Jitters over bond rout might persist

A NAIL-BITING, volatile session may await the local bourse, with persistent fears over the bond rout coupled with a dramatic selloff in Wall Street last Friday, as traders closely watch several data events this week.

US stocks capped their worst week in two years, as volatility heightened and jitters ratcheted up over the rise in government bond yields and inflation worries amid the idea that the US Federal Reserve and other central banks might have to raise rates.

The Dow Jones was down 4 per cent on the week. The Standard & Poor's 500-stock index fell 2.1 per cent last Friday, also ending its worst week in two years, while the tech-heavy Nasdaq fell 1.96 per cent to its lowest level in two weeks. Strong data on jobs and wage growth stoked further fears that the Fed may raise rates more quickly than has been expected. Market watchers struggled to put the bearish trend in perspective, pointing at the heady run-up in equities until this point.

"The view that normalisation of monetary policy will proceed faster than envisaged by the authorities is beginning to take hold. Demand tightness and a rise in inflation will force the hands of the Federal Open Market Committee (FOMC), the European Central Bank and the Bank of Japan, goes the narrative," said DBS Group Research in a note.

"We have however been here several times before. At each instance of growth pick-up since the rollout of QE (quantitative easing) in developed economies a decade ago, calls for policy normalisation have been made by various corners. To its credit, the leadership of the US Federal Reserve has made sure that premature tightening was not engineered, and the fragile recovery was not undermined."

Amid the sharp pullback, corporate earnings have been carrying their own weight on the good news front with analysts projecting earnings to keep improving, aided by the US tax overhaul. Nearly half of the companies on the broadbased S&P 500 have released their earnings scorecards with just over 80 per cent of them having beaten Bloomberg street estimates.

Jerome Powell will be sworn in as US Federal Reserve chair on Monday to succeed Janet Yellen. The week will hear from a few Fed speakers after last week's FOMC meeting.

"It is also hard to imagine, but close to three weeks have passed for us to ponder over a government shutdown possibility once again as the Feb 8 deadline looms. A stopgap bill may very likely come into fruition though we do have some noise around the matter once again - one to follow for impact upon the US dollar," said Jingyi Pan of IG Markets Singapore.

It's a packed week of central bank meets in Australia, New Zealand and the UK with no changes in monetary policy expected. In Asia, Moody's Analytics expects India's monetary policy committee to become more hawkish in the first meeting for 2018 as inflation has inched higher in recent months and growth has picked up. The Philippines' central bank will also be meeting, with analysts expecting a possible hike.

Earnings out of Asia will crank up and focus could skew towards Singapore's banking stocks, with DBS Group Holdings being the first of three banking stalwarts to report its fourth quarter results early Thursday morning.

"Positive expectations have been pencilled in for the country's biggest bank, one to follow for impact upon the whole sector and the overall index," said Ms Pan.

A slew of January data is expected out of China on factory output, trade and inflation. Indonesia will release its fourth-quarter GDP numbers while Malaysia, Taiwan and Australia will issue foreign trade data.

For the full listing of SGX prices, go to btd.sg/BTmkts