Fading US recession fears and 100% chance of a Sept US rate cut lifts stocks

Date: August 26, 2024

• The STI added 35 points or 1.04% to end at 3,387.99
• US Fed chairman Powell’s testimony guaranteed a Sep rate cut
• Minutes of Fed’s July meeting also point to Sep rate cut, futures market pricing in 100% probability
• SATS’s shares surged after it reported turnaround from losses to a profit
• Institutions led the buying of financials, REITs and SATS: SGX Research
• Yoma’s shares take a beating after after denying criminal proceeds from online scam centres used to fund real estate project
• Sabana REIT: Proposed internal manager directors must obtain MAS approval

 

The STI added 35 points or 1.04% to end at 3,387.99

The rebound in stocks that started a fortnight ago continued last week, led by Wall Street which appeared to have overcome its recession or hard landing fears. The recovery in the US market thus enabled the Straits Times Index to add 35 points or 1.04% at 3,387.99.

US Fed chairman Powell’s testimony guaranteed a Sep rate cut

The main external event was US Federal Reserve chairman Jerome Powell’s speech at Jackson Hole, Wyoming on Friday at which he said the Fed is ready to lower interest rates, citing a cooling labour market and inflation closing in on the central bank’s 2% annual target.

Powell is confident that Fed will successfully thread the needle and deliver a so-called soft landing for the US economy. It would be a rare feat, last seen in the 1990s. Getting there will require easing off from today’s high interest rates, Powell said.

His remarks all but confirm market expectations that the Fed will cut interest rates at the September meeting of the Federal Open Market Committee.

Minutes of Fed’s July meeting also point to Sep rate cut, futures market pricing in 100% probability

Earlier in the week, Federal Reserve officials discussed cutting interest rates in July, before voting unanimously to hold them steady, according to minutes from the central bank’s latest meeting released on Wednesday.

“All participants supported maintaining the target range for the federal funds rate at (5.25% to 5.50%,) although several observed that the recent progress on inflation and increases in the unemployment rate had provided a plausible case for reducing the target range 25 basis points at this meeting or that they could have supported such a decision,” read the minutes from the Federal Open Market Committee’s July 30-31 meeting.

“The vast majority observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting’’.

According to the CME FedWatch tool, in the futures market the odds of a rate cut in September stood at 100% on Friday – 64% that it will be 25 basis points and 36% that it will be 50 basis points.

How Wall Street fared

Treasury yields finished broadly lower, with the two-year yield dropping 9.6 basis points to finish at 3.912%, the third-lowest closing level this year.

For the week, the Dow Jones average jumped nearly 1.3%, the Nasdaq Composite added 1.4%, and the S&P 500 gained 1.5% after all three benchmark indexes gained more than 1% on Friday, and the Dow Jones and S&P scored their second-highest closes ever.

SATS’s shares surged after it reported turnaround from losses to a profit

SATS on Tuesday reported a net profit of S$65 million for the first quarter ended Jun 30, 2024, from a loss of S$29.9 million over the same period a year earlier, news which first sent its shares up S$0.11 or 3.5% to S$3.22 that day, followed by a S$0.37 or 11.5% jump to S$3.59 in high volume of 36.3m on Wednesday.

This came as revenue for the period rose to S$1.4 billion, up 15.5% from the S$1.2 billion it posted a year earlier. In its Q1 business update, the company attributed this to the growth in revenue from both its gateway services and food solutions businesses.

As revenue scaled up, the company also realised operational efficiencies, which led operating profit margin to improve from 0.7 to 8.2%. Operating profit for the quarter stood at S$112.9 million.

In the coming quarters, Sats expects to maintain its positive momentum.

“The acceleration of e-commerce, the shift to air cargo because of seaport congestion, and disruption in maritime shipping are expected to continue to underpin demand for air cargo services,” the company said.

Citi Research has reiterated its “buy” call on the counter, with a target price of S$3.76.

The company’s core net profit for Q1 made up 22% of Citi’s FY2025 estimates and 30% of consensus estimates, the research team said in a note on Wednesday.

“Sequential traffic recovery at Changi and global air freight improvements, along with Sats and Worldwide Flight Services transformation, should continue to drive earnings and share price higher,” added the analysts.

SATS finished the week at S$3.57.

Institutions led the buying of financials, REITs and SATS: SGX Research

In a 22 Aug report, SGX Research said institutions had been net buyers over the prior 4 sessions, with S$171 million of net inflow, led by Financials, REITs, and SATS.

Beyond STI constituents, stocks that contributed to the net 4-session institutional inflow included Lendlease Global REIT, NetLink NBN Trust, iFAST Corp, Keppel DC REIT, CLINT, Suntec REIT & Nam Cheong, said SGX Research.

Yoma’s shares take a beating after after denying criminal proceeds from online scam centres used to fund real estate project

Shares of Yoma Strategic crashed S$0.017 or 16.8% first thing on Monday morning to S$0.084, after it made clarifications to an article published by news agency The Irrawaddy. They eventually ended the day at S$0.092, down 8.9% or S$0.009.

The company said there are no investigations by Myanmar authorities involving the group, its directors, employees or businesses.

The article, published the previous Friday, stated that Yoma’s former executive chairman Serge Pun misused public funds and allegedly used criminal proceeds from online scam centres to invest in the expansion of Star City, a real estate project in port city Thanlyin in the Yangon region.

The news agency also said Chinese authorities asked the regime to investigate the source of funding for the expansion.

On Sunday, the Myanmar-focused company denied these allegations and said the article contained “untrue, inaccurate or misleading allegations”. It added that Star City is currently a “vibrant community” with more than 6,000 residents that has not required or received external funding in recent years.

Sabana REIT: Proposed internal manager directors must obtain MAS approval

THE trustee of Sabana Industrial Real Estate Investment Trust (Sabana REIT) said proposed candidates for directorship in the internal manager must first meet regulatory requirements.

The six candidates must be approved by the Monetary Authority of Singapore (MAS) to be appointed as directors, said HSBC Institutional Trust Services.

This came after five unitholders requisitioned the manager on Aug 12 to convene an extraordinary general meeting (EGM), at which six candidates were nominated.

The six included consultant Lim Hock Chuan; corporate finance and investment professional Bhavik Umesh Doshi; and group chief financial officer and board member of investment company Volare Group Konrad Duttwiler.

The other three were activist investor Quarz Capital’s founder Jan Frederic Moermann and director Havard Chi, as well as Saha Anshuman Manabendranath, who previously worked at IT consulting company Pan Asia Resources.

The REIT’s trustee said the EGM cannot be convened as the proposed candidates have not been approved by MAS; it also noted that the requisitionists had also not begun to seek MAS’ approval.

Citing the Securities and Futures Act, the trustee added that the new internalised manager must not appoint a person as its chief executive or director unless it has obtained MAS approval.

Any proposed candidate must also meet the relevant regulatory criteria, such as being competent and honest, and having integrity.

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