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STI Rally Stalls On Fed’s Hawkish Stance
Singapore Market Commentary | 16 December 2016
By: don.low
Articles (5) Profile

On 14 December 2016, the US Federal Open Market Committee (FOMC) concluded the final meeting for year 2016. While meeting general expectations by raising the federal-funds rate by a quarter of a percentage point to between 0.5 percent and 0.75 percent, the Federal Reserve (Fed) further indicated a faster pace of interest rate hikes in 2017.

The US market reacted with a minor sell-off but quickly recovered on Thursday. For the fortnight, major indices on Wall Street continued to add gains and closed significantly higher. The bellwether Dow Jones Industrial Average closed 3.6 percent higher at 19,852.24 while tech-heavy Nasdaq Composite added 3.8 percentage points to close at 5,456.85. The S&P500 also gained 3.2 percent to close at 2,262.03.

However, most major Asian Markets (except Japan) reacted negatively to the hawkish stance of the Fed, as it projected another 0.75 percentage point-increase to the federal rates over three separate hikes in 2017. Rising US rates increase funding costs for Asian companies in US dollars, and draw money out of Asia into the States. Hong Kong’s Hang Seng Index and China’s Shanghai Composite Index each lost 2.4 percent and 3.7 percent to close at 22,020.75 and 3122.98 respectively, over the past two weeks. Japan’s Nikkei 225 gained 5.3 percent and closed at 19,401.05, on optimism that a weakening Japanese Yen will make Japanese exports more competitive.

For the past two weeks, the local Straits Times Index (STI) moved sideways, as much of gains seen in the past week saw retracements on the Fed news. Nonetheless, the STI still managed to close modestly higher as compared to most of its other Asian peers. The STI added 0.6 percentage points to close higher at 2,937.86.

Sector-wise, oil and gas and consumer goods led the gains as the FTSE ST Consumer Goods index added 1.8 percent to close at 750.94, while FTSE ST Oil/Gas rallied 0.6 percent to close at 342.17. Healthcare and technology, were the biggest losers while FTSE ST Healthcare and FTSE ST Technology each registered losses of 2.7 percent and 6.5 percent, closing at 1,439.69 and 220.96 respectively. For the next fortnight, investors should keep watch on the US final GDP data and China Purchasing Managers’ Index, due to be released on 22 and 31 December respectively.

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