Monthly Market Wrap: Turmoil, then recovery as STI first fell below 3,200 then closed at 3,442.93

Date: September 2, 2024

• On Aug 5, worries of a US hard landing sent stocks plunging
• The Straits Times Index closed at a month-low of 3,198 on 6 Aug
• US futures market priced in a 50% chance that Fed would cut rates by 50 points at Sep meeting
• Release of benign US economic data helped stocks rebound, as did minutes of July Fed meeting and Powell’s Jackson Hole comments
• Market now pricing in 30% chance of 50-points cut, 70% it will be 25 points
• STI closed month with 0.37% loss at 3,442.93, aided by month-end push
• July’s inflation data was benign, suggested Fed is on track to meet 2% inflation target
• Cordlife can resume some services; substantial shareholder decided not to increase its stake
• DBS announced Tan Su Shan as next CEO in signal of continuity
• SATS’ profit turnaround meant its shares jumped 11.3% in August
• Nvidia’s shares take a beating despite company beating earnings expectations

 

A bad start, but an eventual rebound

The month got off on a bad footing when US economic data indicated the possibility that the economy could be headed for a hard landing. With worries abounding that the US Federal Reserve might too late with its interest rate cuts, US stocks suffered a large blowout that spread to the rest of the world – on 5 Aug, the Straits Times Index plunged almost 138 points or 4.1% while Japan’s Nikkei 225 recorded its worst-ever single-day fall of 12.4%.

At the time, the futures market started pricing in an increasing probability that the Fed would cut interest rates by 50 basis points at its September policy meeting, with some observers speculating that there could even be an emergency cut before September.

At its highest, the probability of a 50-basis points cut rose to around 50% but this started to fall barely a week later when all those worries were forgotten, as benign economic data brought back the “risk-on’’ plays which have driven Wall Street to multiple all-time highs this year.

In the futures market, the probability that rates would be lowered by 50 points started to dwindle, settling at 30% on Friday. Instead, the market is 70% certain that the cut will be only 25 basis points.

Also helping calm frayed nerves during the month was release of the minutes of the Fed’s July Federal Open Markets Committee (FOMC) meeting which showed that the committee was heavily in favour of reducing rates in September, followed by statements from Fed chair Jerome Powell at the annual economic summit in Jackson Hole which later reaffirmed that stand.

The STI first fell below 3,200 but closed at 3,442.93 – a loss of 0.37% for Aug

As a result, the Straits Times Index, which closed at 3,198 on 6 Aug, rebounded strongly. As the month progressed, it regained the 3,200, 3,300 and then 3,400 levels, aided in no small part by month-end “portfolio rebalancing’’ on Friday, the last trading of the month which benefited several index components such as Singtel and the banks.

Friday’s 38.46 points jump to 3,442.93 meant that for the week, the index rose 55 points or 1.6%. However, it wasn’t enough to ensure a positive showing for the month; for Aug, the STI recorded a 13-points or 0.37% loss.

Friday’s jump came with 1.38b units worth S$2.04b traded, versus 965m worth S$1.01b on Thursday. Singtel’s S$0.11 or 3.64% surge to S$3.13 came with 153m shares done, versus 61m on Thursday.

Latest inflation data was benign, suggested Fed is on track

The July inflation data released Friday morning showed price growth remains on the path back to the Federal Reserve’s target of 2%, adding to the case for cuts to interest rates in Sep.

Both the overall PCE price index and the core reading, which excludes food and energy prices, rose 0.2% in July. The soft price growth continues a recent stretch of cooler inflation readings and falls in line with what Fed officials were hoping to see before easing their restrictive monetary-policy stance.

For the week, the S&P 500 climbed 0.2%, while the blue-chip Dow advanced 0.9%. The tech-heavy Nasdaq Composite slipped 0.9%.

Cordlife can resume some services; substantial shareholder decided not to increase its stake

Cord-blood bank Cordlife will be allowed to resume cord-blood banking services “in a controlled manner” from Sep 15, the Ministry of Health (MOH).

However, to safeguard the interest of its customers, it will not be allowed to collect, test, process and/or store more than 30 units of new cord blood each month, from Sep 15 to Jan 13, 2025, said the ministry.

In an earlier announcement, Cordlife’s substantial shareholder Nanjing Xinjiekou has called off plans to buy over the remaining shares of the embattled cord-blood bank as the current circumstances may present risks that are not aligned with its investment criteria and business strategy.

However, Nanjing Xinjiekou, which owns a 20.3% stake in Cordlife as at Mar 20, 2023, remains “fully committed to leveraging on its expertise and resources to help the company navigate through its current challenges and rehabilitate the group’s business”.

Earlier in the month Cordlife reported a net loss of S$12.4 million for the six months ended Jun 30, compared to a net profit of S$2.2 million year on year.

This came as revenue fell 67.5% to S$9.2 million from S$28.3 million in the previous corresponding period, largely due to the suspension of the group’s Singapore activities.

SATS’ profit turnaround meant its shares jumped 11.3% in August

Airport services and airline caterer SATS was one of the STI’s better performers after it 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.

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.

Over the month, SATS’s shares gained S$0.37 or 11.3% at S$3.65.

DBS announced Tan Su Shan as next CEO in signal of continuity

DBS announced that the board has appointed Tan Su Shan as deputy CEO, in addition to her present role as group head of institutional banking. She will succeed Piyush Gupta as CEO when he retires at the next annual general meeting on Mar 28, 2025.

Tan will be DBS’ first female chief executive, and the first home-grown staff member hired from internally to take the helm at the bank.

Maybank said she had been a frontrunner for the position and that the appointment signals continuity and stability given she is already a major contributor to the Group’s current culture and business mix.

“Driving growth in North Asia amidst a structural slowdown, pursuing new growth in India and staying the course on capital returns should be key priorities, we believe’’ said Maybank.

“Given the extended transition period and Tan’s extensive experience working with Gupta for 14 years at DBS (and before DBS at Citi), we view Tan as a continuity candidate,” said Lorraine Tan, director of Asia equity research at Morningstar.

Nvidia’s shares take a beating despite company beating earnings expectations

Artificial intelligence (AI) giant Nvidia’s shares first fell 2.1% on Wednesday after the company reported earnings for its second quarter ended 31 July 2024, followed by a further 6.4% to US$117.59 on Thursday.

Nvidia’s second-quarter adjusted earnings of 68 US cents a share beat Wall Street estimates of 65 US cents, and revenue of US$30 billion more than doubled from a year earlier and topped forecasts of US$28.7 billion.

Gross margin in the period was 75.1%, up from 70.1% a year earlier but down from 78.4% in the first quarter. Nvidia issued a third-quarter revenue forecast range with US$32.5 billion at the midpoint, which was above consensus of US$31.7 billion.

Nvidia also said it plans to ramp up production of its Blackwell chip in the fourth quarter and expects to ship “several billion dollars” in Blackwell revenue in that period. In addition, Nvidia’s board approved an additional US$50 billion buyback of stock.

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