STI managed to cross 3,300 twice – thanks to “higher for longer” interest rates

Date: May 6, 2024

  • The STI gained 0.36% at 3,292.93 after crossing 3,300 twice during the week
  • Latest US FOMC lived up to expectations – rates to stay unchanged
  • “Goldilocks’’ US jobs report lifted Wall St’s stocks and bonds on Friday
  • First US rate cut now expected in September
  • Delaying rate cuts are good for the banks, net cash firms: BT report
  • DBS’s 1Q net profit up 15% to S$2.95b, stock hits all-time high of S$36
  • UOB to announce results on Wed, OCBC on Friday
  • Cordlife received letter of demand, notice of claim
  • Singapore’s PMI dips in April but remains in expansion for 8th straight month
  • Sell in May and go away?


The STI challenged the 3,300 level twice during the week

“Higher for longer’’ was the expected message from the US Federal Open Markets Committee meeting which, together with DBS’s strong 1Q results, helped push the banks higher and in turn, enabled the Straits Times Index to cross 3,300 for the first time in about 9 months – not once but twice during the week.

However on both occasions, the momentum was eventually lost late in the day. On Thursday, the STI touched an intraday high of 3,322 but ended at 3,296, whilst on Friday, it peaked at 3,312 but ended at 3,292.93. For the week, the net gain was 12 points or 0.36%.

Latest FOMC meeting lived up to expectations

The latest US Federal Open Markets Committee meeting held no surprises, with the Fed holding rates steady as had been widely expected.

Furthermore, the accompanying language also did not add to the market’s knowledge as to when interest rates might be lowered. Fed officials are “prepared to maintain the current target range for the federal funds rate for as long as appropriate,” Chairman Jerome Powell told reporters at the post-meeting press conference.

The difference between the United States and other countries that are now considering rate cuts is that they’re just not having the kind of growth we’re having,” Federal Reserve chair Jerome Powell said on Wednesday, while inflation rates abroad may be similar to those in the U.S. or lower.

Strong growth and low unemployment in the U.S. means the Fed has the “luxury,” Powell said, of holding interest rates steady for longer to continue to put downward pressure on inflation. Other central banks may be able to declare victory over inflation sooner than the Fed but may also have to respond to weakening economic growth sooner.

“We will be careful and cautious as we approach the decision to cut rates, whereas I think other jurisdictions may go before that,” Powell said.

Some observers said the market was relieved that the Fed did not dial up its hawkishness in the accompanying statement.

“Goldilocks’’ US jobs report lifted Wall St’s stocks and bonds on Friday

The 2-year Treasury yield fell to 4.804% this week while the 10-year yield was down to 4.498%. The 10-year yield marked its largest one-week decline since mid-December, according to Dow Jones Market Data and snapped a four-week streak of rising yields.

The Dow Jones Industrial Average gained 450 points, or 1.2%. The S&P 500 jumped 1.3%. The Nasdaq Composite ended 2% higher.

The trigger for these gains was that the April employment report from the Labor Department came in cooler than expected, unemployment ticked up, and wage growth moderated. It was the kind of report that market observers love to call a “Goldilocks” release because it wasn’t too cool or too hot, just like the porridge in the children’s story.

Market now expects first rate cut to be in September

Odds of at least one rate cut through September were back up to 68.3% from 61.6% on Thursday, according to the CME FedWatch Tool. Odds of at least 75 basis points in cuts through the end of the year were up to 24.9% from 17.4% on Thursday.

Delaying rate cuts are good for the banks and net cash firms

The Business Times on Friday reported that DBS analysts said “higher for longer’’ interest rates will benefit the banks, especially if they continue to reduce their deposit rates.

DBS analysts were quoted saying they prefer UOB for its strong earnings momentum and undemanding valuations.

Net cash firms are also expected to benefit, among them ComfortDelgro, Yangzijiang Shipbuilding and Venture Corporation.

DBS’s 1Q net profit up 15% to S$2.95b, stock hits all-time high of S$36

DBS announced a 15% rise in profit for its first quarter ended 31 March to S$2.95b and its CEO Piyush Gupta said it is a “reasonable assumption” that the lender can beat its 2023’s profit numbers.

The lender’s Q1 net profit beat the S$2.5 billion consensus forecast in a Bloomberg survey of five analysts. Excluding integration costs for Citibank Taiwan, net profit would have been a record S$2.96 billion.

DBS posted several record figures in Q1, with return on equity at a record 19.4% and total income up 13% to a new high of S$5.56 billion.

An interim dividend of S$0.54 for each share was declared, resulting in estimated total dividends payable of S$1.54 billion.

Additional shares arising from its proposed 1-for-10 bonus issue will also qualify for this dividend. The payment date for the Q1 interim dividend will be on or about May 20, after books closure on May 10.

“This was obviously a very strong first quarter. It is exceptional by any measure and it’s safe to say everything went our way,” Gupta said at a briefing for the bank’s Q1 results.

On Thursday morning just after the results were released, DBS’s shares rose to an all-time high of S$36 before pulling back. They finished the week at S$35.64.

UOB will announce its 1Q numbers on Wednesday and OCBC on Friday.

Cordlife received letter of demand, notice of claim

Troubled cord blood bank firm Cordlife said it received a letter of demand from one of its clients alleging the cord-blood bank has breached its service agreement, as well as a breach of the duty of care in negligence. It noted that this was the first letter of demand received by the company from legal representatives of an affected client.

It also announced a notice of claim received in February this year, which was lodged against the company in the Small Claims Tribunals alleging the damage of another client’s child’s cord-blood unit stored by Cordlife.

While Cordlife did not state the amounts claimed by both clients, it said the sum being claimed under the letter of demand is “one that falls within the jurisdiction of the District Courts” which indicates that the sum claimed by the letter of demand falls within the range of S$60,000 to S$250,000.

Singapore’s PMI dips in April but remains in expansion for 8th straight month

Singapore’s Purchasing Managers’ Index (PMI) dropped 0.2 point to 50.5 last month, though it still remained in expansion territory for the eighth straight month.

A reading above 50 on the index indicates growth from the previous month, while one below 50 points to a contraction.

On the other hand, the linchpin electronics sector edged up 0.1 point from the previous month to post a slightly faster expansion at 50.9 in April. This marks the sixth consecutive month of expansion for the sector.

DBS economist Chua Han Teng was quoted by the Business Times saying the bank continues to see signs of improving demand for the electronics cluster, on account of April’s faster growth in new orders, new export orders, and backlog orders, while UOB associate economist Jester Koh said he is optimistic on the recovery prospects in the electronics sector.

This is given the “supportive base effects in Q2 and Q3 of 2024 and underlying end-demand fundamentals remain intact”, he said, driven by the boost from generative AI-related applications which have positive spillovers to the consumer segment.

Sell in May and go away?

There’s a famous adage on Wall Street called “Sell in May and go away,” but investors are analyzing if the strategy still holds any merit. The investment approach posits that stocks tend to underperform in the six months through October, so investors should convert to cash at the start of May and then buy into a dip later in the fall.

The bulls claim that “sell in May and go away’ has a weak track record over the past 40 years, with the S&P 500 having positive returns in over 75% of summer periods, according to one study.

Bears on the other hand, point to the outsized market gains seen since late October and the latest top that was hit in late March. In only five months, the S&P 500 Index (SP500) soared nearly 28% to hit a peak of 5,264, before slumping 4% in April.

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