Fed's caution sparks flight to safety

Investor sentiment turned jittery again with investors bailing out after the United States Federal Reserve cautioned against weaker growth and the disruption of Brexit.

As expected, no rate hike was announced at the Fed's two-day meeting but its US growth forecast was slashed from 2.2 per cent to 2 per cent.

Fed chair Janet Yellen warned that there are headwinds hitting the US economy while Britain's June 23 referendum on whether to remain in the European Union may lead to "consequences for economic and financial conditions in global financial markets".

These words of caution spooked investors, sent oil prices down and pushed gold prices up to their highest in almost two years.

"There is very strong risk aversion in the market right now, given that Brexit is just around the corner. Because of these concerns, oil as a growth-related commodity will take a notch down," OCBC economist Barnabas Gan told The Straits Times.

Brent oil futures have dropped for the sixth straight session since retaking the US$50 a barrel level last week and are now around US$48.

"Conversely, gold has been quite stellar in its performance. Should Brexit become a reality, gold prices may even rise further," Mr Gan added.

The price of gold, widely regarded as a safe asset in times of uncertainty, shot through the US$1,300 level yesterday for the first time since August 2014.

The flight to safety meant that regional stock markets were hammered. Shanghai dropped 0.50 per cent, Hong Kong lost 2.10 per cent, Tokyo closed down 3.05 per cent and Kuala Lumpur shed 0.80 per cent.

Singapore's benchmark Straits Times Index (STI) pared 22.69 points or 0.82 per cent to 2,751.56. Across the Singapore market, $868.4 million worth of shares were traded.

Of the 30 STI constituents, 22 ended in the red, with Golden Agri-Resources down 1.5 cents or 4.11 per cent to 35 cents, while Sembcorp Industries dropped eight cents or 2.84 per cent to $2.74.

In the offshore and marine sector, Sembcorp Marine closed down four cents or 2.52 per cent to $1.55, and Keppel Corp tumbled 10 cents or 1.86 per cent to $5.29. Ezra Holdings, outside the STI, shed 0.4 cent or 5.13 per cent to 7.4 cents with 65.6 million shares traded, making it yesterday's top active counter.

Notwithstanding the recent volatility, the stabilisation of oil prices necessary for these stocks to avoid further selldown is still questionable.

Banking stocks, a weathercock for economic growth and interest rate movement, were also down yesterday. DBS closed down 14 cents or 0.89 per cent at $15.61, United Overseas Bank dropped 19 cents or 1.05 per cent to $17.95, and OCBC pared 10 cents or 1.18 per cent to $8.35.

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