Singapore’s exports and China’s GDP in focus

SINGAPORE – Federal Reserve tapering, the supply chain crunch and inflation are factors which are increasingly weighing on market sentiment as we head deeper into the final quarter of the year.

While none of these is new or unexpected, the fact that every market commentator is highlighting these issues has created a climate of anxiety.

Wall Street had a rocky week.

The Dow Jones index ended Friday with a 1.64 per cent gain for the week to 35,294.76 points, thanks to a strong start to the third quarter earnings season in the United States. Meanwhile, the broader S&P 500 index closed the week at 4,471.37, an 85.93-point or 1.96 per cent uptick.

Even the tech-heavy Nasdaq, which has been suffering through turbulence, ended in positive territory with an impressive weekly gain of 357.26 points or 2.46 per cent to 14,897.34 points. This was the Nasdaq’s highest weekly close since Sept 24.

The gains came as third-quarter results of leading banks such as JP Morgan, Bank of America, Morgan Stanley and Citibank topped analysts’ expectations, suggesting a strong pickup by the US economy. Also, economic data last Friday surprised on the upside with US retail sales rising 0.7 per cent in September, sharply above market expectations of a 0.2 per cent decline.

Meanwhile, the August figures were revised upwards.

The Singapore market’s benchmark index made an impressive 61.1-point or 1.96 per cent gain for the week to end last Friday at 3,173.91 points. The Straits Times Index (STI) has now gained 4 per cent from its Oct 1 low.

The three Singapore banks averaged 2.1 per cent gains, while the remaining 27 STI components averaged 3.3 per cent increases.

Singapore Exchange (SGX) data shows that UOB and OCBC led the net institutional buying with respective net institutional inflows of $59 million and $51 million, while DBS led the net institutional selling with net institutional outflows of $29 million. OCBC and UOB will unveil their third-quarter financial numbers on Nov 3, while DBS will have its turn on Nov 5.

But the big news for the market will come when the Fed moves to scale back its massive bond-buying programme, which has so far provided the liquidity fuelling the market.

The minutes of its September meeting, released last week, suggest that the US central bank could begin reducing the pace of its monthly asset purchases as soon as the middle of next month.

Expressing concern about looming inflationary pressures, the Fed indicated that the tapering process could see a monthly reduction of US$10 billion (S$13.4 billion) in Treasuries and US$5 billion in mortgage-backed securities. While this is not huge in itself, the psychological impact of this move could be negative on the market – at least temporarily.

Just for perspective, since June last year, the Fed has been buying US$80 billion of Treasury securities and US$40 billion of agency mortgage-backed securities each month.

The other factor which is impacting the market is the global supply chain crunch. While the first signs of this came several months ago with the semiconductor chip shortage, this tightening is now spreading to other sectors, including raw materials, energy and food.

Oil prices have already surpassed seven-year highs, while the price of coal is soaring amid demand from energy-hungry China.

Two of the three SGX-listed Indonesia-based coal players – Geo Energy Resources and Golden Energy & Resources – generated respective returns of 15.5 per cent and 10.2 per cent last week. Geo Energy Resources gets 66 per cent of its revenue from sales to China, while Golden Energy & Resources reported 30 per cent of its revenue is from that source.

Meanwhile, one piece of major news here was the proposed $1.4 billion merger of ESR Reit and Logos Logistics to form ESR-Logos Reit. The new entity is expected to be among the top 10 largest S-Reits by free float market capitalisation with a greater representation on the FTSE EPRA Nareit Global Developed Index. The benefits highlighted by the managers of both ARA Logos and ESR include a core focus in new-economy real estate in logistics and high-specifications industrial properties, reduced tenant concentration risks, with the proposed merger distribution per unit for financial year 2020 accretive based on pro forma estimates.

Mr Vasu Menon, executive director for investment strategy at OCBC Wealth Management, remains sanguine on the market outlook, citing reflation and reopening.

“The significant easing of international border curbs by several major countries has given rise to hope that the reopening theme will return to play once again, especially as global vaccine deployment continues to rise,” he noted. “Elsewhere, a series of positive pronouncements on China last Friday have eased fears about the world’s second-largest economy, which faced a slew of challenges in recent months. China’s central banks expressed confidence that the risks to the financial system stemming from Evergrande’s struggles are “controllable” and unlikely to spread.

Going forward, Singapore’s third-quarter results kick off in earnest.

Several big Reits will be announcing quarterly results, beginning with Ascendas, followed by CapitaLand China Trust, then Suntec and CapitaLand Integrated Commercial Trust.

Key events this week include Singapore’s trade data this morning, with non-oil domestic exports tipped to grow by 8.5 per cent year on year in September, expanding for a 10th straight month.

China’s third-quarter economic growth and other key data due today will also be closely watched by traders to assess how badly its economy has been affected by the Delta variant, problems in the real estate sector and the power crunch.

In the United States, look out for more “Fed speak”.

Fed speakers next week include Fed governor Randal Quarles, Minneapolis Fed president Neel Kashkari, San Francisco Fed president Mary Daly, Atlanta Fed president Raphael Bostic and Fed governor Christopher Waller. Fed governor Randal Quarles will be providing an economic outlook to the Milken Institute on Thursday, just ahead of the release of the Fed’s Beige Book, which provides anecdotal evidence of current economic conditions in its 12 districts.