Challenging week for S'pore bourse
AFTER starting off the new year on the wrong foot, the local stock market appears to be in for another morose week.
The benchmark Straits Times Index slipped below the 3,300-point support level on several occasions last week before settling at 3,338.44, a drop of 1 per cent.
Mixed signals from the United States economy and depressed crude oil prices are likely to continue weighing on sentiment, while the euro zone's expected monetary stimulus was reported to be smaller than what analysts had hoped for.
"With oil prices dropping below US$50 a barrel, deflation finally in the euro zone and some huge swings in equity and currency markets, you could have been forgiven for thinking there had been no festive break at all," Alpari analyst James Hughes was quoted in an AFP report.
Wall Street retreated on Friday as investors mulled over good and bad news from US jobs data released that day, which could spill over to Singapore this week.
The Dow Jones Industrial Average fell 1 per cent, the S&P 500 lost 0.8 per cent and the Nasdaq shed 0.7 per cent.
This was after the world's biggest economy said that it added a better-than-expected 252,000 jobs and the unemployment rate dipped to 5.6 per cent last month.
However, the labour participation rate dropped to its lowest since 1977, suggesting that more people had dropped out of the workforce. Hourly wages also unexpectedly fell.
The latest employment figures are unlikely to dissuade the US Federal Reserve from raising interest rates this year, analysts said.
"Some will argue that the Fed will want to wait to see wage growth rising before it raises rates," said Capital Economics in a note. "But our sense is that it won't feel it needs to hold off that long...The unemployment rate is rapidly approaching the Fed's estimate of its natural level."
The Fed could start raising interest rates as soon as March, it added.
An interest rate hike in the US will likely cause rates in Singapore to go up as well, which will make it tougher for overleveraged households here to pay off their debts. A steep rise could even trigger some defaults on mortgages.
The warning signs are there, with the three-month Singapore Interbank Offered Rate, which many local home loans are pegged to, jumping from about 0.45 per cent on Jan 2 to 0.64 per cent on Thursday.
Another dampener on the local bourse this week is the continued rout in crude oil, which has hammered offshore stocks.
Prices of benchmark Brent crude oil traded in London briefly sank below the psychologically significant US$50 threshold last week, for the first time since May 2009, and may continue to teeter on the edge this week.
The slide in crude oil prices has raised fears of deflation in the euro zone after figures released on Wednesday showed that consumer prices in the region had fallen for the first time since October 2009, during the global financial crisis.
Although lower prices boost consumers' purchasing power, deflation can also turn out to be harmful if consumers start to delay purchases because they expect prices to continue sliding, which could damage the already weak euro zone economy.
European stocks tumbled on Friday after the reported size of the European Central Bank's (ECB's) monetary stimulus programme was smaller than hoped for, disappointing investors.
ECB staff have proposed pumping up to 500 billion euros (S$790 billion) into the economy, which fell short of the trillions of euros that markets had expected.