.

The Straits Times Index two weeks ago on Monday 5 Aug plunged 4% to 3,243 and subsequently fell below 3,200 when it closed at 3,198 on Tuesday 6 Aug.

Since then, the release of robust US economic data has helped the STI not only regain the 3,200 level but also push above 3,350 following last week’s 91 points or 2.8% rise to 3,352.89.

As always, the banks and Singtel were instrumental in directing the index’s recovery – DBS led the way with a stunning S$1.99 or 5.9% jump during the week to S$35.56, UOB rose S$0.43 or 1.4% to S$30.43, OCBC’s gain was S$0.08 or 0.6% at S$14.31 whilst Singtel added S$0.06 or 2.1% to finish the week at S$2.98.

How Wall Street fared – stocks posted best gains since Nov 2023

The three major indexes ultimately finished higher Friday, after shifting between gains and losses earlier in the session. Traders were digesting a raft of economic data this week, the latest of which was Friday’s disappointing housing construction figures and August’s consumer sentiment reading.

However, mild inflation reports, strong retail sales numbers, and solid earnings from Walmart have helped calm fears of a recession, boosting stocks earlier last week.

Overall, the numbers should help put to rest worry about a potential recession that had cropped up two weeks ago when the jobs report for July revealed weak hiring and surging unemployment.

For the week, the S&P 500 climbed 3.9%, the Nasdaq Composite rose 5.3% and the blue-chip Dow Jones Industrial Average added 2.9%. All three indices recorded their best weekly gain since November 2023.

The Fed will most likely cut by 25 basis points in September

That, in turn, likely gives Federal Reserve officials room to move cautiously as they consider lowering interest rates. The fact that economic conditions are looking more solid means the bank is likely to cut by only a quarter of a percentage point, rather than moving more aggressively to stave off a recession, when policymakers next meet on Sept. 17 and 18.

“We never want to read too much into one week’s claims report, but the data are consistent with our view that while the labour market is softening, it isn’t weak enough to warrant more than a 25 basis-point rate cut at the Fed’s September meeting,” wrote Nancy Vanden Houten, senior economist at Oxford Economics.

In the federal funds futures market, the probability of a 25-basis interest rate cut in September was 73% on Friday and 27% that it will be 50 basis points.

All eyes on Powell’s Jackson Hole statements

Federal Reserve Chair Jerome Powell is scheduled to deliver remarks on the economic outlook on Friday, the first full day of the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming.

The annual gathering of global central bankers offers Powell a chance to give an updated assessment of the US economic trajectory and the outlook for monetary policy, midway between the central bank’s July and September policymaking meetings.

Last month he said that if inflation and the labour market continues to cool, an interest rate cut could be on the table at the Fed’s next meeting.

Singapore’s 2024 GDP growth expected to be 2-3%

The Ministry of Trade and Industry (MTI) last week narrowed its official full-year growth forecast for 2024 for Singapore to a range of 2 to 3%, from 1 to 3% previously.

The narrowing was previously signalled by the Monetary Authority of Singapore, which said in its Jul 26 policy decision that Singapore’s full-year growth was likely to be closer to its potential rate of 2 to 3%.

Second-quarter gross domestic product came in at 2.9% and on a seasonally adjusted quarterly basis, the economy expanded by 0.4% in Q2, also unchanged from early data. Overall, year on year Singapore’s GDP growth averaged at 3% for the first half of 2024.

NODX jumped better-than-expected 15.7% in July

Singapore’s key exports posted an unexpectedly big jump in July, reversing a five-month slide as both electronic and non-electronic shipments grew strongly.

Still, analysts said Singapore’s export recovery remains vulnerable to downside risks such as ongoing geopolitical conflicts, China’s uncertain economic outlook and a possible growth slowdown in the United States.

For July, non-oil domestic exports (NODX) grew 15.7% year on year, compared with a revised 8.8% contraction in June and the 1.2% expansion forecast by economists in a Bloomberg poll.

On a month-on-month seasonally adjusted basis, NODX expanded by 12.2% to $15.4 billion in July 2024, after a 0.4% decline in June. This also topped the 2.2% rise tipped in the Reuters poll.

Electronic NODX expanded by 16.5% in July, reversing the 9.5% decline in June, underpinned by growth in integrated circuits or semiconductors, the largest component.

Non-electronic shipments expanded by 15.5% in July, after the 8.6% decline in June. Non-monetary gold, petrochemicals and specialised machinery contributed the most to the growth.

Investing with Insight: Watch this Week’s Technical Outlook

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