Slow global growth still a recurring theme

The recurring theme of a struggle to gain traction in the global economic growth continues to persist. What’s particularly worrying is the slow recovery in the US economy and the deteriorating pace of China’s growth.

Shanghai China
Source: Bloomberg

Increasingly, the odds of a strong above-trend growth in the global economy appears low.

While the strong payrolls numbers last Friday added to the firm jobs recovery story, the magnitude of the upmove in the greenback reflects a view that not everyone expects the Fed to raise interest rates earlier than expected.

This division is compounded by the comments from two FOMC voters Brainard and Tarullo, basically suggesting that the stuttering US recovery may be more than just due to bad weather and port strikes.

Nonetheless, the market is pricing in an almost equal chance of a rate liftoff in June and July, at 56% and 55% respectively.

That said, the retail sales reading due this Thursday will be the only material data in the week. Strong new vehicle sales and jump in gasoline prices could point to a solid retail sales print for May, but it may not be sufficient to rescue the second quarter.

More importantly, keeping an eye on sales excluding autos and gasoline to determine the breadth of the sales numbers will be key. With the Fed communications blackout period kicking ahead of the coming FOMC meeting, the market will be left to its own device once again.

In China, stock watchers will be wanting to closely monitor the decision late Tuesday on whether MSCI will include Chinese A-shares into its Emerging Markets Index, and probably the All Countries World Index. Should that happen, international money managers that benchmark to these indices may rebalance their portfolios to reflect the China weights in the future. Although any such rebalancing will not be immediate but over some time.

This will complement efforts of the Chinese authorities to liberalise the domestic equity markets, while still providing support to Chinese equities. The pressure is mounting on MSCI to include as Vanguard announced recently that A-shares will be included in its FTSE Emerging Market ETF, following similar FTSE-Russell comments earlier.

Moreover, China’s economic data will feature prominently this week, and it is worth keeping a close eye on trade numbers due early today (Monday 8 June), CPI reading (Tuesday 9 June), and possible the release of credit and liquidity data (Wednesday 10 – Monday 15 June).

CSI300 closed above 5200 points last Friday and touched an over seven-year high. 14-day RSI indicator showed that the stocks have not yet enter overbought conditions.

Meanwhile, the Greek negotiation saga will continue to take centre-stage in Europe after Greece delayed the €300 million repayment to IMF, choosing to pay a lump sum of €1.7 billion by Tuesday 30 June. We expect the Greece issue to receive considerable amount of attention from the G7 summit today.

Lower valuations in Singaporean banks

The Straits Times Index fell 0.3% closing at 3333.67 last Friday, the lowest in over four months. The index is below its 200-day moving average (3361.29). 90% of the STI constituents are below their 20-day moving averages and 50-day moving averages.

About 30% of the stocks are ‘oversold’ based on the 14-day RSI indicator. Trading volume on the index remained tepid, 1.9% below the 100-day average. Banking stocks are priced near multi-month lows, which could present an opportunity to investors if you’re looking to bet on a US rate hike this year.

Falling interbank rates and loan volumes have dampened demands for shares in Singaporean banks. The 3-month Singapore Interbank Offer Rate (SIBOR) fell almost 20%, since its highs on Thursday 9 April 2015, while outstanding loans in the city-state dropped for a third consecutive month in April to a one-year low.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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