Global equity market rally likely to slow down

Financial markets had quite a mixed start to the New Year, with some assets going up and others going down.

The domestic stock market has been moving up on the back of a global equities New Year rally. This rally has been mainly spurred on by better-than-expected Purchasing Managers’ Index (PMI) data from all of the major economies.

The Straits Times Index (STI) index currently faces an immediate resistance level of 3,047. The Singapore dollar recovered about 2 per cent against the United States dollar this year, after having fallen by almost 10 per cent during the second half of last year. USD/SGD faces an immediate support level of 1.4320. The weaker Singapore dollar was mainly caused by the fundamental divergence of a stronger US economy with higher interest rates and a weaker Singapore economy.

Domestic year-on-year retail sales numbers for November 2016 came out weaker than expected, at 1.1 per cent versus the consensus of 1.7 per cent.

In the global space, gold prices have been rising recently at the expense of a weaker US dollar. The US dollar has been retracing some of its post-Trump election gains against the euro and yen, on the back of better-than-expected economic data released by the eurozone and Japan. Only the British pound continued to fall against the US dollar on Prime Minister Theresa May’s comment for a “hard Brexit”.

Bond prices have recovered by about 2 per cent since hitting the bottom in December after having fallen by 6.5 per cent since last June on anticipation of higher interest rates.

Brent crude prices have fallen by 3.7 per cent from the 2017 high of US$58.40 per barrel on concerns that efforts by the Organisation of the Petroleum Exporting Countries (Opec) to curb global oversupply would be undermined by record high Iraqi crude exports and rising US output.

I expect market participants to be mostly closing out their positions and continuously reassessing developments on Mr Trump’s policies before they commit to any additional market position. I foresee higher inflation numbers coming out of the United Kingdom and the US and no change to European Central Bank monetary policy.

In the light of these assumptions, I expect the global equity market rally to slow down for this week. Gold, currencies, bonds and crude oil are expected to continue their current trend.

Jonathan Chan is an analyst at Phillip Futures