Heightened uncertainty shrouds market
French polls to dictate Europe's fate; ABN Amro does not see weak US jobs data affecting rate trajectory
Yesterday's column suggested that the market may remain trapped within a trading range because of the opposing forces buffeting it - on the upside was Friday's weak US jobs report that indicated a slower pace of interest rate hikes while on the downside, heightened geopolitical risk from events in Syria and France's upcoming presidential election.
As it turned out, the Straits Times Index moved within a narrow band yesterday, eventually finishing 4.18 points higher at 3,181.45. But, the broader market was weak, with 201 rises versus 295 falls, excluding warrants. Turnover amounted to a low 2 billion units worth $943.3 million.
Shares of Thai Beverage ended $0.005 lower at $0.935 with 22.5 million traded. RHB said yesterday it is initiating coverage of the company with a target price of $1.10.
"We expect to see an upturn for ThaiBev now that the 100-day mourning period (for the passing of the Thai King) is over; following the Songkran festival, we expect alcohol consumption to normalise," said RHB.
"Furthermore, the group is likely to use the new Excise Tax Act amendment as an opportunity to raise prices, thereby seeing a margin uplift in its alcohol segments. Further inroads into Vietnam via acquisitions would be a key catalyst to the stock price."
The French elections will be in two stages - the first is the presidential election and the second is the general election. The presidential election will take place on April 23 for the first round and May 7 for the second. Elections for the National Assembly will take place on June 11 and June 18.
Mr Philippe Waechter, chief economist at Natixis Asset Management, said the market's perception is that if Ms Marine Le Pen wins the presidency, systemic risk would set in.
"She will limit capital outflows by controlling flows at the French frontier. This means that foreign capital will stay outside France and interest rates will be very high (6 to 7 per cent). The ECB will not be able to counterbalance this situation... The risk could become systemic at the European level. Investors could infer a high probability for some countries to leave the Eurozone, pushing their interest rates on the upside. This would be self-fulfilling. This would be the end of Europe as an institutional framework."
As for the weak US jobs data, ABN Amro said it does not put much weight on the report, given negative weather effects and some payback for the strong labour report in the previous month.
"In a tighter labour market, some slowdown in labour growth is acceptable. However, expectations had been boosted after a stronger than expected March ADP jobs report, but setting expectations aside, one shouldn't lose track of the fact that despite this weak report, job creation has clearly been running around an average 182k a month during the past year," said ABN.
"There is already the commitment (by the Fed) to continue hiking rates this year two more times. We think this report will not likely alter this view..."
On the backburner for now is the US' relationship with China. Prior to last week's meeting between the two country's leaders, there had been worries of a full-blown trade war based on US President Donald Trump's election rhetorics.
After the meeting, little more is known other than that the two sides have agreed on a 100-day plan to iron out their trade differences.
This article appears in The Business Times today. For full listings of SGX prices, go to btd.sg/BTmkts