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STI Might Stumble Despite Better-Than-Estimated US Jobs Data
Forward, Tradeable | 10 March 2014
By: Nicholas Tan
Articles (71) Profile
By: Raymond Leung
Articles (142) Profile

The FTSE Straits Times Index (STI) marginally rose 7.09 points to close Friday’s trading session at 3,136.26 before the release of US jobs data. The better-than-estimated jobs report showed the US economy generated 175,000 in February to beat estimates of 149,000 despite a harsh winter.

However, unemployment rate rose for the first time in 14 months (to 6.7 percent) due to an increase in people entering the workforce, based on a survey done by the Labour Department. The broader market saw 229 gainers and 204 losers, with total trading value at S$1.1 billion.

Trading for the week is expected to remain volatile coupled with an ongoing crisis in Ukraine. Despite the positive US display, markets could see a knee jerk reaction today underscored by weak export data from China, down 18.1 percent year-on-year versus estimates for a 7.5 percent increase.

Separately, China’s inflation rate fell to 2 percent from 2.5 percent in January, stoking concerns of deflation.

In Singapore….

• Feb Non-Oil Domestic Export YoY (last: -3.3 percent)

Economists will have their eyes on February’s Non-Oil Domestic Export (NODX) following the contraction last month. NODX is one of the key economic indicators for the measurement of Singapore’s economy.

For the month of January, NODX contracted 3.3 percent year-on-year due to a 17 percent fall in the electronic sector. January’s contraction caught the market off guard as it fell more than the median forecast of a 1.2 percent decline.

NODX is expected to perform better for the month of February as market watchers predict a rebound from the electronic sector. Purchasing Manager’s Index (PMI) and production output for electronics in the month of February improved significantly giving support to the predictions by market watchers.

In China….

• Feb Loan Growth YoY
• Feb New Yuan Loan

February loan figures released this week will probably be the last before the Chinese tighten their credit market. Last week, Chinese Premier Li Keqiang announced the country’s new economic outline at the National People’s Congress (NPC) which will likely affect its loan policies.

Li pledged to maintain China’s growth at 7.5 percent and a maximum urban unemployment rate of 4.6 percent while capping inflation rate at 3.5 percent. According to his speech, the world’s second largest economy will continue to keep economic growth as its central task and maintain a proper growth rate.

A transformation in China’s economic growth model was also announced during the NPC by the Chinese Premier. Private demand will be the main driver of the economy instead of the current reliance on often wasteful investments.

To facilitate this change, Li plans to cooperate with countries such as Australia, South Korea and the US on Free Trade Agreements (FTAs). This will likely reduce the need for China to extend more credits to drive growth.

Separately, the Chinese market faces a potential liquidity crunch as a default arose from the publicly traded domestic debt market. Shanghai Chaori Solar Energy Science & Technology became the first company (since 1997) to default in the domestic bond market. This signalled a change in government stance as Chaori was not bailed out like previous instances.

Meanwhile In Europe….

• Feb Consumer Price Index (YoY)

Last week, Europe’s recovery was confirmed with a 0.3 percent growth for 4Q2013. It was a sigh of relief for the market as the region was troubled for an extended period of time. However, the rate of growth might be too slow for the European authorities whose patience are running out.

Consumer inflation for the Eurozone remained at an annual rate of under 1 percent. This may prompt the European Central Bank to add monetary stimulus to further ease the market if the inflation rate continues to fall.

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This is a co-written article of Shares Investment, which lays out the analytical ideas and thoughts of the authors, who are well versed in investments and market concepts.

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