Fears over earlier US rate hike, China slump
IT LOOKS like the traditional Chinese New Year rally might be missing from the local market this year.
Fears of an earlier interest rate hike in the United States, renewed worries about Greece and a slump in China's trade performance could weigh down shares this week.
On the bright side, analysts say that major central banks are expected to continue easing monetary policy, which will give a boost to equities in the longer run.
US employment figures for last month came in better than expected on Friday night, in a sign that the world's biggest economy is strengthening. This has upped the likelihood that the US Federal Reserve will begin to raise interest rates in June.
The US added 257,000 jobs last month, better than the 235,000 analysts had forecast. The report also included large upward revisions to job growth in November and December, making November through last month the best three-month hiring period in the US since 1997.
Although the strong showing sent Wall Street higher early on Friday, US markets closed slightly lower for the day, which analysts said could be due to profit-taking.
Any signs of a marked improvement in the US employment situation is likely to affect markets in Asia, as funds will likely flow out of the region and back to the US once the Fed raises interest rates.
"With the stronger-than-anticipated employment report, there's discussion that the Fed might move earlier rather than later," said Bucky Hellwig, senior vice-president at BB&T Wealth Management in the US.
"The negotiations on the Greek debt weighed on the market," he added in a Reuters report.
Greece's debt problem has unnerved Asian markets partly because it raises the spectre of a more severe issue: the potential break-up of the euro zone.
Unless Greece's creditors give it a bridging loan to tide it over during its debt negotiations, the country could run out of money by the end of this month.
Euro-zone finance ministers are waiting to hear how Greece wants to become financially independent this Wednesday, the chairman of those ministers has said.
The chairman also said that Greece must apply for a bailout extension by Feb 16 to ensure that the euro zone keeps backing it financially, according to Reuters.
Another factor that may weigh on Singapore shares this week is China's dismal trade performance last month, released yesterday.
However, the poor trade data has also fuelled hopes of more monetary stimulus from China's central bank, which may mitigate the negative impact on markets from a slowdown in the country's economy.
China's imports last month fell by the most in more than five years, diving 19.9 per cent from a year earlier. Exports also slid 3.3 per cent from the previous year, leaving the country with a record trade surplus of about US$60 billion (S$81.2 billion).
"The slump in imports means a slump in the overall situation of the economy," said Hu Yifan, chief economist at Haitong International Securities Group in Hong Kong, in a Bloomberg report. "We are going to see more of these alarming data in the next few months."
The People's Bank of China already announced a cut to banks' reserve ratio requirements on Wednesday to stimulate the economy, but analysts expect further easing moves.