The market rose after easing of Covid-19 measures

Date: March 28, 2022

  • The STI gained 2.5% last week at 3,413.69
  • Wall St also rose despite negative signals from the Fed and bond market
  • US Treasury yields now at pandemic-era high
  • The war in Ukraine is still a big factor
  • Singapore’s Feb factory output up a surprising 17.6%
  • SPH shareholders voted to accept Cuscaden’s offer
  • Europe recession could hit here: Maybank Securities

The STI regained 3,400 mark despite negative interest rate signs

The war in Ukraine and its impact on oil prices continued to provide the market’s main focus last week, while support for stocks came from the Government’s announcement of a further easing of Covid-19 measures.

An added consideration was a signal from US Federal Reserve chairman Jerome Powell that the Fed is likely to be aggressive in combating inflation, a signal that sent the prices of US Treasuries down and their yields up.

Overall, it was a firm week for the local market, with the Straits Times Index recording a decent gain of about 83 points or 2.5% at 3,413.69. Volume was also higher than average at S$1.46b, ranging from a low of S$1.38b on Friday to Thursday’s S$1.65b.

How Wall Street fared

The US market underwent another hugely volatile week, though ultimately, the major indices all registered gains – the S&P 500 rose 1.8%, with the Dow up 0.3% and the Nasdaq gaining 2%.

According to reports, US stocks got a boost Friday as oil continued to weaken, over reports that Europe is not going to ban Russian crude immediately and that the US. agreed to ramp up natural-gas shipments to the European Union.

The yield on 10-year Treasury bonds rose to a new pandemic-era high of 2.48% on Friday afternoon, after closing at 2.38% on Thursday. It had risen 9 basis points to that level on Tuesday, following Mr Powell’s comments.

The Fed is turning more hawkish on inflation

At the National Association of Business Economists conference, Mr Powell said that the Fed is prepared to lift the benchmark lending rate in increments of a half a percentage point, rather than the standard quarter of a percentage point, going forward. The Fed lifted the rate by a quarter of a percentage point this March and indicated that there will be seven hikes this year—and more after.

The market is now pricing in a pace of Fed tightening faster than anything seen in the last three decades. The last time there was more than 200 basis points of tightening was way back in 1994, when rates rose 250 basis points.

“The big question now is whether all this prospective Fed tightening will push the economy into recession or whether policymakers can achieve the much sought-after ‘soft landing’ that avoids one,” wrote Deutsche Bank strategist Jim Reid after Mr Powell spoke.

However, Wall Street stocks rallied that day, despite rising rates and higher bond yields being usually negative for stocks. This has prompted observers to raise red flags over the market’s behaviour, with the likelihood that the uncertainty created by the war in Ukraine currently clouding the market’s judgement

The war in Ukraine is still a major factor

Investors are trying to size up a number of risks, including the Russia-Ukraine war. NATO will send more troops to its eastern flank in response to Russia’s ongoing aggression, NATO’s secretary-general said Wednesday. And the White House it is preparing to sanction members of Russia’s lower house of parliament.

“There’s not enough money on the sidelines that’s going to confidently come in at this stage of geopolitical risk,” said Edward Moya, senior market analyst at Oanda was quoted saying by US newspaper Barron’s. “You’re probably looking at a market here that has become overly optimistic.”

Singapore’s Feb factory output grew 17.6%

On a year-on-year basis, the local economy’s factory output increased by 17.6% last month, a jump from the revised 2.4% growth posted in January – and far above the 6.3% rise expected by analysts in a Bloomberg poll .

It was also the biggest year-on-year growth for manufacturing in eight months and marks a fifth straight month of expansion.

Excluding biomedical production, output grew 16.8 per cent last month, whilst electronics output rose strongly by 32.4 per cent year on year, compared with the 1 per cent growth in January.

The strong showing was said to have taken private sector economists by surprise, given the 6.3% growth they had projected. The Business Times for instance, quoted OCBC chief economist Selina Ling saying “it is worth noting that the Ukraine war started in late February and into March, so the full impact may not be felt yet. Manufacturers usually have some inventory buffer, which they will draw down first’’.

SPH shareholders vote in favour of accepting Cuscaden’s offer

At an extraordinary general meeting (EGM) held on Tuesday (March 22), SPH shareholders voted to sell the assets of the company to Cuscaden Peak, a consortium comprising tycoon Ong Beng Seng’s Hotel Properties (HPL) and Temasek-linked CLA Real Estate Holdings and Mapletree.

SPH obtained 89.19 per cent of shareholders, representing 96.55 per cent of the number of shares, voting to approve the scheme resolution for the sale of SPH’s assets to Cuscaden. The resolution required more than 50 per cent the number of shareholders, and at least 75 per cent in the value of votes cast.

SPH shareholders also approved the distribution of in-specie of SPH Reits (real estate investment trusts) for those opting for the cash-plus-Reits option.

Europe recession could hit here: Maybank Securities

In its latest Singapore Strategy report, Maybank Securities said the ongoing Russia-Ukraine conflict risks dragging Europe into recession.

“With a sizable 7.7% of GDP exposed to the EU, a slowdown there could have a negative impact on revenues, costs and returns for Singapore’s corporates. Our screening shows selective stocks in sectors such as Banks, Property, Industrial & Hospitality REITs, Transport and Tech have material European revenue sources’’ said Maybank.

“At the same time, 25% of Singapore’s midcap market cap have material sales exposure to the Continent, while for large caps it is 20%. Downside earnings risks from growth downgrades in Europe need to be watched, we believe’’.