Top Stock Market Highlights of the Week: US Federal Reserve and Singapore’s GDP

Welcome to the latest edition of top stock market highlights.

US Federal Reserve

After hiking interest rates continuously for the past 15 months, the US Federal Reserve (“Fed”) appears to be taking a breather.

The 18-member committee was unanimous in its decision to keep interest rates at their current level of between 5% to 5.25%.

Lest you start breathing a sigh of relief, new forecasts from the US central bank show borrowing costs rising to 5.6% by the end of this year.

In other words, the rate hike cycle is still far from over as the US inflation rate is still more than double that of the Fed’s 2% target.

Rates are kept constant this round so that the central bank can continue to assess incoming economic data to determine its implications for future monetary policy.

Around two-thirds of the policymakers believe that rates should end in 2023 in the range of 5.5% to 5.75%, implying that most of the members believe that further monetary tightening is necessary to contain inflation.

These forecasts indicate that there may be around two more 0.25 percentage point increases or a single 0.5 percentage point increase before the year ends.

Fed chairman Jerome Powell said that it will be “appropriate” to raise rates “somewhat further” in 2023 to bring inflation down, but was deliberately vague on the exact timing of these hikes.

He is understandably concerned about the effects of such aggressive rate hikes on the broader economy, though recent economic data suggests that the US economy is faring better than expected.

Retail sales have increased by 0.3% month on month compared to consensus estimates for a decline of 0.2%.

New York state factory activity data also showed a surprise rebound in orders and shipments in June.

The Fed will have its work cut out for it when it convenes next month, but it appears that the strength of the data may allow the policymakers to go ahead with their decision to further raise interest rates.

Singapore’s GDP growth rate

Economists expect Singapore’s gross domestic product (GDP) to increase by 1.4% in 2023.

This number was obtained from the Monetary Authority of Singapore’s (MAS) survey of a group of professional forecasters.

The 1.4% comes in lower than the 1.9% that was forecast just three months ago in March.

The 26 analysts and economists believe that Singapore’s economy should grow between 1% to 1.9% this year.

This was a noticeable decline from the original forecast for growth of between 2% to 2.9%.

For the second quarter of 2023 (2Q 2023), the same group of respondents expect Singapore’s economy to expand by 1.5%.

Headline inflation most likely will end the year in the range of 5% to 5.4%, while core inflation will be one percentage point lower at 4% to 4.4%.

For 2024, projections are for GDP to expand by 2.5% with growth falling in the range of 2% to 2.9%.

Headline inflation is projected at 3.3% for next year with core inflation at 3%.

However, more than three-quarters of those surveyed expect corporate profits to decline on a year-on-year basis for 2023.

The group, however, was split in 2024 in determining if corporate profits will carry on declining or if they will rebound and rise.

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Disclosure: Royston Yang does not own shares in any of the companies mentioned.

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