Monthly Market Wrap: Surging bond yields dragged STI down 4.7% in October

Date: November 1, 2023

  • Rising US Treasury yields sparked broad-based selloff in stocks and bonds
  • All three US equity indices fell 1.4-2.8% in Oct
  • The STI followed suit, losing 4.7% at 3,067.74
  • All eyes on Wednesday’s FOMC meeting for the Fed’s comments
  • VTAC was the first SGX-listed SPAC to announce a “de-SPACing’’
  • Singapore’s growth should improve in 2H next year: MAS
  • China’s factory activity shrank in Oct
  • Chip demand to recover next year: Samsung
  • Middle-East war could raise oil prices by 75%: World Bank


The US Fed’s message of “higher for longer’’ rattled Wall Street

The central focus for most global markets throughout October was a selloff in bonds that sent yields spiking upwards.

Even though some US Federal Reserve officials spoke of there being no need for further rate hikes because higher bond yields were already helping the Fed in its fight against inflation, stocks still came under pressure.

There was some respite in the middle of the month when safe haven buying of US Treasuries because of the outbreak of conflict in the Middle East helped bring yields down, but the selling of bonds later then later resumed.

In the third week of the month, after the 10-year yield crossed 5% for the first time since 2007, the S&P 500 entered correction territory, defined as at least a 10% fall from a recent high.

This also followed comments by Fed chief Jerome Powell made during a speech the Economic Club of New York about him and his colleagues being committed to bring inflation down from around 3.8% currently to 2%, and “keeping policy restrictive’’ until they are confident that inflation is on a path to that objective.

Despite a late bounce on Monday and Tuesday, all three major US indices recorded losses for the month. The S&P 500 fell 2.2% in October while the Dow fell 1.4%. Both had their worst October since 2020. The Nasdaq Composite fell 2.8% its worst October since 2018.

As for the Straits Times Index, it started the month at 3,217 but not only lost the 3,200 level in October but also the 3,100 mark when it sank to a closing low for the month of 3,053.26 on 23 Oct.

It finished the month at 3,067.74 for a net loss of about 150 points or 4.7%. Volume only crossed the S$1b mark on five trading days.

All eyes on the Fed for its post-FOMC comments

Traders are looking ahead to Wednesday’s interest rate decision from the Federal Reserve. While rates holding steady is all-but-assured, close attention will be paid to Chair Jerome Powell’s press conference.

According to the CME FedWatch Tool, as of Tuesday, the probability that the Fed will keep rates unchanged on Wed was 98.3%.

VTAC was the first SPAC to “de-SPAC’’

Special purpose acquisition company (SPAC) Vertex Technology Acquisition Company (VTAC) last month became the first of three SPACs listed here to “de-SPAC’’ when it announced a proposed business combination with Taiwanese livestreaming operator 17Live.

The combination will value the business at S$1.2 billion, with a purchase consideration of S$925.1 million, subject to financial targets being achieved.

VTAC will allot up to 160.6 million new shares at S$5 each, amounting to S$803 million, to 17Live’s shareholders. If 17Live hits the financial target set, an earnout of 24.4 million new shares at S$5 each will be allotted to applicable shareholders, amounting to S$122 million.

Singapore’s growth should improve in 2H next year: MAS

The Monetary Authority of Singapore last week said Singapore’s growth should improve gradually in the second half of 2024 and be more even across sectors, barring renewed shocks to the global economy.

For 2024 as a whole, Singapore’s growth should “come in closer to its potential rate”, though with the output gap remaining slightly negative, said MAS. Singapore’s trend growth is generally seen as being 2 per cent to 3 per cent.

This is even as global growth is set to ease further in the coming quarters, partly reflecting tight monetary policy. This is dragged down by the G3 – eurozone, Japan and the United States. The G3 economies are expected to grow 1.7 per cent this year, down from 2.3 per cent in 2022 – slowing further to 0.7 per cent growth in 2024.

China’s factory activity shrank in Oct

China’s factory activity fell back into contraction in October, while an expansion of the services sector unexpectedly eased, signalling that the economy remains fragile and in need of support.

The official manufacturing purchasing managers’ index (PMI) dropped to 49.5 this month from 50.2 in September, according to a statement from the National Bureau of Statistics (NBS) on Tuesday. This compares with an estimate of 50.2 in a Bloomberg survey of economists.

Chip demand to recover next year: Samsung

Samsung Electronics on Tuesday said it expects gradual demand recovery for chips in 2024 after reporting its highest quarterly profit so far in 2023, as the battered memory chip market began showing signs of rebound from a severe downturn.

The proliferation of on-device artificial intelligence (AI) functions will increase appetite for Dram chips in premium products in 2024, the world’s biggest memory chip and smartphone maker said in a statement.

“PC and mobile demand is likely to benefit from the arrival of some replacement cycles for products” next year, it added.

Middle-East war could raise oil prices by 75%: World Bank

The World Bank on Monday said a major escalation of the current war between Israel and Hamas, one that spills over into a broader conflict could send oil prices up by as much as 75%.

“The latest conflict in the Middle East comes on the heels of the biggest shock to commodity markets since the 1970s – Russia’s war with Ukraine,” Dr Indermit Gill, the World Bank’s chief economist and senior vice-president for development economics, said in a statement that accompanied the report.

“If the conflict were to escalate, the global economy would face a dual energy shock for the first time in decades.”

The World Bank projects that global oil prices, which are currently hovering around US$85 a barrel, will average US$90 a barrel this quarter.