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All eyes on Fed, Singapore export data

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Market watchers will be keeping tabs on Fed meeting this week and Middle East tensions

While worries over the global economic slowdown and US-China trade issues remain, market watchers will be looking to this week's US Federal Reserve meeting and Singapore export data.

UOB economist Alvin Liew said: "While the Fed is expected to keep the policy rate unchanged in June, Federal Open Market Committee Chair (Jerome) Powell will likely use the meeting to prepare the markets for the Fed policy rate cuts."

That said, there is a possibility that rate cuts could be brought forward to July, he added.

Tensions in the Middle East and oil price developments after last Thursday's attacks on oil tankers in the Gulf of Oman will also be of interest, observers have said.

In the local market, May's non-oil domestic exports will be released today.

ING's Asia economist Prakash Sakpal said: "We anticipate accelerated export weakness in most reporting economies (this) week.

"Of most interest will be Singapore's non-oil domestic export growth - an economy at the forefront of the tech downturn."

Based on a Bloomberg median estimate, the figure for May is expected to undergo an 18.7 per cent year-on-year (y-o-y) contraction but should post a 5.5 per cent month-on-month (m-o-m) rebound.

UOB economist Alvin Liew said the bank is "more pessimistic", expecting the contraction to be deeper at 20.2 per cent y-o-y with a m-o-m expansion of 4.2 per cent.

Meanwhile, ING forecast a 19 per cent y-o-y contraction, which is the worst reading in more than six years. If ING's estimates are accurate, Mr Sakpal believes "the data will push the Monetary Authority of Singapore (MAS) towards easing in October".

"Singapore's month-on-month figures for non-oil exports are however expected to show a recovery, which could in turn offer support for the Singapore dollar," FXTM market analyst Han Tan noted.

Investors in the local market have been stocking up on real estate investment trusts (Reits) and property stocks in recent sessions in anticipation of the Fed looking to implement rate cuts to spur growth in the slowing US economy.

Acknowledging that the increasing expectations of a rate cut in July has seen Reits benefit from investors in search of yield, KGI Securities head of research Joel Ng noted opportunities for investors in high dividend blue-chip stocks.

These include DBS and UOB among financials, Singtel in telecommunications and ComfortDelGro as a transport play.

Separately, UOB Kay Hian analyst John Cheong noted that small/mid-cap stocks have fared better than the Straits Times Index (STI) since US President Donald Trump announced his intention of increasing tariffs on US$200 billion of Chinese imports in May.

Mr Cheong has recommended that the brokerage's clients switch from small/mid-cap companies that have outperformed the STI in that period like Memtech International, Health Management International and Sheng Siong, to underperforming ones like Koufu Group, Overseas Education and Tianjin Zhongin, which offer "attractive 2019 dividend yields of 3.8-9.5 per cent".

Trade data for May in Japan, Taiwan and Thailand will also be released this week.

The figures are likely to be looked at for understanding the impact of the US-China trade war and its implications for the region.

"It's no longer just a trade war, but also a technology war aggravating the ongoing slump in the global tech sector.

"With Asia's heavy reliance on electronics exports, we see nothing in the forthcoming releases calming the nerves of regional exporters and markets," Mr Sakpal said.

Central banks in Japan, Indonesia and the Philippines are also set to announce monetary policy decisions on Thursday.

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