STI may dip as US jobs data beats forecast
BEARS may dominate the local bourse early this week after unexpectedly robust American payrolls for last month reinforced the case for interest rate hikes this year.
That, along with Greece's ongoing struggle to reach a deal with its lenders and avert a default, could push the Straits Times Index to test the 3,300 level, remisiers say. The STI closed at 3,333.67 last Friday, leaving it down 1.7 per cent for the week.
The United States economy created 280,000 jobs last month, more than the 225,000 forecast.
Analysts have interpreted the strong showing as confirming that the US employment recovery is intact, and economic growth is back on track after a slow start to the year. In April, 223,000 jobs were added.
But some analysts do not see the data as particularly bad for stocks. "Even though the odds of a September lift-off have increased, which may pressure stock markets further, nothing much happened on US stocks.
"In the absence of cues from Wall Street, dealers here will be looking for news-related catalysts," CMC Markets analyst Nicholas Teo said. The Dow Jones Industrial Average dipped just 0.3 per cent last Friday.
SMRT shares may get a fillip this week, after the train operator dropped its telco venture bid last Friday. After getting flak over whether it may be distracted from its core business, SMRT said it would not subscribe for shares in OMGtel, which was set up in October last year to bid for Singapore's fourth telco licence.
Punters may target local oil and gas plays, including Keppel Corp and Sembcorp Marine, after the Organisation of Petroleum Exporting Countries last Friday kept production levels at 30 million barrels of oil a day.
Market participants are awaiting the outcome of MSCI and FTSE's proposal to include China A-shares in their respective emerging-market indices. MSCI will announce the results of its market reclassification review tomorrow, and the FTSE, in September. "Exchange-traded funds and fund managers that track the MSCI's emerging-market index will have to rebalance their portfolio to reflect the changes in composition," IG market strategist Bernard Aw said.
According to HSBC, MSCI's proposal to partially include A-shares in its emerging-market index will see its current 1.4 per cent representation rise to 23 per cent when A-shares are fully available to international investors. FTSE's initial weighting of A-shares would be 5 per cent, rising potentially to 27 per cent.
"If A-shares are included in their emerging-market indices, this may prolong the China bull run, which may have positive spillover on our S-chips," a remisier said.
Meanwhile, Grexit fears may continue to linger. "There's a 50 per cent chance of Grexit (Greece leaving the euro zone) based on the way Greece is negotiating," a remisier said. "The closer Greece edges towards the exit, the worse it may get for stock markets globally."
But Alan Cauberghs, Schroders' senior investment director of fixed income, downplayed fears of a Greek default, saying the "contagion risk for Greek debt has also been theoretically muted by the establishment of the European Stability Mechanism".
"This pot of capital, of around 500 billion euros (S$754 billion), should maintain the flow of cash for affected states should there be any threat to vital payments brought on by a Greek default."