By Margaret Yang, CMC Markets
Federal Reserve Chairwomen Janet Yellen gave hawkish comments on the Fed’s rate hike path, hinting that the central bank could raise interest rates steady throughout the year. This was in line with our expectations as recent data shows robust growth in the jobs market and inflation is getting closer to the Fed’s target.
The US dollar index surged to a four-week high of 101.2 this morning. USD/JPY rallied to the 114.4 area, with the next resistance level at 115.5 area. A stronger US dollar suppressed commodity prices. Crude oil remained little changed last night, while gold prices continue to consolidate this week. US indices surged to record new highs last night, boosted by optimistic sentiment brought by both Trump and the Fed.
However, good news for the US market might not necessarily benefit emerging markets. A rising US dollar and tightening US monetary policy could potentially draw capital away from Emerging markets, resulting in selloff in EM equities, currencies, and bonds.
Higher-than-expected Chinese CPI and PPI data failed to lift Asian stocks yesterday. Asian equity markets closed broadly lower, due to technical pull back and cautious sentiment ahead of Federal Reserve chairwomen Yellen’s speech last night.
China’s headline CPI and PPI rose 2.5% and 6.9% respectively, higher than the market forecast of 2.4% and 6.3%. Higher readings showed an acceleration in inflation resulting from higher raw material prices in January. Rising inflationary pressure from upstream sectors are likely pass over to downstream industries in the near future. This worries investors that the PBOC will shift towards tighter monetary policy if inflation continues to rise.
In Singapore, the Straits Times Index tumbled 39 points or 1.26%, largely dragged by the banking sector after OCBC posted its 4Q earnings. The lender’s net profit dropped 18% in the fourth quarter due to lower net Interest income and non-interest income. The share price of OCBC, DBS and UOB dropped 3.3%, 3.1% and 1.7% respectively.
Technically, SuperTrend flipped downwards on OCBC’s day chart, suggesting a reverse of its bull trend into a bear trend. Momentum indicator MACD formed a “dead cross”, which indicated weaker momentum.
Margaret Yang Yan, CFA, is a market analyst for CMC Markets Singapore