US equities fell sharply while treasuries climbed up following Fed’s decision to raise interest rate by 25bps to 2.25-2.5% last night.
This outcome is largely in line with expectations. However, market is probably disappointed to hear “some further gradual increases” is necessary, albeit the central bank is poised to be less aggressive in tightening. Consensus forecast suggests two more rate hikes next year, a revision down from three hikes predicted in September meeting.
This sets a nervous tone for Asian markets at opening, but Singapore market exhibited resilience against this headwind and traded flat. This is because the rate hike is within market expectations and Singapore market’s downside is protected by relatively low valuation. STI’s trailing 12M P/E ratio is at around 10x, the lowest level observed in almost three years.
On China’s side, the People’s Bank of China (PBoC) unexpectedly announced a small scale of monetary easing programme of 100 billion yuan to provide low-cost credit facilities targeted at small and micro-sized enterprises via Medium Term Lending Facility (MTL). This measure is expected to counterbalance the negative effect brought by the Fed and thus a positive news for greater China market – especially Shanghai and Hong Kong. ‘Targeted’ monetary easing served as a signal that policy makers are trying to strike a balance between fostering SMEs and preventing a broad-based rate cut that adds onto debt problems.
Brent Crude Oil prices is traded at 14-month low of $56.4 area, as glut concerns remain the key factor to suppress energy prices. Last night’s crude inventory report shows US commercial crude inventory dropped 0.497 million barrels in the week before, lower than earlier expectations of a 2.36 million drop. A tepid global economic growth outlook also weighs on oil prices as the demand for energy is probably going to remain subdued. Unless we see substantial output cut by OPEC+ or North America, or disruption in production in key output areas, oil prices are likely to remain suppressed till year end.
Crude Oil Brent - Cash
By Margaret Yang in Singapore
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