Quiet week as US debt ceiling talks continue to take centrestage

Date: May 29, 2023

  • The STI added just 5 points or 0.16% at 3,207.39
  • Stalled US debt ceiling negotiations continued to hog the headlines
  • Fitch Ratings issued warning on US debt
  • Singapore’s April factory output down 6.9%, 7th straight month of decline
  • MTI said technical recession not likely but private sector thinks otherwise
  • S&P downgraded SingPost’s credit rating
  • Singtel reported 14% rise in annual profit to S$2.2b
  • Fed minutes showed officials uncertain whether to raise rates, but…
  • Latest US inflation data has raised the chance of a 25-points rate hike in June to 71%


An uninspiring week for the local market

US government debt ceiling negotiations dragged on last week, capping gains on Wall Street and around the globe. The Straits Times Index rose for two days and fell for three, eventually recording a net gain of just 5 points or 0.16% at 3,207.39 for the week. The bulk of the gains came from the banks and Singapore Airlines, the latter continuing its revival after recently reporting record profits.

Average daily volume amounted to a low S$926m versus S$1.02b the previous week.

Factory output down 6.9% in April, seventh consecutive month of contraction

Factory output fell 6.9 per cent year on year in April, after falling a revised 3.8 per cent in March, according to data released by the Economic Development Board on Friday. The drop was worse than the 4.5 per cent contraction forecast by analysts in a Bloomberg poll.

Excluding volatile biomedical manufacturing, production shrank 6.1 per cent.

The linchpin electronics cluster, which accounts for 45 per cent of Singapore’s export-driven manufacturing sector, saw output drop 8.7 per cent in April from a year ago.

Technical recession not likely says MTI, but private sector economists think otherwise

The Singapore economy recorded a 0.4% expansion year-on-year for the first quarter ended 31 March, slowing from 2.1% growth in the previous quarter said the Ministry of Trade and Industry (MTI). It added that the economy is expected to expand by 9.5-2.5% in 2023, with growth likely to come in the mid-point.

MTI also said it does not expect a technical recession this year, defined as two consecutive quarters of sequential contraction. “But obviously, given the downside risks and the weakening outlook, we cannot rule out the possibility that there could be come quarters of negative quarter-on-quarter growth this year. But again, that is not our baseline’’ said MTI’s chief economist Yong Yik Wei.

However, the Business Times quoted Maybank economists Chua Hak Bin and Lee Ju Ye saying they “are less optimistic than MTI and see the economy stagnating rather than rebounding in the coming quarters’’.

They added that Singapore may slip into a technical recession if the boost from China’s reopening fails to materialise in the second quarter, saying “the return of China tourists has been more a trickle than a flood’’.

UOB senior economist Alvin Liew was quoted in the same report as saying there is a “still substantial risk’’ Singapore will suffer a technical recession.

“The export outlook remains dire, and we expect more pronounced contractions for a few more months of NODX (non-oil domestic exports) before improving in the later part of H2’’ he said.

S&P downgraded SingPost’s credit rating to “BBB’’

S&P Global Ratings on Tuesday last week downgraded its long-term issuer credit rating on Singapore Post to “BBB” from “BBB+”, as weakness in the group’s post and parcel segment may be more prolonged than previously anticipated.

The move comes five months after the credit rating agency revised its outlook on the postal service provider to “negative” from “stable”, in view of “intensifying structural hindrances” to the segment and potential sustained earnings weakness.

S&P noted in its latest report that SingPost, through its FMH and CouriersPlease businesses, has been focusing more on the Australian logistics market, which is viewed as more competitive compared with SingPost’s traditional postal operations.

Singtel reported 14% rise in net profit for the year to S$2.2b

Singtel reported a 14 per cent jump in full-year net profit as its core businesses benefited from a recovery in international travel and roaming as well as rising 5G adoption.

The company also recorded robust mobile growth and price lifts supported by increased demand for information technology and communication services.

South-east Asia’s largest telecom firm said net profit for the year ended 31 March was S$2.23 billion, compared with $1.95 billion a year ago. Analysts were expecting $2.26 billion, according to Refinitiv.

For the second half ended March, the telco posted a 6.1 per cent rise in earnings to S$1.1 billion from S$994.5 million in the year-ago period.

Singtel has proposed to pay a final dividend of 5.3 cents per share. Including the interim dividend of 4.6 cents per share, total ordinary dividends come to 9.9 cents per share. This makes for a payout ratio of 80 per cent of underlying net profit.

On Friday, Singtel’s shares dropped S$0.06 to S$2.47 on volume of 42m.

Fitch issued warning on US debt

After months of debate over the debt ceiling, Fitch Ratings last week issued a warning about U.S. debt, putting the country’s top-rated bonds on “Rating Watch Negative.”

“The Rating Watch Negative reflects increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit despite the fast-approaching x date,” Fitch wrote in a press release late Wednesday, referring to the 1 June deadline for a deal to be reached.

However, it added that it expects “the US country ceiling to remain at ‘AAA’ even in the scenario of a debt default’’ adding that the US dollar is the pre-eminent world’s reserve currency, and it “views the risk of exchange and capital controls as de minimis’’.

Fed minutes showed officials uncertain about the need for more rate hikes

Minutes from the May US Federal Open Markets Committee meeting showed that Fed officials were uncertain about the need for further rate hikes moving forward.

“In discussing the policy outlook, participants generally agreed that in light of the lagged effects of cumulative tightening in monetary policy and the potential effects on the economy of a further tightening in credit conditions, the extent to which additional increases in the target range may be appropriate after this meeting had become less certain,” the minutes read.

Latest US data suggest another rate hike in June, probability now 71%

The government’s personal-consumption expenditures price index, released Friday morning, showed that prices rose 0.4% in April on a month-over-month basis, slightly more than anticipated by the consensus forecasts of economists surveyed by FactSet. The annual headline inflation rate rose to 4.4% from the 4.2% rate recorded in March, the Bureau of Economic Analysis reported.

On Thursday, the CME FedWatch Tool showed that the probability of the Fed keeping rates unchanged at its June meeting was 42%. However, on Friday after release of the latest data, this dropped to 29%, which means the market now expects a 71% likelihood of a 25-basis points rate hike next month.

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