(May 6): The US central bank is keeping rates steady, with Federal Reserve chairman Jerome Powell saying he sees no immediate need to move interest rates either higher or lower, and that the Fed is watching for a rebound in persistently sluggish inflation.
On May 1, it kept the target range for the benchmark federal funds rate unchanged at 2.25% to 2.5%, which is where the rate has been since December. It made a “technical tweak” to one of its key rates to ensure borrowing costs remain where it wants them to stay.
Powell said “solid fundamentals” are supporting the US economy and argued that temporary factors might be holding down inflation. Powell and his colleagues in the Federal Open Market Committee are under intense pressure from President Donald Trump to ease borrowing costs to keep growth firm as the US heads for its longest--ever economic expansion.
Although the Fed ended last year signalling it would continue raising rates to ensure the economy does not overheat, many investors are now forecasting a rate reduction, with traders betting on a downward move before the end of the year.
Headline US GDP growth remains strong, at an annualised 3.2% in 1Q, and some of the overseas risks that have nagged at policymakers in recent months appear to have diminished, particularly in China. Following the rocky end to 2018, US equity markets are again at record highs.
UOB senior economist Alvin Liew says there is “little incentive” for the Fed to shift from the current patient approach, given the more optimistic US growth numbers but continued disappointment in inflation. He expects the next move by the Fed to be a rate cut in 2020.
Active Singapore stocks
No Signboard Holdings CEO Lim Yong Sim was arrested on April 30 on “reasonable suspicion” of breaching the Securities and Futures Act. Lim, whose grandmother founded the seafood restaurant chain, has since been released on bail, but his passport has been retained. Announcing this in a statement on May 2, the company added that its chief financial officer Voon Sze Yin, too, had been interviewed by the Commercial Affairs Department (CAD).
The suspected breach is in connection with an abortive share buyback in February this year, in which shares were purchased at a price above the permitted level and during a blackout period. The company says Lim has not been charged and that business will continue as usual. Shares in No Signboard closed on May 2 at 8.3 cents, down 2.35% for the day. When news of CAD’s probe was announced on April 29, the share price dropped from 8.4 cents to 7.7 cents.
Southeast Asia’s largest bank DBS Group Holdings reported a surprise increase in 1Q profit, with gains in lending and trading income offsetting a decline in wealth management fees. Net income for the quarter climbed 9% y-o-y to $1.65 billion.
Though fees from the bank’s wealth management business decreased, the bank saw an 11% y-o-y jump in assets under management, thanks partly to net inflows of customer money. About $1 billion of the rise in DBS’s wealth assets in 1Q came from net new money, says CEO Piyush Gupta, and the bulk of the $10 billion increase reported for the quarter came from rising financial markets. The only “caveat” in an otherwise healthy performance was the net shrinkage in DBS’s mortgage book, which was affected by rising interest rates and last year’s round of property curbs. DBS shares closed at 27.60 on May 2, down 2.3% for the day.
Meanwhile, Singapore’s office market is seen to gain growing investors’ interest. Debt-laden developer Oxley Holdings announced the sale of a building for $365 million more than what it paid for less than two years ago. Oxley agreed to sell the 32-storey Chevron House in the CBD to Golden Compass (BVI) for $1.025 billion in cash and assumed debt. The property, which comprises 27 levels of office space and a five-storey retail podium, was bought by Oxley for $660 million.
The deal is the latest sign of strength in Singapore’s commercial property market, where office rents climbed to a 10-year high in 1Q2019. Rents are expected to rise 10% this year, following a jump of 12.4% in 2018, according to Bloomberg Intelligence. Oxley has been selling assets to reduce leverage. As at Dec 31, 2018, Oxley had total debt of $3.9 billion and cash and cash equivalents of $248.5 million. Oxley shares closed at 32 cents on May 2, 2019, down 1.54% for the day.
Yangzijiang Shipbuilding has been downgraded from an “add” to “hold” by broker CGS-CIMB, premised on the lack of catalysts and valuations above its own average despite a good set of 1Q results. The broker says relative to Singapore yards, Yangzijiang’s balance sheet is strong, with cash and cash equivalents of RMB6.6 billion ($1.3 billion) and scope for mergers and acquisitions or investment in R&D. The firm’s net profit of RMB824 million for 1Q2019, up 38% y-o-y, was also higher than the broker’s forecast. Yangzijiang has built up an order book of 101 vessels worth US$3.5 billion ($4.8 billion), which provides earnings visibility into FY2020. On May 2, Yangzijiang shares closed unchanged at $1.57.
Sheng Siong Group was upgraded by Phillip Securities to “buy” from “accumulate”, with an unchanged price target of $1.30. The supermarket operator had performed better than expected in 1Q, with sales growth of 10.1% y-o-y, above the 7% Phillip Securities expected. Sheng Siong had also secured three new stores this month that will boost its total store footprint by 3%.
However, as with the previous quarter, same-store sales are a weak spot, having contracted 1% y-o-y during the quarter. Operating expenses have also trended higher, at 17.7% of sales, above the 17.5% seen. But Phillip Securities says it is positive on the outlook due to growth in the retail space this year and an expected higher sales per square feet. Sheng Siong shares closed at $1.04 on May 2, up 0.97% for the day.
Upcoming earnings results
The earnings season continues this coming week. On May 6, OKP Holdings will be reporting. The following day, it will be Halcyon Agri Corp, World Class Global, Boardroom and First Ship Lease Trust. On May 8, QAF, Centurion Corp, Kimly, Sinwa, Penguin International and Lafe Corp will be reporting.
On May 9, OUE Commercial REIT, Frencken Group, Hock Lian Seng Holdings, ISEC Healthcare, Valuemax Group, IX Biopharma, Maxi-Cash Financial Services Corp and Nordic Group will be reporting. May 10 will see results from NSL, Chuan Hup Holdings, BRC Asia, Elec & Eltek International Co, Pan-United Corp, Alliance Mineral Assets, Wee Hur Holdings and JB Foods.
