STI up for 4th day on weak US jobs data

"BAD economic news is good news'', at least as far as stocks are concerned. This has been the case for eight years and so it remains. A shockingly weak US jobs report - the worst since 2010 - last Friday has enabled stocks to push higher largely because the probability that the US Federal Reserve will raise interest rates at next week's Federal Open Markets Committee (FOMC) meeting has dropped sharply. Two weeks ago it was 32 per cent as per the federal funds futures market, on Monday it stood at just 2 per cent.

With Wall Street closing at a seven-month high on Monday after US Federal Reserve chair Janet Yellen delivered a speech that was seen as neither hawkish or dovish, the Straits Times Index on Tuesday rose for the fourth consecutive day albeit in low volume when it added 16.81 points at 2,848.09 with 1.7 billion units worth S$945.4 million traded. The 30 STI components contributed S$650 million or 69 per cent; the broad market's advance-decline score was 262-129 excluding warrants. All three banks rose, as did Keppel Corp and Genting Singapore.

Among penny stocks, AddValue Tech's shares jumped S$0.014 or 43.8 per cent to S$0.046 on volume of 115 million units traded after the company said a significant disposal that was first announced in March 2014 may be completed within the next few months.

Shares of commodities firm Noble Group, which has been in news because of resignations by some of its top management and a US$500 million rights issue, rebounded from a recent battering when they rose S$0.015 to S$0.25 on turnover of 105.4 million.

Wall Street has risen in recent days following release of a poor May jobs report that showed only 38,000 jobs were added compared to the 162,000 expected.

In response, analysts have scrambled to lower expectations of an interest rate hike next week. Macquarie Equities Research, for example, said the US Federal Reserve is likely to "err on the side of caution'' even if a slowdown in jobs creation at this stage of the cycle is to be expected.

Bank of America-Merrill Lynch in its June 6 US Economic Watch titled "Yellen's two-handed outlook'' focused on Fed chair Janet Yellen's Monday speech on the state of the US economy and said a rate hike at next week's Federal Open Market Committee Meeting would be extremely unlikely, adding that its base case remains September.

"Yellen did leave open the possibility of a July hike, conditional on an improvement in the data and some reduction in risks,'' noted BoA-ML.

DBS's chief investment officer Lim Say Boon in his June 6 Investment Insights said a June rate hike is off the table and this all the more so with the "Brexit'' referendum coming up on June 23.

"The awful jobs data pushed the dollar sharply lower, while US Treasuries and the price of gold surged. It has caused some analysts to revive the "R-word" - to be more precise, the spectre of recession,'' said Mr Lim.

On a possible Brexit, Mark Wills, State Street Global Advisers' head of investment solutions in the Asia-Pacific, said in a comment that financial markets are likely to react with volatility to a UK vote in favour of leaving the EU.

"A UK departure would remove a global power from the EU; Britain has a credible military and broad diplomatic influence, notably with the US ... Overall, a Brexit would weaken the EU. The UK makes up just over 7 per cent of the MSCI World index. Volatility is likely to travel beyond Britain because the country has large government bond market and the British pound is widely traded,'' said Mr Wills. "Markets hate uncertainty. A potential 'leave' vote will not do markets any favours''.

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