Strong employment data on night of July 5 saw global equity markets start the week on a weaker tone, with speculation that the best monthly gain in US jobs since Jan 2019 made a weaker case for an accommodative interest rate cut by the FOMC on July 30/31.
Speculation was quelled 30 minutes into session one of the Fed Chair’s two-day semi-annual Monetary Policy testimony on night of July 10. Chairman Powell gave a straight no answer when asked if the July 5 employment report changed outlooks for interest rates.
In SG, close to half of the 100 highest turnover stocks saw increased volatility over the relevant four sessions. Half of these stocks declined on July 8 (following the jobs report), and four-fifths of the 100 stocks closed at or above July 8 levels, in the session that followed the testimony.
Could One Strong Job Report Change the Outlook for a Potential US Rate Cut?
On the night of Friday July 5, the US Labor Department reported that 224,000 jobs were created in the United States for the month of June 2019. This was led by the professional and business services sector and the highest jobs growth since January 2019.
However, recent months had seen mounting expectations of an interest rate cut by the Federal Open Market Committee (“FOMC”) at the July 30-31 meeting. This would be the first US Federal Funds Rate cut since December 17, 2008. The current rate target range for the Federal Funds Rate is 2.25% to 2.50%. The last time the Federal Reserve moved interest rates back towards 2.00% was in April 2008, citing that economic growth had remained weak, labour market conditions had deteriorated further, and manufacturing activity was soft. Hence the strong jobs report appeared to make a weaker case for rate cuts in 2H19, after a neutral, patient and data dependent Federal Reserve in 1H19.
As a result, most markets were weaker across the board on Monday July 8 with a stronger bid-tone in the US Dollar. In Singapore, half of the 100 most active stocks by turnover this week were lower, with a number of Real Estate Investment Trusts and USD-denominated stocks, a defensive exception. Comparative close prices are tabled below.
“The Straight Answer is No”
On the night of Wednesday July 10, the Federal Reserve Chair Jerome Powell delivered the first session of the Semi-annual Monetary Policy Report to the Congress, which concluded with a second session last night.
Thirty minutes into the first session, Congresswoman Carolyn Malone questioned the Fed Chair on whether or not the strong June 2019 jobs report had changed his economic outlook. Chairman Powell stated that ‘the straight answer is no’, and while the job report was great news, broader US, Europe and Asia data has continued to disappoint, particularly in the manufacturing and trade-related sectors. Chairman Powell also noted that while the recommencement of discussions with China is constructive, uncertainty still weighs the trade outlook and the FOMC will continue to examine the full range of data that impacts its dual mandate.
Coincidently, the US Dollar gave back its post-jobs report gains, and markets were broadly stronger on the expectations that the Federal Reserve could cut interest rates at the next FOMC meeting on July 30-31, with added potential for further cuts. This would be in order to ‘take some insurance against a sharper US slowdown’ as reiterated by FOMC Member and known dove, James Bullard.
With the Fed Chair maintaining an outlook attuned to the key global growth drivers of manufacturing and other trade-related businesses that also impacts Singapore markets, the ensuing trading session of Thursday July 11 saw the majority of the 100 most active stocks by turnover this week close above their Monday July 8 levels.
Rate Speculation Provided a Shorter-Term Trading Opportunity
The 100 most active stocks by turnover over the first four sessions of this week have averaged 1.8% gains in the month-to-date which have brought their average total return through to the July 11 close to 16.8%.
The four sessions which spanned the reaction of the jobs report to the Fed Chair stating it would not change the case for a pending rate cut, saw increased volatility in close to half of the 100 stocks.
For instance, Singtel saw a considerable pick up in short-term volatility, declining 1.4% to S$3.48 following the stronger jobs report on Monday, before ending Thursday (following session one of the Fed testimony) at S$3.56, and up 2.3% from the Monday close. The stocks that were observed to see a pick-up in volatility are highlighted in the table below.
