Date: April 8, 2024
- The Straits Times Index fell 0.2% in subdued trading
- Wall St stocks came under pressure from rising bond yields; 10-year Treasury now yielding almost 4.4%
- After strong jobs report, probability of June rate cut fell from 67 to 46%
- Fed officials, including chair Jerome Powell, tried to rein in rate cut expectations with their statements
- Oil prices rose to six-month high
- Singtel’s shares drop 5.1% on speculation of no Optus sale
- AEM and Seatrium are the most shorted stocks on SGX: BT report
- Taiwan earthquake to have minimal impact on Singapore semiconductor firms: BT report
- Best World minorities withdraw letter asking for EGM; exit offer made at S$2.50 per share
The STI fell 0.2% in relatively quiet trading
It was a relatively quiet week for the local stock market, with the Straits Times Index dropping just 6 points or 0.2%, closing Friday at 3,218.26.
Over the five days turnover averaged S$982m daily versus S$1.25b for the week before. Overall, it was the banks, Singtel and Jardine group of companies that contributed most to the index’s daily movements.
Wall St came under pressure from rising bond yields
On Wall Street, rising bond yields capped advances in stocks last week. The 10-year Treasury yield on Tuesday briefly rose above 4.4%, which was highest since November 2023 and as a result, the three major US equity indices fell between 0.7 and 1% that day.
The 10-year closed at 4.377% on Friday, the highest closing level for this year. Although stocks rebounded on Friday, all three major indices recorded losses for the week.
However, observers pointed out that the selloff was similar to the first quarter, when all three indexes began with a loss but later rallied. The S&P 500 went on to notch 22 record closes, the most in a first quarter since 1998.
It’s worth noting though, that traders were much more optimistic at the beginning of the year, predicting nearly six quarter-point rate cuts in 2024. The quarter also saw 10-year yields rangebound between 4.192% to 4.251%.
As of the end of March, the predictions were for only three rate cuts this year, possibly starting in June.
After Friday’s strong US jobs report, probability of June rate cut falls
According to the CME FedWatch tool, the market is pricing in a 93% chance that there will be no rate cut at the next Federal Open Markets Committee meeting on 1 May.
However, the odds of a 25-points cut in June fell from 67% on Thursday to 46% on Friday following release of a strong March jobs report.
The US added 303,000 jobs in March according to the Bureau of Labor Statistics. Economists surveyed by FactSet expected the data to show a payroll gain of 205,000 last month. The BLS reported a revised 270,000 jobs added in February.
Fed officials, including chair Jerome Powell, tried to rein in rate cut expectations
On Tuesday, San Francisco Federal Reserve President Mary Daly said the Fed’s rate cut estimates are projections, “not a promise.”
Also on Tuesday, Cleveland Fed President Loretta Mester said the “disinflation process won’t be a smooth path back to 2%’’ referring to the Fed’s 2% target rate of inflation.
On Wednesday, Fed chief Jerome Powell told the Stanford Business, Government, and Society Forum in California that the recent hot inflation and economic data “do not materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labour market, and inflation moving down toward 2% on a sometimes bumpy path.”
“Reducing rates too soon or too much could result in a reversal of the progress we have seen on inflation and ultimately require even tighter policy to get inflation back to 2%,” Powell said. “But easing policy too late or too little could unduly weaken economic activity and employment.”
The Fed’s preferred measure of inflation, the core personal consumption expenditures price index, was up 2.8% in February from one year ago, and 2.9% higher in January from a year earlier.
Oil prices rose to six-month high
On Thursday, Brent crude, the international standard for oil prices, hit US$90.93 a barrel, up 1.8% from its last close before settling at US$90.65.
West Texas Intermediate, the U.S. benchmark, rose to US$86.72, up 1.5% after staying below Wednesday’s price through the day before settling at US$86.59, the highest since 20 Oct last year.
Reports said the escalation of tensions in both Iran and Ukraine, coupled with OPEC+ confirming the continuation of production cuts until June, fuelled the gains.
Singtel’s shares lost 5.1% on speculation of no Optus sale
Singtel’s shares on Wednesday plunged S$0.11 or 4.3% to S$2.43 on volume of 67 million after The Australian newspaper that day reported that a deal for Singtel to sell a 20% stake in Optus to private equity firm Brookfield had fallen through.
In an announcement on Wed, Singtel said there is no impending deal to divest Optus, adding that Optus remains a “strategic and integral part of the Singtel group’’.
On 13 March, Singtel had denied it was in talks to sell Optus after The Australian Financial Review reported the potential buyer was Brookfield, a report which pushed Singtel’s shares up sharply.
However, despite Singtel’s denial, its shares remained elevated – at least until last week. They closed Friday at S$2.40 – a loss of S$0.13 or 5.1% for the week.
AEM and Seatrium are the most shorted stocks on SGX: BT report
On Saturday, the Business Times (BT) reported that the stocks with the highest percentage of shares lent for short-selling are currently semiconductor firm AEM Holdings and offshore marine company Seatrium.
Drawing from data provided by S&P Global Market Intelligence, BT said current short interest in AEM and Seatrium stands at 6.6 and 6.43% respectively. The remainder of the top five shorted stocks were Singapore Airlines, City Developments and Nanofilm Technologies.
According to the report, Seatrium’s shares have lost 90% since 2020. In the past six months, the counter has fallen from S$0.12 to S$0.084 now whilst short interest has risen almost 40 times to about 4.4 billion shares on loan now.
Taiwan earthquake to have minimal impact on Singapore semiconductor firms: BT report
Despite Taiwan Semiconductor Manufacturing Co (TSMC) calling a halt to some of its chip-making operations following last week’s Taiwan earthquake, Singapore-listed semiconductor firms expect minimal impact to their operations.
According to a BT report, a Frencken Group spokesperson said that the company “presently does not foresee any impact to our production, as we do not have any operations or direct exposure in Taiwan” whilst UMS’ executive director Stanley Loh told the paper that the Taiwan market accounted for under 10 per cent of the company’s total revenue in 2023.
“Over at Grand Venture Technology, a spokesperson said that the company has a supplier in Taiwan, but noted it was unaffected by the quake. The company added that it has no exposure to Taiwanese clients’’ reported BT.
TSMC is the largest manufacturer of advanced chips, with some estimates suggesting that it produces up to 90 per cent of leading-edge chips in the market. Its clients include the likes of Nvidia and Apple.
Best World minorities withdraw letter asking for EGM; exit offer made at S$2.50 per share
The shareholders who collectively hold an interest of at least 10% in beauty products distributor Best World have withdrawn their requisition letter, while reserving its right to issue the requisitions again in the future.
The Mar 21 letter served as notice requisitioning an extraordinary general meeting (EGM), or as a notice for six resolutions to be considered at the next annual general meeting, among them the removal of certain independent directors and disclosure of the recommendation of the group’s remuneration committee on the pay of its executive directors.
Separately, Best World announced it will offer S$2.50 per share to eligible shareholders in a privatisation-cum-delisting exercise via a selective capital reduction.
The offer price represents a premium of 42.9% over the last traded price of S$1.75 on Mar 21, the last full trading day prior to the delisting intention announcement on Mar 22 and a 12.6% premium over the latest closing price of S$2.22 on the day before the offer announcement.
Some 150.1 million shares of eligible shareholders, excluding the company’s major shareholders who are involved with the business, will be cancelled, subject to these shareholders’ approval at an extraordinary general meeting and the High Court’s approval of the exit offer. This will reduce the company’s shares by about 34.9% to about 280.3 million which will be held by the non-participating shareholders.
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