Date: September 9, 2024
- The Straits Times Index added 12 points or 0.3% at 3,454.47
- Global markets were spooked by weak US manufacturing report
- On Wall Street, Nvidia crashed 9.5% on Tuesday
- In indifferent August jobs report sent US stocks down on Friday
- All 3 major US indices lost ground over the week
- Market now looking to Wednesday’s US Consumer Index
- Probability of 50-points hike first rose to 50% but fell to 30% on Friday
- US Treasury yield curve un-inverts, leading to hope of no recession
- CICT to buy 50% of Ion Orchard for S$1.85b from sponsor CLI; analysts positive
The STI managed a 12-points rise to 3,454.47 despite US economic worries
It was mixed week for the local market with the momentum from the previous week first boosting the index to a week-high closing of 3,480.34 on Tuesday before worries of a US economic slowdown surfaced again following the release of a weak manufacturing report.
This led to a sharp selloff on Wall Street on Tuesday, which was aggravated by a 9.5% crash in the main artificial intelligence (AI) play Nvidia whose market capitalization fall of US$279b that day was the largest one-day loss for any US company on record.
As expected, the Straits Times Index responded with a sharp fall of about 39 points or 1.12% on Wednesday, though this was relatively better than the 4.2% fall in the Nikkei 225, the 4.5% drop in Taiwan’s Taiex and the 3.2% loss in South Korea’s Kospi the same day.
As the week progressed, some semblance of stability returned to the US market, thus helping the STI to recover some lost ground. As of Friday’s close, the index stood a nett 12 points or 0.3% better off for the week at 3,454.47. Average daily volume was in line with recent turnover done in recent weeks at S$1.19b.
How Wall Street fared – all major indices lost ground over the week
The benchmark S&P 500 (SP500) on Friday plunged to its worst weekly performance since early March last year, driven by concerns over economic growth after a slew of soft data during the week, especially on the labour market.
The hotly-anticipated August jobs report was supposed to swing market expectations one way or the other on the size of the expected Federal Reserve interest rate cut later this month, but it ended up sparking a debate instead.
Data from the Bureau of Labor Statistics showed a rebound in hiring last month, with little in the report to suggest an imminent recession. The U.S. economy added 142,000 jobs in August, compared with the downwardly revised July total of 89,000. The unemployment rate more-or-less held steady at 4.2%.
According to most analysts, policymakers likely would have needed to see further deterioration in the labour market to merit a more aggressive half-point cut at their September policy meeting.
The attention now turns to next Wednesday’s consumer inflation report for further clues. Economists expect the core inflation rate to be up 0.2% month-over-month and 3.2% year-over-year.
For the week, the S&P 500 slumped 4.3%, while the Nasdaq Composite plunged 5.8%. The blue-chip Dow Jones Industrial Average lost 2.9%.
Futures probability first favoured a 50-points cut, then down to 25
In the futures market, the probability that the Federal Reserve will cut interest rates at its 18 Sep meeting by 50 basis points started to inch upwards from 30% at the end of August, to 37% on Tuesday, then 47% on Thursday.
However, following the release of the jobs report, the chance of a 50-points cut later this month ended the week at 30%, with a 70% probability that it will be 25 basis points.
US Treasury yield curve un-inverts, suggesting a recession may be avoided
Since July 2022, investors have been experiencing an anomaly known as an inverted yield curve where longer-term debt has offered lower yields than shorter one and one that traditionally has signalled an impending recession.
An inversion tends to prompt banks to tighten lending standards and investors usually become more cautious about making long-term commitments with their money.
Out of the six recessions the U.S. has faced since 1980, five were preceded by a yield-curve inversion of at least 20 days. The sixth, the 2020 downturn that resulted from Covid-19, also followed an inversion, though that was shorter, at only six days in August 2019.
This time, the yield curve has been inverted for a record 793 days or about 26 months, and there still hasn’t been a recession.
Last week, watchers saw the so-called yield curve “uninvert” on Thursday briefly, after similar moves on Wednesday and on Aug. 5, thus prompting hope that the bond market at least, is signalling that a recession might be avoided.
As of Friday, the 2-year Treasury yielded 3.65% whilst the 10-year’s yield was marginally higher at 3.71%.
CICT to buy 50% of Ion Orchard for S$1.85b from sponsor CLI; analysts positive
CapitaLand Integrated Commercial Trust (CICT) is proposing to purchase a 50% interest in Ion Orchard and its connecting underpass, Ion Orchard Link, from its sponsor CapitaLand Investment (CLI).
Based on 50% of the agreed property value, which amounts to S$1.85 billion, the total outlay for the deal is estimated to stand at S$1.1 billion after also factoring in transaction-related expenses, as well as adjustments for 50% of a secured bank loan taken out by Ion Orchard.
CICT said it intends to finance the transaction with net proceeds from a private placement and pro-rata non-renounceable preferential offering to raise gross proceeds of at least S$1.1 billion.
The issue price for both parts of the fundraising exercise is estimated to fall between S$2.038 and S$2.091 for each private placement unit, and S$2.007 for each preferential unit.
We expect more transactions, including both acquisitions and divestments, in the coming months as interest rates decline,” said Darren Chan, a senior research analyst at Phillip Securities Research.
Xavier Lee, an equity analyst at Morningstar, said Ion Orchard is “easily” one of the most expensive malls in Singapore by net lettable area. At S$3.7 billion, it is valued higher than other large malls such as VivoCity (S$3.4 billion) and Suntec City Mall (S$2.4 billion).
The deal comes at an “opportune time” with rate cuts on the horizon, said RHB analyst Vijay Natarajan in a research note on Wednesday. The US Federal Reserve is expected to cut interest rates later this month. “The Reit’s enhanced size, Singapore focus and improved liquidity post-acquisition will help to propel CICT’s share price further,” he added.
Morningstar’s Lee was also positive about the acquisition, noting that it would expose CICT to the luxury retail segment in Singapore. Moreover, Ion Orchard will benefit from the ongoing recovery in Singapore tourism. Its prime location means it will outperform its retail competitors on Orchard Road, he added.
Investing with Insight: Watch this Week’s Technical Outlook
