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Singapore: Market follows the FOMC script


IT'S not often that the market behaves almost exactly according to script but this week was one such occasion. The main feature was the US Federal Open Markets Committee meeting over Tuesday and Wednesday and markets traded generally cautiously ahead of the event, given that US labour market releases have shown strength, which in turn implied greater urgency for interest rate hikes.

In the meantime, everyone watched to see if the word "patient" would be dropped from the post-FOMC meeting statement and as it turned out, it was dropped.

Although markets then rallied because the statement was supposedly more dovish than expected, it should be pointed out that throughout the past 8 years the Fed has taken great pains to accommodate Wall Street, so an overtly hawkish statement was hardly likely.

As stated in our Thursday column, Wall Street's bounce was probably not sustainable because the FOMC statement simply gave short sellers an excuse to cover their positions, after which weakness would probably set in. As it turned out Wall Street followed this script and fell sharply on Thursday.

For the local market, Thursday's bounce may have appeared impressive but in reality, all it did was push the Straits Times Index 20 points into the black for 2015 that day. In other words, ten weeks of trading and the STI had slipped into the red for 2015 on Wednesday. After Friday's 26.28 points rise to 3,412.44, it is only 50 points or 1.5 per cent up for the week and 47 points or 1.4 per cent up for the year.