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Latest Market Update

15 Oct 2019
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market-update-Oct-2019-chart01

October started with an immense “G–force“ when the Dow Jones Industrial Average dropped more than 800 points in two days, much like taking a heart–stopping roller coaster ride. The drop in the Dow comes after reports show a slowdown for both manufacturing and hiring in September in the US, as investors began showing concern about signs of an economic slowdown1. These two economic warning signs come as President Donald Trump faces an impeachment push from the Democrats, which investors believe that the impeachment proceedings are likely to undermine trade negotiations with China1.

A partial or mini deal? An initial deal between US and China finally broke the 18–month trade spat, including a currency agreement and tariff hike delay. Despite President Trump heralding the initial agreement on 11 October as a major breakthrough, analysts don't seem too optimistic yet as the partial US–China deal may only offer a temporary tariff reprieve because it lacks specifics and leaves the thorny issues including state–owned enterprises (SOE) and tech for later2. This also means a major deal is unlikely, and the existing tariff will most likely stay2.

Rate cut likely. Ahead of the Fed's meeting on 29 and 30 October, Fed Chairman Jerome Powell said the US economy is in a “good place” but faces risks, giving no clear signal as to whether he favours the Federal Open Market Committee making another rate cut this year3. Powell also added that US job growth was not as robust as thought since early last year, hinting that the Fed may be ready to keep cutting rates to support the economy4. Markets have also priced in another reduction in October following weakness in manufacturing, services and employment reports, amid a slowing global economy and the US–China trade war3.

Brexit woes. With just a few weeks to go for British Prime Minister Boris Johnson's deadline of taking Britain out of the European Union (EU) by 31 October, the road to secure a Brexit deal continues to be a bumpy journey. The EU warned the talks were still a long way from a breakthrough including PM Johnson's plans to take Northern Ireland out of Europe's customs union, which the EU officials sees as problematic5. If talks break down, Johnson is required to delay Brexit under a new law and European Commission President Jean–Claude Juncker indicated that he would approve another delay if the British asked for it5.

India cuts rates again. India's central bank cut its benchmark repurchase rate for the fifth consecutive time this year in a push to reinvigorate slowing economy6. The Reserve Bank of India (RBI) lowered the repo rate by 25 basis points to 5.15% as the decision came against a backdrop of weaker growth, resurgence of financial stability risks and surprise fiscal stimulus in the form of a recent corporate tax cut with more aggressive policy moves to be expected6. In another move to revive economic growth from a six–year low, India cut tax on domestic companies by lowering to 22% from a base rate of 30% currently7. The bold move in reducing corporate tax rates puts India's tax rate on a par with Asian peers and will boost efforts to attract investments as companies look for alternative destinations to sidestep supply chain disruptions from the US–China trade war7.

Near miss from recession. Closer to home, Singapore's economy narrowly escaped a technical recession in the third quarter even as growth stayed subdued8. Flash estimates by the Ministry of Trade and Industry (MTI) showed the Singapore economy grew by 0.1% on a–year–on–year basis in Q3 of 2019, the same pace of growth as the previous quarter10. In a widely expected move, the Monetary Authority of Singapore (MAS) has reduced the Singdollar appreciation rate in a move to ease monetary policy at its recent semi–annual review for the first time in three years9. The central bank has also left the window open for another such shift if global growth continues to weaken next year9. Although the US dollar weakened against Singdollar to S$1.37 after the easing announcement, DBS' FX strategist, Phillip Wee, forecasted the US dollar–Singdollar to rise above S$1.40 by end of year following the recent optimism from the US–China partial deal agreement9. The central bank expects Singapore's growth to “pick up modestly in 2020” although the level of output will remain below potential9. The Singapore government is also expected to roll out a generous budget ahead of election next year as the ruling party seeks to appease voters who may be feeling the pinch from the economic downturn8.

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Disclaimer

All information here is for GENERAL INFORMATION only and does not take into account the specific investment objectives, financial situation or needs of any specific person or groups of persons. Prospective investors are advised to read a fund prospectus carefully before applying for any shares/units in unit trusts. The value of the units and the income from them may fall as well as rise. Unit trusts are subject to investment risks, including the possible loss of the principal amount invested. Investors investing in funds denominated in non-local currencies should be aware of the risk of exchange rate fluctuations that may cause a loss of principal. Past performance is not indicative of future performance. dollarDEX is affiliated with Aviva but dollarDEX does not receive any preferential rates for Aviva products as a result of this relationship. Unit trusts are not bank deposits nor are they guaranteed or insured by dollarDEX. Some unit trusts may not be offered to citizens of certain countries such as United States. Information obtained from third party sources have not been verified and we do not represent or warrant its accuracy, correctness or completeness. We bear no responsibility or liability for any error, omission or inaccuracy or for any loss or damage suffered by you or a third party (including indirect, consequential or incidental damages) arising in any way from relying on this information.

This information does not constitute an offer or solicitation of an offer to buy or sell any shares/units.
This article has not been reviewed by the Monetary Authority of Singapore.

Information is correct as of 15/10/2019.



  • 1  https://www.cnbc.com/2019/10/02/the-dow-is-down-over-800-points-in-two-days-heres-whats-happening.html?recirc=taboolainternal

    2  https://www.channelnewsasia.com/news/business/partial-us-china-trade-deal-only--baby-step--as-thorny-issues-remain-11994916

    3  https://www.bloomberg.com/news/articles/2019-10-06/fed-s-george-see-no-need-to-cut-rates-unless-slowdown-deepens

    4  https://www.apnews.com/1f2ed255d3c7493387d0368e64a8a209

    5  https://www.bloomberg.com/news/articles/2019-10-14/johnson-stumbles-in-bid-for-brexit-deal-as-eu-demands-answers

    6  https://www.cnbc.com/2019/10/04/india-has-cut-rates-five-times-this-year.html

    7  https://www.straitstimes.com/business/economy/india-slashes-corporate-tax-rate-for-local-companies

    8  https://www.straitstimes.com/business/economy/singapore-seen-narrowly-dodging-recession-in-q3-mas-to-ease-poll

    9  https://www.straitstimes.com/business/economy/mas-reduces-singdollar-appreciation-rate-slightly-first-easing-in-over-3-years

    10  https://www.straitstimes.com/business/economy/singapore-narrowly-dodges-technical-recession-as-economy-grows-01-in-q3-flash-data




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Disclaimer
All information here is for GENERAL INFORMATION only and does not take into account the specific investment objectives, financial situation or needs of any specific person or groups of persons. Prospective investors are advised to read a fund prospectus carefully or may wish to seek advice from a financial adviser before applying for any shares/units in unit trusts or making a decision to purchase an investment product. The value of the units and the income from them may fall as well as rise. Unit trusts are subject to investment risks, including the possible loss of the principal amount invested. Investors investing in funds denominated in non-local currencies should be aware of the risk of exchange rate fluctuations that may cause a loss of principal. Past performance is not indicative of future performance. dollarDEX is affiliated with Singlife but dollarDEX does not receive any preferential rates for Singlife products as a result of this relationship. Unit trusts are not bank deposits nor are they guaranteed or insured by dollarDEX. Some unit trusts may not be offered to citizens of certain countries such as the United States. Information obtained from third party sources have not been verified and we do not represent or warrant its accuracy, correctness or completeness. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons.

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