Caution reigns ahead of Trump's address

TRADING was cautious and quiet yesterday, ahead of US President Donald Trump's address to Congress today (tomorrow, Singapore time), which could provide some idea of the economic, tax and foreign policies he intends to pursue.

With Japan and Australia closing weaker, the Straits Times Index fell 8.41 points to 3,108.62 as all three banks fell. Turnover came to 2.2 billion units worth $1.2 billion - down from last week's $1.3-1.4 billion average. Excluding warrants, the advance-decline score was 214-267.

Nomura said in its Asia Roundup that amid reports that the White House intends to send outlines of the fiscal 2018 budget to Capitol Hill as early as March 13, markets await further clarity from Mr Trump's address to a joint session of Congress where he is likely to discuss infrastructure plans, tax reform, healthcare and immigration.

"Markets will look for details on the first two in particular. This week, the dynamic continued to be characterised by presidential provocation followed by professional moderation, as Treasury Secretary Steve Mnuchin retreated on the issue of currency manipulation," said Nomura.

Macquarie Warrants also referred to the new US Treasury Secretary's moderate comments as compared to promises from Mr Trump during his election campaign to label China a currency manipulator.

"According to the last review in October 2016, the US Treasury has three criteria for (a currency manipulator): (1) Trade surplus above US$20 billion (S$34b) with the US; (2) Current account surplus above 3 per cent of GDP; and (3) Net purchase of US$ above 2 per cent of GDP.

"Currently, China only meets the first one while countries like Germany, Japan and Korea meet two of them. Especially, China is net selling US$ to make the RMB stronger, not weaker. It seems more likely that this April the US Treasury will retain China in the monitoring list instead of declaring it as a currency manipulator. But on the other hand, the threat of a trade war from the US also limits the room for the Chinese government to allow for further RMB depreciation."

The day's most active stock was Noble Group, which plunged on Friday after research firm Iceberg Research released a negative report on Noble. The counter managed a $0.005 rise to $0.23 on volume of 213.2 million yesterday.

In the offshore and marine sector, shares of Sembcorp Marine ended $0.01 weaker at $1.73 on volume of 4.4 million. Phillip Capital upgraded the stock to a "reduce" in a Feb 24 report titled "Bear starts to turn around", saying it has revised its forecasts upwards to account for the better outlook in FY17, which translates into higher forecast net income of $130 million and earnings per share (EPS) of $0.062 compared with its previous forecast of net income of $95 million and EPS of $0.046.

"Currently, SMM is trading at a 12-month blended forward price-earnings (PE) of 25.4x. We upgrade our call to Reduce with a higher target of $1.58 (from $0.87), based on a PE ratio of 25.4x. This implies a downside of 31.8 per cent from the last close price," said the broker. Most other stocks in the sector also ended softer.

Goldman Sachs Asset Management (GSAM) in its Feb 24 Global Fixed Income Weekly said that for the US, firming inflation with broadly positive economic data bolsters the case for higher interest rates. "We expect three hikes this year and are currently underweight US rates," said GSAM. It added that global growth appears to be picking up but in Europe, this could be overshadowed by political risk from the French elections.

sivan@sph.com.sg

This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts