TRADERS appear to be betting on US Federal Reserve chairman Ben Bernanke announcing a third round of "quantitative easing" or QE3 this week. This was apparent from yesterday's action, during which the Straits Times Index (STI) rose 16.05 points to 3,014.80 in tandem with a 1.3 per cent gain for Hong Kong's Hang Seng Index and a mildly firm opening Europe-wide.
Turnover, however, was low and heavily concentrated in low-priced issues, as was evident from the volume figures - excluding foreign currency issues, there were 2.8 billion units worth $1.3 billion traded for an average of 46 cents per unit. The day's most active counters were the shares and warrants of Elektromotive, both costing below 0.5 cent. Others from the segment that saw plenty of activity were HLH at 2.8 cents, MDR at 1.1 cents and GSH Corp at 9.6 cents.
Index stocks responsible for pushing the STI above the 3,000 level included Jardine Cycle & Carriage, Jardine Matheson and UOB. F&N and its unit Asia-Pacific Breweries (APB) also rose sharply following news that OCBC Bank and its subsidiary Great Eastern have been approached to sell their entire F&N and APB stakes.
In its daily notes yesterday, DBS Group Research, which has regularly discussed how weak the US economy really is notwithstanding the occasional positive headline figure, said the latest retail sales figures corroborate its expectation of only one per cent GDP growth quarter-on-quarter.
"But we have been looking for 2.2 per cent full-year average growth in 2013 and the numbers coming in aren't pointing to anything like that at the moment," said DBS.
"On the contrary, negative growth in retail sales makes positive growth in consumption overall difficult to attain. With business investment growth close to zero and government spending contracting, outright recession looks more and more possible."
In a separate report, DBS said it has downgraded its US growth forecast for 2012 and 2013 to 1.8 per cent for both years.
Financial research firm IDEAglobal said that Mr Bernanke's semi-annual testimony is keenly awaited especially after recent mixed economic data.
"Bernanke knows the value of QE3 expectations in supporting the market and should emphasise that the Fed stands ready to act should the economy warrant it," said IDEAglobal.
"Nevertheless, the underlying data picture has not deteriorated sufficiently for Bernanke to drop heavy hints of early QE3 implementation and the 2nd Operation Twist is only just underway. This suggests that the market should take Bernanke positively, but not sufficiently to trigger a major adjustment to risk positions."
In its July 13 Global Economics Weekly, Bank of America-Merrill Lynch noted that the Fed remains very concerned about the downside risks to the outlook, as revealed in the June Federal Open Market Committee meeting minutes.
"While just two Fed officials favoured easing last month, several others indicated they would support additional action if the outlook deteriorated further," said the bank. "We expect that, by September, the Fed will push out its forward guidance until at least mid-2015 and start a US$500 billion QE3 programme."