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Investors feel sting of US jobs report

This article is more than 12 months old

Asian markets close lower; indices also weighed down by escalating trade friction between Japan and South Korea

It was not much of a surprise that the local equities market and its Asian peers felt the sting of last Friday's strong US jobs report. The better-than-expected data undercut investor hopes for an aggressive Federal Reserve interest rate cut in July.

This saw the local Straits Times Index (STI) finish 32.58 points or 1 per cent down at 3,334.23. Elsewhere in the Asia-Pacific, Australia, China, Hong Kong, Japan, Malaysia and South Korea closed lower.

Vanguard Partners managing partner Stephen Innes noted that after the strong payrolls report, "there are some concerns that (Fed) chair (Jerome) Powell could walk down some of the market aggressive Fed rate cut pricing, and this too is having a significant impact on the investor psyche".

Some might see the irony in markets taking negatively to the US payrolls report for June exceeding expectations by quite a stretch, especially at a time when sentiment has been dealt a blow by slowing global growth.

Shouldn't investors take heart that such data suggests the bull run still has legs and the US economy is doing better than expected?

Not when equity markets are buoyed by the prospect of rate cuts from not just the Fed, but other central banks and have been pricing those effects in.

Asian indices were also weighed down by "escalating trade friction between Japan and South Korea not to mention the monumental slide in Samsung's profits", Mr Innes added.

In Singapore, trading volume clocked in at 1.12 billion securities, 94 per cent of the daily average in the first five months of 2019. Total turnover came to S$1.06 billion, in line with the January-to-May daily average.

Across the market, decliners trumped advancers 306 to 132. Meanwhile, the benchmark index had 25 of the STI's 30 components close in the red.

Singtel, which dropped $0.08 or 2.3 per cent to $3.48, was the benchmark index's most active stock with 30.8 million shares traded.

The telco's shares saw heavier-than-usual trading after DBS Group Research downgraded its recommendation on the counter from "buy" to "hold" but increased the target price from $3.55 to $3.60. DBS analyst Sachin Mittal said that Singtel's recent rally could be losing steam, and investors may consider the opportunity to take some profit after the run-up.

Along with the broader market, the banks returned from the weekend lower. DBS Group Holdings eased $0.26 or one per cent at $25.37, OCBC Bank dipped $0.08 or 0.7 per cent to $11.31 and United Overseas Bank (UOB) traded at $26.07, down $0.19 or 0.7 per cent.

Yesterday's performance aside, RHB Research Institute analyst Leng Seng Choon remains bullish on the banking sector with DBS and UOB his top picks. Both banks have a target price of $30.80.

He said: "Market expectations of softer 2019 GDP growth for Singapore and a cut in US Federal funds rate in the (second half of 2019) could dampen investors' appetite for Singapore banks.

"However, with economic recovery likely in 2020, we remain bullish on the sector."

Real estate investment trusts (Reits), which have hogged the limelight on the back of dovish stances from central banks, saw a pullback from investors. At yesterday's closing, the iEdge S-Reit 20 Index lost 12.10 points or 0.8 per cent to 1,469.96.

Healthcare player Health Management International (HMI), which resumed trading yesterday morning after an offer by its management and private equity firm EQT to take the company private, shot up $0.06 or 9.1 per cent to end at $0.72, one cent below EQT's offer price of $0.73.

Analysts advised that investors accept the offer.

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