Mar 28, 2016

    Fed rate hike threatens to hurt sentiment

    MORE uncertainty could be on the cards for Asian markets in the coming week, with the prospect of higher interest rates in the United States coming back into focus, according to analysts.

    "Fed officials this week reminded the market that they still want to move forward with the rate hikes," Mark Lister, head of private wealth research at Craigs Investment Partners, told Bloomberg News.

    "Investors have been looking for a reason to pull back and this is one," he said, adding that concerns remain about "how sharp the slowdown is in China".

    Mr Lister was referring to comments made by regional Federal Reserve president James Bullard last Wednesday, who noted that more upbeat employment figures may see the US central bank tighten monetary policy.

    "You get another strong jobs report, it looks like labour markets are improving, you could probably make a case for moving in April," he said.

    Traders will likely keep watch on US Federal Reserve chair Janet Yellen's speech at an event hosted by the Economic Club of New York tomorrow for possible clues to the timing of the next rate hike.

    Elsewhere in Asia, Japanese Prime Minister Shinzo Abe plans to announce tomorrow a package of new spending measures to bolster the economy, reported the Nikkei newspaper.

    He is expected to shed light on the same day Japan's budget for the 2016 fiscal year becomes law.

    China yesterday offered positive news.

    Official numbers showed that industrial profits returned to growth in the first two months of the year, despite weakening business conditions and the slowing economy.

    The past week had been a shaky one for global markets, with the terrorist attacks in Brussels delivering a slight hit. Positive leads, on the whole, were lacking.

    In the US, Wall Street on Thursday climbed 0.1 per cent as the greenback extended gains into a fifth day on fresh talks over an increase in rates at the next Fed meeting in April.

    Asian markets, on the other hand, mostly slid amid pressure from the stronger dollar and a drop in oil prices.

    Here, the Straits Times Index dropped 34.59 points or 1.2 per cent on Thursday to 2,847.39 - marking a 2 per cent decline for the shortened week. It was closed on Friday for the Good Friday holiday.

    Much of the trade was centred on the banking counters and energy plays. DBS Group Holdings, for instance, fell 23 cents or 1.5 per cent, losing 4.2 per cent for the week.

    Commodity trader Noble Group shed 3.5 cents or 7.1 per cent to 45.5 cents as traders sought to lock in profits. The counter, up 13.8 per cent so far this year, has almost doubled from its low of 26.5 cents in January.

    Remisier Desmond Leong told The Straits Times he expects market sentiment to lose steam this week, with the Budget announcement last Thursday unlikely to offer any meaningful impact.

    "The run-up in the past few weeks had been such a strong one that everyone was caught by surprise. But in the near term, we will probably weaken or go sideways," he said, adding that uncertainties over the global economy still remain.

    "But I don't think there will be much reaction in the market. Nobody had been expecting much in the first place, given that this is the Government's first term and it has limited funds to work with."

    Any direction for local equities will likely come from the US, he noted. "The Dow has already seen a bit of a correction. If this continues, we could be affected as well."