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Singapore shares close weaker in line with plunges in China and Dow futures

Wall Street's Tuesday rise helped calm some nerves and prompted a bout of short covering that pushed the Straits Times Index (STI) higher for most of Wednesday. A weak opening for Europe, however, cut the index's gain to just 0.57 point at 2,546.18. Its intraday peak was 2,584.

ACCORDING to the federal funds futures market, the current probability that the US Federal Reserve will raise interest rates at this week's Federal Open Markets Committee meeting is zero. This shouldn't come as a surprise, given the massive turmoil that falling oil prices and a volatile China have inflicted on global equities over the past three weeks.

However, what's interesting is that the market is actually now factoring a 4 per cent chance of a rate cut - very small no doubt, but something which would have been inconceivable when rates were raised in December for the first time in seven years.

Back then the Fed declared the worst from China to be over, thus paving the way for it to embark on a tightening cycle that many thought would see rates raised around four times this year.

To reverse that move with a cut would be disastrous, not least because it would signal serious doubt over the forecasting ability of the world's most influential central bank. After all, if the Fed has no idea what's going on, who does?

A 6.4 per cent collapse in the Shanghai Composite, and a 120-point loss for the Dow futures contract were the main factors during Tuesday's trading when the Straits Times Index's two-day recovery ended with a 37.03 points or 1.4 per cent fall to 2,545.61 amidst mediocre volume of 758.4 million units worth S$991 million.

The index sometimes does not reflect the broad market's health; however, this was not one such instance since the advance-decline score was 118-281, with the falls clearly outnumbering the rises.