|DBS GROUP HOLDINGS||1||1||25.61||25.37||25.63||-1.3||11.7|
|UNITED OVERSEAS BANK||3||2||26.44||26.07||26.26||1.2||10.5|
|OVERSEA-CHINESE BANKING CORP||4||3||11.48||11.31||11.39||0.7||3.9|
|ASCENDAS REAL ESTATE INV TRT||5||5||3.09||3.11||3.18||-1.0||23.5|
|CAPITALAND COMMERCIAL TRUST||6||9||2.18||2.26||2.30||0.5||27.5|
|CAPITALAND MALL TRUST||9||10||2.69||2.71||2.74||2.3||21.2|
|MAPLETREE LOGISTICS TRUST||13||14||1.59||1.63||1.65||0.0||29.8|
|THAI BEVERAGE PCL||17||21||0.880||0.865||0.865||6.0||47.5|
|HONGKONG LAND HOLDINGS||18||20||9.05||9.07||9.16||3.8||7.7|
|MAPLETREE INDUSTRIAL TRUST||21||31||2.32||2.30||2.33||3.6||25.2|
|JARDINE MATHESON HLDGS||23||13||86.44||86.90||88.28||1.3||-7.1|
|SINGAPORE TECH ENGINEERING||24||19||4.27||4.21||4.23||3.1||25.6|
|MAPLETREE NORTH ASIA COMMERC||25||29||1.46||1.46||1.46||0.0||32.0|
|FRASERS LOGISTICS & INDUSTRI||26||35||1.24||1.29||1.27||2.5||24.1|
|MAPLETREE COMMERCIAL TRUST||27||23||2.05||2.09||2.09||-1.9||27.4|
|NETLINK NBN TRUST||28||38||0.885||0.890||0.885||-0.6||19.1|
|JARDINE CYCLE & CARRIAGE||29||24||37.34||35.93||36.30||3.1||8.6|
|EC WORLD REIT||30||126||0.755||0.760||0.785||-3.2||13.8|
|SINGAPORE PRESS HOLDINGS||31||37||2.49||2.55||2.54||2.0||8.3|
|JARDINE STRATEGIC HLDGS||32||25||52.17||53.03||53.47||1.1||4.9|
|SIA ENGINEERING CO||35||89||2.78||2.78||2.89||10.8||22.5|
|FRASERS COMMERCIAL TRUST||37||47||1.65||1.67||1.70||-1.2||24.4|
|KEPPEL DC REIT||42||40||1.68||1.72||1.73||0.6||27.6|
|DAIRY FARM INTL HLDGS||43||41||9.88||9.79||9.89||2.1||-18.4|
|CDL HOSPITALITY TRUSTS||44||49||1.66||1.64||1.66||1.8||17.2|
|ASIAN PAY TELEVISION TRUST||45||69||0.186||0.172||0.172||8.8||52.5|
|FRASERS CENTREPOINT TRUST||46||44||2.64||2.67||2.73||1.5||26.0|
|ASCOTT RESIDENCE TRUST||48||46||1.30||1.29||1.31||0.0||24.5|
|ASCENDAS HOSPITALITY TRUST||49||93||1.03||1.04||1.05||5.1||38.6|
|KEPPEL INFRASTRUCTURE TRUST||50||43||0.505||0.505||0.500||0.0||9.5|
|GLOBAL INVACOM GROUP||51||113||0.118||0.113||0.110||29.7||237.1|
|HAW PAR CORP||53||92||14.31||14.06||14.18||1.3||27.8|
|STARHILL GLOBAL REIT||56||58||0.790||0.795||0.785||1.9||19.8|
|CAPITALAND RETAIL CHINA TRUS||57||51||1.60||1.59||1.60||2.6||21.6|
|FIRST REAL ESTATE INVT TRUST||58||59||1.06||1.05||1.06||2.9||12.3|
|CROMWELL EUROPEAN REIT||60||54||0.718||0.724||0.725||-2.8||12.4|
|YANLORD LAND GROUP||62||50||1.29||1.31||1.31||0.0||11.4|
|CACHE LOGISTICS TRUST||65||60||0.785||0.790||0.790||-0.6||17.7|
|MANULIFE US REAL ESTATE INV||66||62||1.19||1.20||1.21||1.4||20.1|
|SASSEUR REAL ESTATE INVESTME||67||88||0.800||0.800||0.800||1.3||31.7|
|EAGLE HOSPITALITY TRUST||68||76||0.956||0.952||0.952||-1.2||0.0|
|PARKWAYLIFE REAL ESTATE||69||61||3.06||3.04||3.05||1.0||19.1|
|SINO GRANDNESS FOOD INDUSTRY||70||122||0.047||0.047||0.053||-20.3||-61.8|
|FAR EAST HOSPITALITY TRUST||71||67||0.685||0.680||0.680||3.0||16.6|
|HUTCHISON PORT HOLDINGS TR-U||72||55||0.305||0.306||0.306||-1.9||-4.5|
|ARA US HOSPITALITY TRUST||73||118||1.21||1.20||1.21||-0.3||0.0|
|FRASERS HOSPITALITY TRUST||78||103||0.720||0.720||0.730||2.1||6.1|
|YOMA STRATEGIC HLDGS||79||87||0.375||0.380||0.385||-2.6||10.3|
|Y VENTURES GROUP||80||116||0.109||0.106||0.107||-22.1||-52.6|
|ASCENDAS INDIA TRUST||81||73||1.40||1.38||1.37||2.9||33.4|
|REX INTERNATIONAL HOLDING||82||53||0.071||0.069||0.070||-1.4||29.1|
|SOILBUILD BUSINESS SPACE REI||83||112||0.615||0.620||0.620||0.0||10.7|
|AIMS APAC REIT||84||101||1.47||1.47||1.49||1.4||14.8|
|RAFFLES MEDICAL GROUP||85||78||1.04||1.05||1.04||0.0||-3.6|
|KEPPEL-KBS US REIT||86||95||1.07||1.06||1.05||3.5||33.6|
|CHINA EVERBRIGHT WATER||87||80||0.365||0.355||0.370||9.0||23.4|
|OUE HOSPITALITY TRUST||88||82||0.735||0.735||0.735||2.8||13.6|
|CHINA AVIATION OIL SINGAPORE||90||75||1.31||1.30||1.31||-0.8||27.9|
|BUKIT SEMBAWANG ESTATES||91||131||5.84||5.78||5.82||1.2||3.4|
|TIANJIN ZHONG XIN PHARM CO-S||92||111||1.15||1.17||1.22||-4.7||2.5|
|SHENG SIONG GROUP||93||63||1.11||1.09||1.10||0.9||6.5|
|ALLIANCE MINERAL ASSETS||96||102||0.134||0.137||0.142||-8.2||-46.4|
|FU YU CORP||97||117||0.220||0.215||0.215||7.3||21.4|