Apr 18, 2016

    Caution over oil price, central-bank moves

    AFTER a bullish week that saw Singapore shares recording their strongest rally in a month, analysts expect the market sentiment to turn volatile in the coming weeks as uncertainties around oil prices and global growth persist in the backdrop.

    Investors will keep their wary eyes on key messages and potential easing moves from major central banks, while hoping that oil producers would agree to freeze production in their Doha meeting over the weekend.

    "The Straits Times Index (STI) had a strong week due partly to the oil price recovery, itself triggered by expectations of an output freeze agreement at the Doha meeting.

    But that hope has dimmed after Iran's refusal to play ball," remisier Alvin Yong said, referring to the country's unwillingness to curb output.

    This had spooked traders into a sell-off that sent the crude oil futures Brent dropping 1.7 per cent to US$43.1 a barrel last Friday, following an 18 per cent surge since April 5.

    Regardless of the outcome at Doha, OCBC economist Barnabas Gan said the fundamentals for oil prices are in fact still holding up despite the current volatility.

    "It is still encouraging to see stronger net-long speculative oil positions while the United States oil production maintained its decline for the fourth consecutive month in March," he added.

    "We remain bullish on oil prices, with both Brent and West Texas Intermediate pencilled at US$50 per barrel by year end."

    But investors will stay cautious for now, Mr Yong noted, adding: "I see the STI staying range-bound and unlikely to touch 3,000, as people also wait for more clarity from the Bank of Japan and the FOMC (Federal Market Open Committee) meetings in April."

    Both central banks will hold their April meeting next week, and speculations are rife that the BoJ will unveil more stimulus measures to boost Japan's stalling growth.

    A 6.7 per cent first-quarter growth in China - its weakest since 2009 - is also stoking up hope for another rate cut in the country.

    Over in the US, while an April hike by the Fed is off the table after Fed chair Janet Yellen advised caution, the meeting will send signals on the timetable for rate hike this year and a reading of the growth outlook.

    The latest key data - a 0.6 per cent month-on-month drop in March industrial production - gave no ground for a hawkish monetary stance.

    Meanwhile, in Singapore, first-quarter results will yield more signs on where the corporate sector is heading.

    Blue chips such as Keppel Corp, Singapore Exchange (SGX) and Hutchison Port Holdings Trust are issuing their financial reports this week.

    Keppel Corp will announce its January-March results today, and market expectations are for another set of weak earnings hemmed in by the languishing energy and marine industry.

    "Massive number of deferments and potential cancellations are taking a toll on yard efficiency and balance sheet, while new orders are few and far between," DBS said earlier this month when Keppel Corp won a $190 million contract from MODEC - its first this year.

    Hutchison Port Holdings Trust will also announce its first-quarter results today, followed by SGX on Wednesday.