STI slips 0.06% as Wall St comes under pressure after hot CPI data, weak bank earnings and worries over Middle East situation

Date: April 15, 2024

  • The STI lost 2 points at 3,216.91 despite weakness on Wall St
  • Middle East tension, US earnings to set tone for week ahead
  • US stocks and bonds came under pressure after strong CPI report
  • Market now unsure of June rate cut, probability down from 56% to 27%, some observers forecast no rate cuts this year
  • Stocks in focus: AEM and Cordlife
  • Starhub is telco sector’s top performer in past 3 months: SGX Research
  • Four out of five of the FTSE ST Catalist Index’s largest weights have double-digit Return on Equity (ROE): SGX Research
  • Markets too optimistic about US soft landing: JP Morgan CEO


STI fell 3 of 4 trading days but recorded loss of just 2 points or 0.06%

The Straits Times Index fell on 3 of the 4 trading days last week, ending at 3,216.91 for a net loss of 2 points. Average daily volume was S$1.03b, pushed up mainly because of the S$1.36b done on Thursday when the index dropped 10 points to 3,227.61.

The main index stocks in play were the banks and Singtel. For the week, DBS gained S$0.62 or 1.7% at S$36.12, UOB added S$0.17 or 0.6% at S$29.57 and OCBC rose S$0.03 or 0.2% to S$13.77.

Singtel in the meantime, dropped S$0.03 or 1.25% over the week to S$2.37.

Traders kept on eye on Wall Street, where stocks weakened after data suggested the possibility that the market had been too optimistic in its interest rate cut expectations.

Also contributing to a selloff in US stocks were weaker-than-expected earnings reported by the likes of JP Morgan, Citigroup and Wells Fargo.

Geopolitical concerns also weighed on the broader market amid headlines that Israel was gearing up for a strike from Iran, which turned out to be the case over the weekend.

Higher-than-expected US inflation dashed hopes of June rate cut

The consumer price index (CPI) climbed 3.5% year over year in March, according to data released on Wednesday by the US Bureau of Labour Statistics, faster than February’s 3.2% pace. Economists surveyed by FactSet had expected an annual increase of 3.4%. The strong pace was driven by upticks in the cost of housing and gasoline.

Core inflation came in at 3.8% year over year in March, the same level recorded in February but slightly higher than the 3.7% year-over-year gain economists surveyed by FactSet had expected.

The news is likely to delay cuts to interest rates by the Fed. Officials want to see inflation decline toward an annual rate of 2%.

US bond yields spiked up after the report, stocks on Friday took another hit after poor weak bank earnings and worries that Iran would attack Israel

On Wed, the 2-year Treasury yield spiked to 4.969%, marking its largest one-day increase since March 27, 2023, according to Dow Jones Market Data. The 10-year yield rose to 4.559%, its largest one-day uptick since Sept. 22, 2022.

Stocks were also hit, with all major indices dropping sharply on Wednesday.

This continued on Friday, reportedly because of disappointing bank earnings. For the week, the Dow Jones Industrial Average lost about 2.4%, marking its worst week since March 10, 2023. The S&P 500 lost 1.7% and the Nasdaq Composite 0.7%.

Also cited as a concern were reports that Israel was preparing for an attack from Iran.

Probability of June rate cut down to 27%

At the end of the previous week, the futures market was pricing in a 46% chance of a June rate cut, according to the CME FedWatch Tool. That figure rose slightly to 56% on Tuesday but plunged to 17% after Wednesday’s release of March’s CPI data before ending the week at 27%.

No rate cuts at all this year?

San Francisco Federal Reserve President Mary Daly said on Friday there is still “a lot of work to do” to make sure inflation is on track to the Fed’s 2% goal, and there is “absolutely” no urgency to cut rates.

“Policy is in a good place right now, and I need to be fully confident that inflation is on track to come down to 2 per cent, which is our definition of price stability, before we would consider a rate cut,” Daly said at an event at the regional Fed bank.

US newspaper Barron’s on Wed reported that the team at Yardeni Research wrote the latest CPI may lead to questions as to whether the Fed should start raising the fed-funds rate, rather than cutting it.

“The previous two reports, for January and February, were also hotter than expected,” they wrote.

