Date: October 9, 2023
- Surging bond yields in the US and Europe sent the STI down 1.3% to 3,174.39
- Volume remained low, daily average was S$898m
- Silver lining: Rising bond yields may mean Fed won’t need to hike again
- US September jobs report suggests Fed may hold rates steady in Nov
- After Sep jobs report, probability of Nov rate hike down from 14 to 11%
- VTAC is the first local SPAC to “de-SPAC’’
- DBS, OCBC & UOB averaged 6.9% returns in 3Q: SGX Research
- More Thai SDRs to list here
- Advanced Holdings replied to SGX query on failed EGM proposal
Rising bond yields took their toll on stocks
A spike up in US Treasury bond yields sent Wall St stocks diving last week, taking with them markets around the world. Here, the Straits Times Index fell about 90 points or 2.8% between Monday and Wednesday before rebounding on Thursday and Friday.
However, the gains over these two days were not enough to move the index into positive territory, it ended the week a nett 43 points or 1.3% lower at 3,174.39.
Volume remained low with turnover last week crossing the S$1b mark only on Wednesday, when S$1.25b was done on a day when the STI suffered its largest fall for the week, down about 45 points or 1.4%. Average daily volume for the five days amounted to S$898m.
The Dow slipped 0.3% this week, while the S&P 500 and the Nasdaq Composite finished up 0.5% and 1.6%, respectively.
Bond yields are rising all over the world
Bond prices have been falling – and yields rising – since the US Federal Reserve decided last month at its Federal Open Markets Committee (FOMC) meeting to keep interest rates steady but predicted that interest rates would stay higher than previously thought.
After that FOMC meeting, traders now see the Fed cutting rates to only 4.7%, from the 5.25- 5.5% currently, up from the 4.3% they anticipated in late August.
This is compounding worries about the fiscal outlook following a US credit rating downgrade in August by Fitch, citing high deficit levels. Highly indebted Italy raised its deficit target last week.
Higher deficits mean more bond sales just as central banks offload their vast holdings, so longer-dated yields are rising as investors demand more compensation.
Over in the US, the 30-year Treasury yield reached 5% for the first time since August 2007. The 10-year Treasury also fell, driving its yield up to 4.9%, another 16-year high, before ending the week at 4.8%.
Higher yields aren’t confined to the US. The German 10-year yield topped 3% for the first time since the Eurozone debt crisis in 2011. The 10-year yield in the United Kingdom rose as high as 4.65% on Wednesday.
The spike in borrowing costs has been rattling investors and sending stocks lower. Higher yields make it more expensive for companies and households to borrow money. Those tighter financial conditions will weigh on company earnings and economic growth.
Rising bond yields suggest Fed may not need to hike rates: Fed official
If the current economic conditions remain on track, the Fed could potentially avoid lifting interest rates further, as the climb in rates on long-term Treasuries is largely doing the central bank’s job for it, Mary Daly, the San Francisco Fed president, said Thursday in an appearance at the Economic Club of New York.
“If we continue to see a cooling labour market and inflation heading back to our target, we can hold interest rates steady and let the effects of policy continue to work,” said Daly, who is currently a nonvoting member of the Federal Open Market Committee but will be a voting member next year.
“If financial conditions should remain tight, well then the need for us to take further action is diminished because financial markets are already moving in that direction and they’ve done the work—we don’t need to do it more,” she said.
US September jobs report suggests Fed may hold rates steady in Nov
On Friday, Wall St rallied after news that the US economy added 336,000 jobs in September, more than double the level economists had expected and underscoring just how much strength remains in the labour market despite the Fed’s cooling measures.
Job growth for both July and August was also revised upward, showing a combined 119,000 more jobs had been created than previously reported.
Despite the overwhelming strength, however, September’s data reflected notable cooling in an area on which the Fed has been most focused: wages. Average hourly earnings rose 0.2% in September, coming in 0.1 percentage point below expectations and matching the pace set in August.
That was the mildest monthly gain in earnings in nearly a year and a half, since February 2022, and it brings wages down to their slowest annual growth rate in more than two years, since June 2021.
