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Weekly Market Commentary

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by Asiasons WFG

Trading Week: December 12-16

As we have expected, the cheers from the European Summit on local stock market was short-lived. Market rebounded on Monday after the European leaders had agreed to new fiscal accord as well as adding EUR200 billion to fight the debt crisis, but fell for the next three days before recovering slightly on Friday.

For the week, the benchmark FSSTI fell 35.38 points or 1.3 per cent to close at 2,659.22. Market activities slowed further with average daily turnover value dropped below S$800 billion.

Global markets fell in line with concern over the European debt crisis. Hong Kong Hang Seng Index fell 300.84 points or 1.6 per cent to close at 18,285.39. Over the Pacific, the Dow decreased 317.87 points or 2.6 per cent to close at 11,866.39, despite having better than expected job numbers

Outlook for Trading Week: December 19-23

Euro-area finance ministers are to meet with International Monetary Fund Monday afternoon on additional aid to the current debt crisis as well as forming new budget rules. With majority of Asia markets down this morning, including Singapore’s, investors are sceptical about any positive outcome from this afternoon’s meeting. Moreover, investors have to worry about a possible downgrade of France’s sovereign debts, after rating agency Fitch reduced its outlook to negative last week.

The common sense solution for any debts problem is to reduce spending. However, if reduced spending could potentially lead to slower or even negative economic growth, things become more complicated. Lower spending leads to lower income, hence the budget may not get better.

Moreover, rating could be lowered due to a weaker economy. A better solution could be combining austerity with increasing money supply (or quantity easing). As long as we do not see any sign of quantity easing from European Central Bank (ECB), investors should remain cautious about the market.