Weekly Market Insights: Debt Ceiling Clock is Ticking

Major stock market indices saw slight declines on Friday, with the S&P 500 decreasing by 0.1% and the Nasdaq 100 sliding by 0.2%. Investor confidence was dampened by reports of Republican negotiators exiting debt ceiling discussions during the day. Within the S&P 500, the consumer discretionary, communication services, and financial sectors performed poorly, while energy, healthcare, and materials sectors showed gains.

What you need to know

Debt ceiling negotiations between Democrats and Republicans faltered on Friday while President Biden was attending the G7 leaders’ summit in Japan. US House Speaker Republican Kevin McCarthy stated that he did not see progress in the President’s absence, and the White House “moved backwards”. Statements from Democrats also indicated that the negotiations were heading in the wrong direction, with Republicans’ demands shifting further to the right.

With the risk of default re-emerging, Treasury Secretary Yellen reiterated that 1st June is the “hard deadline” for the US to meet its financial obligations, and the chances of reaching 15th June (when additional tax revenue is due) before running out of money are quite low. As both sides aim to maximize their gains from the deal, there is a lingering risk that the talks will be extended until the last minute, potentially resulting in a liquidity crunch. This suggests the need for downside protection.

What’s happening in Singapore

OCBC reported earnings for 1Q23 that exceeded market expectations. Stronger net interest margins (NIMs), improved trading performance, and lower provisions contributed to the positive results. However, rising funding costs and limited loan growth opportunities may lead to a negative trajectory for NIMs. Fee income, particularly from wealth management, could partially offset these challenges. On the other hand, benign credit quality conditions are likely to face pressure in the current slower-growth, high-interest-rate environment, potentially leading to higher credit charges.

Netlink’s FY23 profit after tax increased by 19.7% YoY to SGD109.3m, surpassing or meeting MIBG/consensus expectations, accounting for 102%/101% of the respective FY23 forecasts. Despite recent stock price weakness due to the market awaiting the IMDA pricing review outcome, NetLink Trust remains as a defensive shelter amid macroeconomic uncertainty, given its strong earnings visibility and stability.