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Santa Finally Brings Some Cheer To Markets
Santa seems to have made a last minute visit to stock markets. But will Santa’s presence be sufficient to lift markets? While the STI is marching ever much closer to breaking even for the year, American markets are soaring to new heights. Perhaps we need some American enthusiasm.
Top gainers for the week included Neo Group (+21.7 percent) after its independent director, Kevin Ng increased his shareholding in the company from 0.19 percent to 0.23 percent. Other big gainers were Fraser & Neave (+11.6 percent) and Linc Energy (+9.2 percent).
Read on to find out what happened over the week!
In Singapore…
1. Inflation hits 2.6% in November
Inflation continues to be a problem for Singapore. Spurred by continually rising housing and transportation costs. Inflation reached 2.6 percent in November, up from 1.9 percent in October. This increase was in-line with expectations, however, so market disruptions were minimal. Accommodation costs rose by 3.3 percent while private road transportation costs rose 3.4 percent.
All other categories also saw increases. Core inflation, which excludes housing and transportation costs, increased to 2.1 percent. MAS projects inflation to continue to rise at a similar pace over the next few quarters, averaging between 2 percent to 3 percent in 2014.
The MAS has kept the Singapore dollar on a steady appreciation path to combat inflation. The strong Singapore dollar has been detrimental to Singapore exports as can be seen from export figures such as the NODX faring poorly this year.
2. Economists Project Growth in Singapore Through 2014
Economists and professional forecasters are projecting solid economic growth for Singapore in 2014. Economists believe the economy will expand by 3.5 to 4% amid improving demand from Japan, the United States, and the European Union.
Economists warn, however, that domestic issues, such as rising labour costs and inflation, will pose a challenge for Singaporean businesses. Economists believe that Singapore will indeed grow, but that the ride could be bumpy.
3. Singapore Stocks Rise in Holiday Trading
Singaporean markets have continued to extend its rally following news on US Tapering plans last week. The Straits Time Index has risen over 2 percent this week and could see further gains towards the final days of 2013.
Asian markets have been boosted by good news from the United States. The US recovery appears to be gaining momentum as unemployment declines and consumer spending continues to rise. Increased demand from the United States should fuel economies across Asia.
4. Industrial Output Growth Slows But Outlook Remains Positive
Industrial production in Singapore grew in November albeit at a slower pace. Factory output grew 4 percent in November from a year earlier according to data from the Economic Development Board. This is down from October’s 8.3 percent growth and lower than a median forecast of 5.7 percent.
The electronics sector saw growth boosted to 11 percent on the back of a 17.8 percent expansion of the semi-conductor segment. However, the volatile biomedical manufacturing sector dragged on overall production as it recorded contraction for the second straight month.
Economists feel that the manufacturing sector will continue its improvement into 2014 as positive signs from developed markets could drive global demand.
Around the World…
5. People’s Bank of China Reacts to Cash Crunch
The growing cash crunch in China continues to threaten the Chinese fiscal system while the PBOC (China’s central bank) has struggled to contain the situation. Banks and companies have been scrambling to secure funding in the closing days of 2013, while short-term interest rates jumped to a six month high.
The PBOC made cash injections last week in an attempt to cool off rising interest rates, but so far these measures have largely failed to increase liquidity. The weighted average for the 7 day repurchase-agreement rate, which tracks how much banks charge to lend funds to one another, rose from 8.21 percent last Friday to 8.94 percent this Monday.
The damaging effects of high interest rates cannot be underestimated. Liquidity, the lubricant of any functioning economy could grind to a halt if inter-bank interest rates climb too high.
6. US Consumer Spending Rose in November
American consumers shrugged off weak economic growth in November and opened up their wallets. Consumer spending rose 0.5 percent in November from a month earlier. It should be cautioned that this growth in spending was spurred by the holiday shopping season. Consumer sentiments have also been strengthening, however, reaching 5 month highs.
Consumer spending is one of the most important readings for fully-developed economies. Such spending often makes up more than two-thirds of all economic activity in the US. Rising consumer spending indicators have almost certainly played a role in the recent bull markets. Economists have warned, however, that tepid wage growth could restrain spending in the future.
7. DJIA and S&P Reach Record Highs
Stock markets in the United States look set to close out the year on a high note. After closing pre-holiday trading at record highs, stock markets reopened following Christmas day and delivered a bull market yet again.
These record highs have been driven by falling first-time claims for unemployment benefits and increasing confidence in the American recovery. Many economists are now expecting US Economic expansion to gain steam in 2014 after years of tepid growth.
8. China Plots 2013 Growth At 7.6%, Sees Further Challenges
China’s State Council has predicted that growth in 2013 has slowed to 7.6 percent. This comes as mounting challenges continue to put pressure on China’s traditional growth model of investment-led spending.
The headline figure compares with the government’s target of 7.5 percent and could mark a third straight annual drop in expansion. The Shanghai Composite Index slumped about 5 percent last week as a cash crunch was seen building up in China money markets.
China continues to strengthen the role of the private sector and domestic demand in a bid to modernise its economy. So far, such economic transformation policies seem to be working as the service sector increased its contributions to GDP from 43.2 in 2010 to 44.6 percent in 2012.
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