“We don’t think that the Fed will raise rates again this year, but we’ve pushed back against the widely held notion of several cuts this year and argued that no cuts at all was becoming increasingly likely. Now that’s our base-case scenario.”

Stocks in focus: AEM and Cordlife

In the previous week, it was reported that the market’s most short-sold stock was semiconductor firm AEM. However, over the week AEM’s shares gained $0.09 or 3.8% at $2.48.

In a 3 April report, Maybank said it thinks the worst for AEM should be over and while the upcoming 1Q24E should remain weak, it expects a better outlook could potentially rerate the stock upwards as most negative news would have been priced in.

“Our latest channel checks also reveal its main customer providing a more bullish 2H24E forecast to its suppliers and we believe AEM could also potentially benefit. As a result, we upgrade to BUY from HOLD’’ said the broker, as it raised its 12-month target price from S$2.13 to S$2.78.

During the week, the Ministry of Health (MOH) announced that an estimated additional 5,300 cord blood units (CBUs) from a tank and a dry shipper at Cordlife are unlikely to be suitable for stem cell transplant purposes and have been deemed non-viable.

More tests need to be done on CBUs in five other tanks to achieve more statistically significant results, the ministry added.

Processes at the cord blood banking company have been in the spotlight after it was revealed on Nov 30, 2023, that cryopreserved CBUs in seven of its 22 storage tanks were exposed to suboptimal storage temperatures.

It was previously announced that around 2,200 CBUs in one of the affected tanks, called Tank A, were damaged and rendered unsuitable for stem cell transplants.

Over the week, Cordlife’s shares from S$0.172 to S$0.146, a loss of S$0.026 or 15%. The stock traded for S$0.45 in November before MOH’s first findings. It has since lost S$0.304 or 68%.

Starhub is telco sector’s top performer in past 3 months: SGX Research

In an 8 April Market Update, SGX Research said Singapore’s most traded telecommunication stocks, namely, Singtel, NetLink NBN Trust and StarHub, have averaged 2.6% total returns in the 2024 year to 5 April, on S$46 million of combined net institutional inflow which means that over the past 14 weeks, the Sector has seen the second highest net institutional inflow, after industrials.

“For price performances, StarHub has led the trio over the past 14 weeks, with an 8.1% price gain. The stock is also scheduled to go ex-div on 29 April with a 4.2 cents per share final dividend for FY23. This brings the FY23 total dividend for StarHub to 6.7 cents, above the previous guidance of at least 5.0 cents per share’’ said SGX Research.

Four out of five of the FTSE ST Catalist Index’s largest weights have double-digit Return on Equity (ROE): SGX Research

In a 9 April Market Update, SGX Research said the FTSE ST Catalist Index’s top weights are Kimly, UnUsUaL, CNMC Goldmine Holdings, Alset International and ISEC Healthcare – covering a variety of industries, spanning across consumer, metals & mining and real estate operations with a combined market capitalisation of nearly S$950 million.

“Four out of five of the FTSE ST Catalist Index’s largest weights have double-digit Return on Equity (ROE), with UnUsUaL’s the highest at 27%, followed by Kimly at 22% and ISEC Healthcare at 16%. For its 1HFY24 (ended 30 Sep), UnUsUaL reported record top line revenue and profit’’ said SGX Research.

Markets too optimistic about US soft landing: JP Morgan CEO

In his annual letter to shareholders, JP Morgan CEO Jamie Dimon said markets seem to be pricing in at a 70% to 80% chance of a soft landing – modest growth along with declining inflation and interest rates.

“I believe the odds are a lot lower than that’’ said Mr Dimon. He also pointed to “huge fiscal spending, the trillions needed each year for the green economy, the remilitarization of the world, and the restructuring of global trade” as contributors to inflation.

“Therefore, we are prepared for a very broad range of interest rates, from 2% to 8% or even more, with equally wide-ranging economic outcomes.”

A look at the week ahead: Middle East tensions and US earnings in focus

Goldman Sachs will release its earnings report on Monday, with Morgan Stanley and Bank of America releasing their quarterly numbers on Tuesday. Also expected during the week are earnings of Charles Schwab and M&T Bank.

Among the economic releases will be the US March retail sales report on Monday. Economists are forecasting a 0.4% month-on-month increase. On Wednesday, the Fed will release its Beige Book report on the current state of the economy.

Investing with Insight: Watch this Week’s Technical Outlook