Euro and sterling strengthened against the greenback overnight following the ECB and BoE meetings, both of which stayed put in key interest rates.

ECB maintained its policy stance in light of mild inflation figures and solid economic metrics, despite rising trade uncertainties worldwide. The central bank kept its policy rate unchanged and will reduce the monthly asset purchase amount to 15 billion euros from current 30 billion euros, and aim to end the asset purchasing program by December this year.

ECB governor Draghi highlighted the strength of euro area economy and gradually rising inflation, which lifted euro against its major peers. Technically, EUR/USD is facing some resistance at around 1.168 area but the overall trend has flipped upwards, suggested by SuperTrend (2,0) and 10-Day SMA. Breaking out above 1.168 will open the room for more upside towards the next resistance at 1.173 and 1.178 respectively.

Dollar index retraced for a fourth day to the 94.5 area overnight as euro and pound strengthened. Weaker dollar is likely to fuel a technical rebound in Asian equities and emerging market currencies. Uncertainties, however, reside on US-China trade relationships, which became more complicated last night following President Trump’s comment on ‘no pressure’ to make China trade deal.

Singapore’s blue chips rebounded for a third day, with the benchmark index STI climbing to 3,145 area after hitting 18-month low at 3,102 on Tuesday. Singapore stocks embraced strong headwind since May as trade disputes escalated worldwide, and the rise of USD triggered broad sell-off in EM markets. The underlying economic metrics, however, have yet to show signs of deterioration in the local market. Falling price and steady earnings led to declining valuation, with STI’s average trailing price-to-earnings ratio dropping to nearly five year low at 11 times, and blue chips’ dividend yield climbing to 4.5%.

Sector wise, Telecommunication (StarHub), Information Technology (Venture), Consumer Staples (ThaiBev) and some property developers (City Dev) were among the top losers year-to-date. Their average performances are highlighted below.

Going forward, local market will still face uncertainties surrounding trades, rate hikes, and geopolitical issues. However, as long as the underlying corporate earnings remains resilient, the current valuation will become attractive for long term investors to step in and cherry pick the gems in the market.

STI sectorial performance this year

Sector3M%6M%YTD%
Consumer Discretionary-9.6-5.6-14.5
Consumer Staples-14.6-18.7-21.2
Financials-6.8-11.7-3.5
Industrials-5.2-10.1-9.3
Information Technology-22.8-44.2-22.4
Real Estate-6.9-10.6-11.4
Telecommunication Services-6.1-20.6-27.5

Source: Bloomberg

EUR/USD

By Margaret Yang in Singapore

 

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