Falling oil and commodity prices ease inflation worries – for now

Date: July 12, 2022

  • The STI rose 36 points or 1.1% to 3,131.26 over the week
  • The rise came in tandem with Wall St’s gains
  • A dip in oil below US$100 per barrel and falls in most other commodities helped ease inflation concerns
  • Fed minutes, though hawkish, were said to contain nothing new
  • The US Treasury yield curve inverted again after release of strong June jobs report
  • Singapore was most defensive developed market in 1H: My Gateway
  • Tech sector was worst performing; Utilities and telecoms were best
  • Privatisation offer for TTJ extended to 22 July
  • Asean CPO stocks take beating as crude palm oil (CPO) price dives
  • Aspial to inject local jewellery business into subsidiary Maxi-Cash

The STI managed to regain the 3,100 mark with a 36-pts or 1.1% rise

A dip in oil below US$100 per barrel and a fall in general commodity prices eased some of the recent inflation worries and helped the Straits Times Index rise 36 points or 1.1 % to 3,131.26 over the week.

Average daily volume traded was a weak S$891m, ranging from a low of S$761m on Monday to a high of S$1.06b on Wed, the only day of the week that volume crossed S$1b.

Throughout the week traders kept a firm eye on the Dow Jones Industrial Average futures for clues as to how Wall St might perform in the session ahead. The STI’s largest gain came on Wednesday following a strong session for the Dow futures during Asian trading hours that later translated into 347 points rise in the Dow to 31,384.

A fall in oil and other commodity prices eased some inflation fears

Some of the rise in US stocks was attributed to a drop in commodity prices, most notably oil, which dipped below US$100, albeit mainly on worries that a global recession would weigh on energy demand.

Those same recession concerns have also dragged commodities such as natural gas, copper, cobalt, nickel, palm oil and cotton down to multi-month lows. Fears of a recession have gripped the global community over the last couple of weeks as inflation soared, and central banks looked at hiking interest rates to rein the price rise.

Overall, the dip helped eased inflation worries, and by extension, interest rate concerns.

The Fed minutes didn’t say anything the market didn’t know

On Wednesday, stocks rose despite the release of the minutes of the US Federal Reserve’s June 14-15 meeting that showed growing anxiety over inflation and plans to adopt a restrictive policy stance in order to cool rapidly rising prices.

The minutes revealed that members of the Federal Open Market Committee, the Fed’s policy-setting arm, agreed in June that a rate increase of 0.5 percentage point or 0.75 percentage point would likely be appropriate in July after they agreed to a 0.75-percentage-point hike in June.

“Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist,” the minutes say.

Traders have priced in about a 90% chance of a 0.75-point increase in July, and the minutes should do nothing to change that expectation.

According to most reports, the reason stocks rose after release of the minutes was that they didn’t say anything new.

The US Treasury yield curve inverted again

On Friday, news of a better-than-expected US jobs report for June pointed to a strong economy and revived worries of a hawkish Fed. The 2-year Treasury yield, which attempts to forecast the level of the Fed funds rate a couple of years from the present, climbed from around 3.0% just before the jobs report to 3.12%.

The 10-year yield rose from just under 3% before the report to 3.1%. That “inverted yield curve” where the longer-dated yield is lower than the shorter-dates one means that markets see the Fed’s plan to rapidly hike rates as potentially damaging to inflation but also economic growth.

Singapore was the most defensive developed benchmark in 1H: My Gateway

The Singapore Exchange’s investor education portal My Gateway last week reported that for the first half of 2022, the STI generated a 1.4% total return, ranking as the most defensive developed economy benchmark for the six months, with the FTSE All World Index and FTSE Developed Index logging declines in total return of 17.2% and 17.9%.

The tech sector was the first half’s worst performer

“The Technology Sector was the worst performing sector of the Singapore stock market in 1H22, and also booked the highest net institutional outflows proportionate to market capitalisation’’ said My Gateway.

“Combined, the five most traded Technology stocks listed on SGX, Venture Corporation, AEM Holdings, UMS Holdings, Frencken Group and Nanofilm Technologies International averaged 27% declines in total return in 1H22’’.

Utilities and telecoms were the first half’s best performers

On the other hand, Utilities and Telecommunications booked the highest net institutional inflows proportionate to market capitalisation in 1H22. “Sembcorp Industries and Keppel Infrastructure Trust generated respective total returns of 44% and 8% in 1H22, while Singapore Telecommunications generated a 9% total return, and NetLink NBN Trust was unchanged on a total return basis’’.

TTJ Holdings’ privatisation offer extended to 22 July

THC Venture, which is an investment holding company held solely by TTJ Holdings’ executive chairman Teo Hock Swee, last week said it is extending its privatisation off for TTJ from 8 July to 22 July.

The offer is S$0.23 per TTJ share which the independent financial adviser Zico Capital has said is not fair and not reasonable and that shareholders should reject the offer.

THC Venture has said it does not intend to raise the offer price. As of the date of the announcement last Thursday, THC held about 88.7% of TTJ versus the 90% that it needs.

Asean crude palm oil (CPO) stocks battered as palm oil price dives

Region-wide, falling palm oil prices have battered crude palm oil (CPO) stocks. In a Thursday news report, The Business Times said the 22 stocks listed in Singapore, Indonesia and Malaysia have all dived in the two months since 29 April by 4.8 to as much as 35%.

CGC-CIMB in a 5 July report noted that the bulk of spot CPO price declines took place on 10 June, when Indonesia provided more clarity on its export process when it replaced the export ban with the domestic market obligation.

“We are of the view that to clear the excess stockpile, Indonesia’s palm oil producers will need to entice buyers by lowering CPO prices – causing local and international CPO prices to fall significantly in recent weeks’’.

In Singapore, CPO stocks are Bumiputra Agri, First Resources, Global Palm Resources, Golden Agri Resources, Indofood Agri Resources, Kencana Agri, Mewah International and Wilmar International.

Aspial to consolidate local jewellery business under Maxi-Cash

The mainboard’s Aspial, which is controlled by the Koh family, plans to inject its local jewellery retailing business into its pawnbroking subsidiary Maxi-Cash in a deal worth up to S$99.8m.

As part of an S$87.8m base consideration for the jewellery assets, Maxi-Cash will issue 311.7m new shares at S$0.163 each for a total of S$50.8m. The other S$37m comprises cash and a debt settlement of S$22m.

Assuming the transaction has been completed on 1 Jan 2021, Aspial’s loss per share would have been S$0.0012 from a loss of S$0.0002 before. Earnings per share for Maxi-Cash however, would have increased from S$0.0139 to S$0.0195.

Aspial’s shares ended flat on Friday at S$0.098 whilst Maxi-Cash’s shares rose S$0.002 to S$0.16.