Close to peak interest rates

There is much optimism amongst stock market investors, especially after the US Fed paused on its interest rate hikes this week.

Despite signalling that there might be two further rate hikes later this year, investors were quick to sense that the end of this rate hike cycle might be near. 

This drove a rally in tech stocks, with the share prices of Nvidia and Microsoft reaching new all-time highs.

There was also improved sentiment towards the Chinese market as a series of interest rate cuts led to expectations that China will be coming up with more measures to stimulate its economy. 

We analyse what this means for your investments and the upcoming T-bill auction. 

If you are keen to learn more about how to position your portfolio and manage your personal wealth in the second half of the year, sign up for the iFast Mid-Year Review on 8 July 2023. 

 ✋ FINALLY A PAUSE

What happened? 

The US Federal Reserve has kept its interest rates unchanged, pausing on the significant hikes we have seen over the past year.

What does this mean?

For the first time since early 2022, the Fed has left interest rates unchanged. As a result, the benchmark federal funds rate remains at 5% to 5.25%.

While the Fed has paused on its rate hikes for now, Fed Chairman Jerome Powell suggested that we might see another two more rate hikes this year.

Investors are now forecasting that the earliest that we might see a rate cut will be in 2024.

Why should I care? 

With the Fed not expected to cut interest rates this year, US government bond yields have remained high.

However, with the expectation that we might be close to peak interest rates,  the S&P 500 has rebounded more than 20% from its October low.

Read our full analysis of what it means for your savings and investments here

🚗 WHAT'S MOVING

• AMD said it would start shipping its most advanced GPU for artificial intelligence to some customers later this year.
• UBS completed the acquisition of Credit Suisse in the largest banking deal since the 2008 global financial crisis. The transaction will create a global wealth management giant which will oversee US$5 trillion of assets.
• AIMS APAC REIT opened its preferential offering allowing entitled unitholders the right to buy 35 new units at S$1.189 each for every 1,000 units held. Read our analysis here. 
• Singapore Airlines and Scoot served 2.8 million passengers in May, a 66% increase compared to the previous year amid “strong demand for air travel”.
• SATS has announced a new streamlined organisational structure where it will have three main business segments. It will also adopt a global model for operating and managing its gateway services business lines.

Source: Bloomberg, CNBC, Financial Times, Business Times, Edge Singapore

💡 THE BIG IMPORTANT STORY

Will the T-bill yield fall with the Fed pause on rate hikes?

The yield on Singapore 6-month T-bill has been steady after the US Fed's decision to keep interest rates unchanged.

🤓 WHAT WE’RE LOOKING OUT FOR THIS WEEK

• Monday, 19 June: US markets closed for holiday, STI review effective date
• Tuesday, 20 June: Listing of CSOP iEdge Southeast Asia + TECH Index ETF
• Wednesday, 21 June: Fed Chairman Jerome Powell testifies to House panel
• Thursday, 22 June: Singapore 6-month T-bill auction, AIMS APAC REIT preferential offering closing date

Source: Bloomberg, SGX 

🍭 THAT’S INTERESTING

At least 83 Indonesian companies have swung by 1,000% or more from peak to trough in the past three years, according to data compiled by Bloomberg. This represents about 10% of total stocks listed, a higher proportion compared to Singapore, Thailand and Malaysia. Known as “deep-fried” shares by local traders, these stocks often have concentrated ownership, low trading volume, limited analyst coverage and higher valuation than peers. 

Source: Bloomberg