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More volatility expected with reaction to China factory data delivered yesterday.

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Local investors will have much to mull over this week, starting with worse-than-expected China factory data out yesterday. Data is coming from Europe and the United States as well, along with financial results from some major local companies.

China’s National Bureau of Statistics said yesterday that output from the nation’s factories contracted for the first time in more than two years in January. The worse-than-expected data could reinforce expectations that policymakers will roll out more aggressive measures to shore up growth.

Investors will also spend this week looking towards the United States’ January jobs report, due out on Friday. The data will likely influence how the Federal Reserve sets the timing and trajectory of US interest rate hikes. Analysts are anticipating another strong month for job creation with more than 200,000 new jobs forecast. The unemployment rate is expected to slip slightly lower than its current 5.6 per cent.

“The US labor market has been on a roll… that’s not expected to change in January. So there is increasing probability that the Fed may hike rates by June or earlier, with the more hawkish looking at April,” Phillip Futures investment analyst, Howie Lee said.

Key manufacturing data coming later this week from the US, Britain and Japan.

Analysts say US manufacturing growth for January is expected to remain strong. But the continued strength of the dollar may affect US export competitiveness, so the sector may come under pressure.

Meanwhile, Singapore’s January manufacturing data, due out tomorrow, is expected to be weak owing to a tight labor market and high business-cost environment. “But going forward, PMI readings in March should be more reflective of the benefits of a weaker Singapore dollar,” he said.

As the local corporate earnings season kicks into high gear, analysts say upcoming results are likely to be “mixed, if not on the soft side”, owing to weakness in the global economy.

“Banks are likely to do better, although the manufacturing sector may see a dip in fortunes due to the global slowdown, and the possible onset of deflation. Manufacturers may be caught in a situation where they can’t raise prices, and their level of debt isn’t moving, which will eat into profits,” Mr Lee said.

As for prospects of a pre-Chinese New Year rally? Market participants say any such upswing will likely be driven by the earnings season, which is expected to have “hits and misses”, Mr. Yong said. “Property companies are likely to disappoint, manufacturing appears mixed, but logistics and transport companies are expected to do well,” he said.

Source: The Straits Times
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