All eyes on Fed meeting and STI heavyweights

KEY MEETINGS AHEAD: Policy meetings will be held at the Federal Reserve Bank this week. The US Federal Open Market Committee is widely expected to end its bond-buying programme after reducing monthly purchases to US$15 billion (S$19 billion) last month from US$85 billion two years ago.


    Oct 27, 2014

    All eyes on Fed meeting and STI heavyweights

    BANK and property counters helped fuel a three-day rally on the local market last week and lifted the benchmark Straits Times Index (STI) above 3,200 points - a support that had been breached the previous week, following a wobble in financial markets globally.

    Even as investors look out for the third-quarter earnings results of index heavyweights DBS Group Holdings, OCBC Bank and United Overseas Bank (UOB), they are also expected to keep an eye on the upcoming United States Federal Reserve's policy meeting, which is set to take centre stage this week.

    The STI closed at 3,222.55, up 1.7 per cent for the week.

    OCBC and UOB are due to release their results on Thursday, with DBS to follow a day later. Also due out this week are the results of Raffles Medical Group, SMRT, Singapore Post, Sheng Siong Group and Eu Yan Sang International.

    Some major players in the real estate investment trusts (Reits) and business trust sector - including Starhill Global Reit, OUE Commercial Reit, Hutchison Port Holdings Trust and CDL Hospitality Trusts - are slated to release their results as well.

    The US Federal Open Market Committee (FOMC), scheduled to meet tomorrow and on Wednesday, is widely expected to end its bond-buying programme after reducing monthly purchases to US$15 billion (S$19 billion) last month from US$85 billion two years ago.

    But what the market is really watching for is whether there are signs that the Fed is concerned that a slowdown in Europe and elsewhere may hinder the US' economic recovery. It is widely believed that these concerns will influence the Fed's timetable in raising its interest rates.

    Soft inflation data released last week had fuelled expectations that the Fed may have more leeway to keep interest rates low for a while.

    Some analysts have pushed back their expectations for rate hikes to late next year or 2016. Just a few weeks ago, they had pencilled in a rate hike in July.

    "The FOMC meeting may weigh on trading decisions for the whole of this week. There may be a knee-jerk reaction to the termination of QE announcement," said remisier Alvin Yong, referring to the US quantitative-easing or money-printing programme.

    "Any new QE action or a delay to the termination of QE will be helpful. But don't bet on it.

    "If they end the buying of bonds but don't raise rates until 2016, then the market may not be so badly hit. But if rates start to go up next year, then they will hit the market, particularly Reits and property counters, hard."

    The market is also watching for US gross domestic product data and the weekly initial jobless claims report this week, as these are important gauges the Federal Reserve employ in evaluating its QE programme.

    A Bloomberg survey estimates the US economy to have grown at 3 per cent annualised in the third quarter, a pick-up from the 1.2 per cent growth in the first six months of this year. This is probably fuelled by stronger business investment and a narrower trade deficit.

    Meanwhile, strong corporate results from Microsoft and Procter & Gamble helped US shares rally on Friday, as initially skittish investors shrugged off news of the first person testing positive for Ebola in New York.

    The Dow Jones Industrial Average closed up 0.76 per cent at 16,805.41, while the S&P 500 closed up 0.71 per cent at 1,964.58, and the Nasdaq Composite closed up 0.69 per cent at 4,483.72.

    Whether the rebound can continue this week will depend on earnings from Dow components such as Chevron, Exxon Mobil, Visa, DuPont and Pfizer.

    Also reporting this week is Facebook, the world's largest social network, which is expected to post an increase in quarterly net income on surging advertising revenue on mobile phones, according to a Bloomberg survey.