By Margaret Yang, CMC Markets
Equities - Risk premium continues to unwind on hopes that central banks will adopt accommodative monetary policies amid Brexit uncertainties. Global equity markets rebounded for a second day, led by European markets.
The Singapore market is recovering its post-Brexit losses, with defensive sectors outperforming. Singtel – Singapore’s largest telecom service company – has soared to a ten-month high of $4.13 this morning.
Another sector that outperformed the STI benchmark is Real Estate Investment Trusts (REITs), as the expectation of rate hike from the Fed has dropped to an extremely low level since the Brexit vote. In a low-yield environment, certainty and sustainable dividend payouts will always attract demand from investors.
Commodities - Positive sentiment has spread over to the commodities market, with the front month WTI crude future extending its second-day rally to $49.50 this morning. Last night’s DoE report showed that US commercial crude inventory dropped by 4.05 million barrels, more than the expectation of 2.5 million. This indicates a further improvement in the supply-demand relationship.
The immediate resistance level for WTI crude futures is $50.20, with the next major resistance level around $54.7.
FX - Sterling climbed for a second day to 1.3429 against the US dollar. In spite of this, ratings agency S&P lowered the UK’s sovereign credit rating from AAA to AA (negative) two days ago. The ‘lack of clarity’ from policymakers and the looming constitutional crisis in Scotland after the Brexit vote could lead to more volatility.
In the mid-term, safety assets such as gold, silver, US treasuries, and currencies like the US dollar, JPY and Swiss Franc will continue to be favoured by the market during uncertain times.
Margaret Yang Yan, CFA, is a market analyst for CMC Markets Singapore.