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BOJ in the spotlight, Gold and silver rally

By Margaret Yang, CMC Markets

BOJ poised to ease today

The last piece of the puzzle of this month will finally be put in place as the BOJ will announce its monetary policy today. Previously, Japan’s Prime Minister Shinzo Abe said that the government’s additional stimulus package amounts to a total of 28 trillion yen, and the market is positioned for more easing.

Although the details of the stimulus plan are unknown, some guesses include pushing interest rates further into negative territory, expanding the asset purchasing program by including ETFs and long term government bonds. The yen is trading at around 104.30 this morning, having strengthened overnight.

Equity’s rally runs out of steam

The equity market rally is running out of steam as we approach August. A dovish FOMC statement and the BOJ’s stimulus package failed to bring positive surprises to the markets last night. The S&P 500 index hovered around a narrow range between 2,160-2,170 points and a ‘head’ is forming. The Nikkei Index, however, was down 1.13% to 16,477 points on Thursday.

The Hang Seng Index is facing strong resistance at 22,200 and the Singapore stock market fell sharply on Thursday as a slump in oil prices dragged on the O&G sector.

Gold & silver rally, crude down

Gold and silver have ended a consolidation phase and entered into a new rally. The price of gold and silver soared 1.5% and 3.6% over the last two days with strong momentum.

Crude oil, on the other hand, slid further due to an unexpected rise in the US DoE crude inventory last week. The US commercial crude inventory rose 1.67 million barrels over the past week, versus a forecast of a two million barrel drop. The immediate support level for the WTI crude oil Sep future contract is $39.00 area.

Swiber spreads volatility to Singapore market

Swiber, a Singapore listed integrated offshore construction and oil & gas support service provider, has surprisingly filed a petition to wind up and liquidate the company after facing demands from creditors. The company still has $1.43 billion of loans and liabilities outstanding and total assets of $2.0 billion.

The credit default spread may be widening, making it more difficult for other similar O&G companies to borrow or renew their debts. Banks are susceptible to rising debt defaults and non-performing loans if low oil prices persist due to their large loan exposure to the O&G companies. Share prices of DBS, UOB and OCBC have fallen sharply since the announcement.

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Margaret Yang Yan, CFA, is a market analyst for CMC Markets Singapore.