Monthly and Weekly Markets Wrap for September 2018: US-China trade problems, FOMC provided main focus

Date: October 1, 2018

  • STI rose 1.2% for week, 1.4% for month but lost 0.33% for 3Q;
  • US-China trade standoff still dominated headlines;
  • US 10-year yield crossed 3% in mid-Sep – and has stayed there;
  • Wall Street equities close to all-time highs, Tesla in the news;
  • FOMC raised rates as expected but sounded more hawkish;
  • Keppel-SPH offer for M1 provided one of the month’s main plays.


The ongoing trade spat between the US and China, together with the latest US Federal Open Markets Committee (FOMC) meeting provided the main talking points for last week as well as most of the month of September.

For the week, the Straits Times Index managed a strong start, dipped in the middle but then enjoyed a hefty Friday push, most likely thanks to quarter-ending window-dressing. The index’s gain for the week amounted to 40 points or 1.2% at 3,257.05, of which 20.79 points came from Friday’s session.

For the month, the STI managed a 44 points or 1.4% rise, but this was not sufficient to prevent the index from recording a loss for the third quarter, albeit a small one of about 11 points or 0.33%.

Volume throughout the week and month for the most part was low, for most days coming in at below the industry’s ballpark breakeven of S$1 billion and apart from the Keppel-SPH tie-up to take over mobile phone operator M1 and there was not much in the way major corporate developments for traders to try and capitalise on. However, thanks to Friday’s boosting of the index, turnover rose to a modest 1.7 billion units worth S$1.4 billion.

US-China trade situation

Throughout the month markets moved in tandem with news on the trade front – on 7 September for example, markets fell after US President Donald Trump declared that tariffs on US$267b of Chinese goods were “good to go’’.

A week later, stocks rose after news reports that Washington had extended an invitation to China to resume trade negotiations. The invitation was issued by Treasury Secretary Steven Mnuchin, however, these hopes were soon dashed when Mr Trump a few days later said he still wanted to impose tariffs on at least US$200b worth of China imports.

As the month progressed, faint hopes of friendly talks rapidly faded. On Tuesday last week, China said it was difficult to proceed with trade talks with the US while Washington is “holding a knife to China’s neck’’ a day after both countries imposed more tariffs on one another’s goods.

US tariffs on US$200b worth of Chinese goods and retaliatory tariffs on US$60b worth of US goods including liquified natural gas kicked in last Monday, unnerving markets. China also accused the US of “trade bullyism’’ and of forcing other countries to submit to its will.

Mizuho Bank was quoted as saying that “given these developments, it is increasingly likely that both sides will not resume negotiations for some time, at least until there is a noticeable shift in the political mood on either side’’.

Last week, Mr Trump fired another salvo when he accused China of interfering with the US’s mid-term polls as payback for his hardline over trade, an accusation that China has denied is true.

Movements in the US Treasury bond market and Wall Street stocks

On 7 Sep, the 10-year US Treasury yield jumped 6.2 basis points to 2.93% after news that August’s non-farm payrolls grew by 201,000 versus expectations of 190,000. The 2-year yield in the meantime, closed at 2.7%, the highest in 10 years. A week later, the 10-year yield rose to just above 3%, the first time in a month that the mark was breached.

Wall Street’s equities however, were not too badly affected by these developments – on 20 Sep, the Dow Jones Industrial Average rose to its first all-time high since January when it added 251.22 points or 0.95% at 26,656.98. Also closing at a new high was the S&P 500, at 2,930.75. News reports suggested that expectations of a strong economy were overshadowing trade war worries.

Last week however, Wall Street was buzzing over the US Securities and Commission’s civil action against Tesla’s CEO Elon Musk which led to the electric automaker’s share price collapsing US$44.50  or 14% to US$263.02. The SEC on Thursday charged Mr Musk for fraud, saying he issued “false and misleading” statements and failed to properly notify regulators of material company events when he tweeted a few weeks ago that he had secured sufficient financing to take Tesla private. 

US FOMC meeting

As had been widely expected, the US central bank raised interest rates at its meeting last week by 25 basis points to 2-2.25%. It was the eighth hike since late 2015, taking the federal funds rate to its highest in ten years. Voters on the FOMC backed the decision by 9-0.

Growth and job gains have been “strong” and inflation remains near the central bank’s 2 percent target, the FOMC said in its statement. Barring a negative surprise, updated “dot plot” forecasts made a December rate hike almost certain, with 12 of 16 officials now expecting another increase by year-end. That grew from eight in their June projections.

The Keppel-SPH-M1-Keppel T&T announcement

On Thursday, Keppel and Singapore Press Holdings announced a joint effort to take control of mobile phone operator M1 at $2.06 per M1 share, a 26% premium over its last traded price of $1.63. Separately, Keppel announced an offer to privatise its subsidiary Keppel Telecommunications and Transportation at $1.91 per share.

Keppel’s chief executive officer (CEO) Loh Chin Hua said the M1 offer is in line with the group’s mission as a solutions provider for sustainable urbanisation. SPH’s CEO Ng Yat Chung said the media and property group is supporting Keppel as it sees the potential for long-term value creation in M1. “We also see opportunities for SPH to leverage on M1’s mobile platform to offer on-demand and ready digital content to better serve customers’’ said Mr Ng.

M1’s shares on Friday shot up after their trading suspension was lifted and ended the week at $2.11, up $0.48 or 29.4%. Keppel T&T in the meantime, also surged, rising S$0.50 or 36.8% at $1.86.

Traders said M1’s closing price, which surpassed the takeover offer price, was likely because of reports that Malaysia’s Axiata Group, which owns 28.3% ofM1, would hold out for a better offer.