Singapore stocks finish higher after Yellen's hawkish speech boosts banks

MONDAY's column highlighted the fact that the Straits Times Index's fortunes depend heavily on the banks and that movement in bank shares were in turn driven by interest rate expectations.

Also discussed was that instead of lower interest rates driving stocks higher, it was expectations of higher rates which were thought to translate to higher bank earnings and through to higher share prices.

On Wednesday, the index jumped 24.11 points to 3,236.15 driven by large rebounds in the three banks, their gains accounting for about 17 points. Heightened activity in the banks and also Mandarin Oriental meant volume amounted to 1.7 billion units worth S$1.1 billion compared to only S$890 million the day before.

On Tuesday, US Federal Reserve chair Janet Yellen delivered a speech that many interpreted as hawkish and hinted at a December rate hike which the market had previously thought unlikely.

In the federal funds futures market, the implied probability of rates being raised in December rose from 60 per cent to 70 per cent on Tuesday, more than twice what it was a fortnight ago.