Probability of a rate hike in Nov now only 11%
According to the CME FedWatch Tool, the probability of a 25-basis points at the next Federal Open Markets Committee meeting has fallen to 11% from 14% the week before.
VTAC is the first local SPAC to “de-SPAC’’
Special purpose acquisition company (SPAC) Vertex Technology Acquisition Company (VTAC) last week became the first of three SPACs listed here to “de-SPAC’’ when it announced a proposed business combination with Taiwanese livestreaming operator 17Live.
The combination will value the business at S$1.2 billion, with a purchase consideration of S$925.1 million, subject to financial targets being achieved.
VTAC will allot up to 160.6 million new shares at S$5 each, amounting to S$803 million, to 17Live’s shareholders. If 17Live hits the financial target set, an earnout of 24.4 million new shares at S$5 each will be allotted to applicable shareholders, amounting to S$122 million.
Private investment in public equity (PIPE) funding will be raised, and VTAC will make further announcements when there are material developments.
A SPAC is sometimes known as a “blank cheque company’’ as it is a shell company that raises funds from the public with the aim of buying a business later.
VTAC was the first SPAC to list in Singapore, going public in January 2022. The other two, which also listed in Jan 2022, are Pegasus Asia and Novo Tellus Alpha Acquisition.
Founded in 2015, 17Live operates the top Internet live-streaming platform by revenue in Japan and Taiwan. It also has a regional presence in Singapore, the Philippines and Malaysia. As at June, it has contracts with roughly 87,000 live-streamers.
The content on 17Live spans music, games, education and fashion, among others. Live-streamers on the platform interact and socialise in real time with users, who can send virtual gifts, which results in successful monetisation.
DBS, OCBC & UOB averaged 6.9% returns in 3Q: SGX Research
n its 4 Oct Market Update, SGX Research said the trio of DBS, OCBC and UOB averaged 6.9% total returns in 3Q23, while the combined average daily turnover of the trio decreased by 9% from 2Q23.
“By the same impetus of high Fed Fund rates for longer in 2024, the iEdge S-REIT Index declined 4.2% in total return in 3Q23, with the combined turnover also declining 9%’’ said SGX Research.
“In 3Q23, the STI generated a 2.1% total return, marginally outpacing the FTSE ASEAN Extended 60 Index with a 1.1% total return and FTSE APAC Index with a 1.1% decline in total return. During 3Q23, Brent Crude Oil gained 27% to US$95 per barrel, while expectations were anchored to the Federal Reserve keeping rates higher for longer in 2024. This saw both Energy and Bank Sectors lead the global stock market in 3Q23’’.
More Thai SDRs to list here
The Straits Times on Friday reported that Phillip Securities is looking to bring in seven more Thai companies under the Singapore Depository Receipt (SDR) scheme in the first quarter of 2024 to go with the three that listed here in May when the scheme was launched.
According to the report which quoted a Singapore Exchange (SGX) spokesman, the three, Airports of Thailand, CP All and PTT Exploration and Production, have recorded “consecutive months of investor net inflows’’ whilst the value of all trading activities in the three hit nearly S$13m in the past four months.
PTT Exploration and Production, which is the largest listed petroleum exploration and production company in Southeast Asia, has been the most heavily traded, followed by CP All which operates Thailand’s largest convenience-store chain under the 7-Eleven brand, and Airports of Thailand which is the country’s largest airports operator.
Advanced Holdings replied to SGX query on failed EGM proposal
Engineering firm Advanced Holdings on Thursday replied to an SGX query as to why its proposal to reduce its capital and return cash to shareholders failed to be approved at its 29 Sep Extraordinary General Meeting (EGM), and why its managing director, Dr Wong Kar King, voted against it.
The company said that just before the EGM, Dr Wong “was made aware of certain business and / or investment opportunities and had preliminary discussions to explore these opportunities, which would require capital’’.
“Given the impending EGM date, Dr Wong did not have the latitude to analyse and review such opportunities in full and Dr Wong took the view that it is in the best interests of the Company to retain the capital until these opportunities can be fully analysed and/or reviewed by management and/or its advisors and discussed by the Board. Retaining the capital in the Company would thus provide more options than proceeding with the Cash Distribution, which remains an option should there be no conclusive outcome on the other opportunities’’.
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