Singapore Pre-Market Thursday: Italy fears recede, oil climbs, US growth stumbles

Singapore’s Marina Bay SandsSingapore’s Marina Bay Sands

Singapore shares will start trade with a positive lead on Thursday as global markets shook off fears that Italy’s political turmoil could spur contagion.

Singapore stocks to watch Thursday: Yangzijiang, Roxy-Pacific, Courts Asia, Old Chang Kee

The Dow Jones Industrial Average ended Wednesday up 1.26 percent, the S&P 500 tacked on 1.27 percent and the Nasdaq gained 0.89 percent. Futures for the three indexes were lower, with the DJIA futures shedding 40 points by 7:37 A.M. SGT.

The Nikkei 225 index was up 0.50 percent at 8:22 A.M. SGT on Thursday.

The euro also walked back some of its recent losses, trading at US$1.1658 at 8:11 A.M. SGT, according to DZHI data, up from its lows of US$1.1509 earlier this week. The dollar index, which measures the greenback against a basket of currencies, was at 94.07 at 6:05 A.M. SGT, after climbing as high as 94.97 earlier this week.

The selloff earlier in the week had been sparked by concerns Italy was headed for another election, possibly as soon as July, after the March election still has yet to yield a government. Investors had worried the vote would turn into a referendum on whether the country will remain in the euro and on whether any new euro-skeptic government might turn on the spending taps. That had weighed on the euro and pushed Italian bond yields sharply higher.

Stephen Innes, head of Asia Pacific trading at OANDA, said in a note on Thursday that investors were taking comfort from a fresh effort to form a government in Italy, with a euro-skeptic candidate for a ministry role being asked to step aside.

“The markets have shifted from worst-case scenario to what appears to be a reversal of the recent market panic,” he said. “The markets’ doom and gloom prophecies should keep the populists at bay as they did in Greece, France and Germany.”

But he added that the Italy risk can’t be ignored.

U.S. GDP data

U.S. gross domestic product (GDP) data showed the economy slowed more than initially estimated, with growth at 2.2 percent in the first quarter, down from the preliminary estimate of 2.3 percent from the Commerce Department.

That was likely to spur expectations that the U.S. Federal Reserve might be less aggressive in raising interest rates ahead.

“Net, net, the economy continues spinning its wheels trying to gain traction after a lousy start to the year which was partly due to unseasonably cold weather. Time will tell if Fed officials maintain confidence in the economic outlook and keep with the plan to raise rates at a gradual pace,” Chris Rupkey, chief financial economist at MUFG, said in an email on Wednesday.

Rupkey noted that the Trump administration has bragged that it could achieve a 3 percent sustainable growth rate “after the biggest tax cuts ever in the history of civilization.”

Trade war

He also pointed to concerns on global trade, with U.S. exports in April declining 0.5 percent, with auto exports down 3.3 percent.

“Hopefully, our trading partners are not limiting our exports already on the talk that import tariffs might be applied to what foreign auto makers send our way,” he said.

U.S. President Trump had threatened recently to impose tariffs of as much as 25 percent on all imports of autos.

Trade tensions have re-emerged as a market worry after the Trump administration reneged on its word to put the trade war with China “on hold,” with the White House saying it would go ahead and impose a 25 percent tariff on $50 billion worth of goods from the mainland.

Oil prices

Oil got a fillip, retracing some recent losses on reports that OPEC could keep its foot on the production brake this year. Crude prices had taken a hit earlier this week on news that OPEC was considering boosting production to compensate for potential output cuts in Venezuela and Iran in the wake of new U.S. sanctions.

Nymex WTI crude oil futures for July were down 0.16 percent at US$68.10 a barrel at 8:04 A.M. SGT, off lows of around US$66.73 touched earlier this week, while ICE Brent crude futures were up 2.80 percent at US$77.50 as of 4:59 A.M. SGT, off a low of around US$75.30 earlier this week, according to Bloomberg data.

Innes said that the higher oil prices helped to boost U.S. energy sector shares.

The retracement of the selloff on Wednesday may have come as markets were distracted by the spectacle of actress Roseanne Barr blowing up her career as a series of racist and anti-Semitic Twitter comments led Disney-unit ABC television to cancel her eponymous show, potentially even before advertisers had made decisions on whether to walk away. Her short-lived contrition was followed by another series of angry tweets, blaming her comments on the sleeping pill Ambien. That led Ambien’s maker Sanofi to make the unusual public relations decision to send a Twitter message saying, “racism is not a known side effect.”