Date: September 23, 2024
- As expected, the US Fed cut rates by 50 points to 4.75-5%
- Markets rallied, STI burst through 3,600 to its highest since 2007
- Average daily volume was S$1.5b
- Key takeaways from the Fed: US inflation is down but unemployment is up
- Wall St rose to new all-time highs, Dow above 42,000 and S&P above 5,700
- No US recession on the cards: Powell and analysts
- Fed officials to speak this week, followed by Friday’s personal-consumption index
- Impact of lower US rates on Singapore expected to be positive: analysts
- Sabana REIT requisitionists dismiss trustee’s proposal, will proceed with EGM
- Lim How Teck and four other Raffles Education directors charged with disclosure breaches
The market wanted a cut and the Fed delivered
The central focus last week was the US Federal Reserve’s Open Markets Committee meeting (FOMC) meeting, at which an interest rate cut was unanimously expected, the only question being how much. Prior to Wednesday’s meeting, the futures market was pricing in a 60% chance that it would be 50 basis points.
As it turned out, the market was right – the FOMC lowered the benchmark interest rate by 50 points, to a target range of 4.75-5%, taking a more aggressive approach to a softening labour market as inflation continues to ease.
It was the first time since July 2023 that the Fed has adjusted rates and the first cut since the onset of Covid-19 in March 2020.
The outcome here was that with Wall Street rallying between Monday and Thursday, the Straits Times Index rose 62 points or 1.74% to 3,624.76. On Thursday, it closed at its highest since 2007 at 3,633.18.
Average daily volume rose to S$1.51b compared to S$1.4b the previous week.
On Wall St, the Dow crossed 42,000 and the S&P 500 rose above 5,700
It was a historic week for Wall Street, with the benchmark S&P 500 taking out and closing above the 5,700 points level for the first time ever. Meanwhile, the blue-chip Dow Jones Industrial Average surpassed and ended above the 42,000 points mark for the first time ever.
For the week, the S&P added 1.4% at 5,702.55 while the Nasdaq Composite was up 1.5% at 17,948.32. The blue-chip Dow climbed +1.6% to 42,063.36.
Key takeaways from the FOMC: US inflation is down but unemployment is up
While recent economic data points are not yet screaming weakness, Wednesday’s 50 basis-point cut indicates that Fed officials do not want to get behind the curve. With inflation fears receding and labour concerns mounting, the Fed is moving quickly to shore up economic conditions.
Fed chairman Jerome Powell noted that 14 months ago, unemployment was at 3.5% compared to the 4.3% rate logged in July. Meanwhile, inflation is now 2.5%, down from the 3.3% year-over-year rate in July 2023.
No US recession on the cards: Powell and analysts
So, with inflation receding and unemployment on the rise, Powell said it was time to ease monetary policy to take those changes into account. But he said he didn’t see elevated risks of a recession in the near future.
“Recent data, such as retail sales, the recent GDP report, and unemployment claims suggest an economy that is moderating, but is far from a recessionary trajectory,” wrote Rick Rieder, BlackRock’s chief investment officer of global fixed income and head of the BlackRock global allocation investment team in a report in US newspaper Barron’s.
He noted that the Fed clearly wants to reduce restrictiveness but isn’t concerned about an aggressive slowdown in economic growth, or an excessive deterioration in its full-employment objective.
Wednesday’s half-percentage-point rate reduction likely means that additional cutting is on the agenda for the November FOMC meeting. It would be “odd” for the Fed to cut aggressively in September and then take the next meeting off, said Ryan Sweet, chief US economist at Oxford Economics in the same Barron’s report.
According to the CME FedWatch tool, the market is now pricing in a 48.6% chance of a 25-basis points rate cut at the next FOMC meeting in November and 51.4% that it will be 50 points. In other words, the market is 100% sure there will be another rate cut, the only question being how much.
Fed officials to speak this week, followed by Friday’s personal-consumption index
The market will face another major test next week when a gauntlet of Federal Reserve officials are set to make public appearances. Wall Street will get a better idea how more voting members view the path forward for interest rates. There will also be a wave of economic data, which will be capped off a week from today with the personal-consumption expenditures price index.
Impact of lower US rates on Singapore expected to be positive: analysts
DBS Bank economist Chua Han Teng was quoted by the Straits Times as saying: “The US Fed’s outsized 50-point start to its monetary easing cycle should preserve the resilient external demand conditions that Singapore’s small and open economy is exposed to.”
Mr Chua Hak Bin, regional co-head of macro research at Maybank, said there was now a possibility of an upside surprise with GDP growth coming in above 3 per cent in the third quarter.
“The economic recovery remains intact, supported by strengthening global electronics and semiconductor demand,” he said. He said Fed rate cuts will add to the tailwinds, driving financial and property transactions.
Maybank’s Mr Chua said the Singapore stock market may reach new highs, given the dominance of high-yield stocks, real estate investment trusts and dividend income plays – all sensitive to interest rates.
Ms Lorraine Tan, director of Asia equity research at brokers Morningstar Research, said a larger rate cut may see a bigger initial positive reaction, mainly for dividend yield and interest rate sensitive plays, such as consumer cyclical, real estate, biotech and technology stocks.
“But I think that it should have minimal sustained impact, given that the normalisation in US interest rates is largely factored into company valuations,” she noted.
Sabana REIT requisitionists dismiss trustee’s proposal, will proceed with EGM
The requisitionists of Sabana Industrial Real Estate Investment Trust (Sabana REIT) will proceed with an extraordinary general meeting (EGM) to vote on proposed internal manager directors. This came days after the trustee, HSBC Institutional Trust Services, asked the requisitionists to postpone the EGM and to withdraw their amended resolutions as they lack clarity.
The requisitionists said that they would hold the meeting by Oct 12. However, they noted that they are willing to delay the latest date for the meeting to Oct 19.
This is to allow the candidates chosen by the trustee to be considered at the same EGM so as to save costs for unitholders.
The elected directors will be subject to approval from the Monetary Authority of Singapore (MAS). Additionally, the requisitionists said that they will not change the amended resolutions as suggested by the trustee as they believe their resolutions “provide clear directions”.
Lim How Teck and four other Raffles Education directors charged with disclosure breaches
Corporate figure Lim How Teck and four fellow directors of Raffles Education including chairman-cum-chief executive Chew Hua Seng, were charged on Friday with breaching disclosure obligations under the Securities and Futures Act.
Lim, Chew, Ng Kwan Meng, Ho Yan Jun, and John Teo Cheng Lok face two charges each.
The two disclosure charges stem from a loan of about RM416 million (S$125.3 million) extended by Affin Bank to the private education provider’s subsidiaries – Raffles K12 and Raffles Iskandar – which manage schools in Malaysia.
The Raffles Education group was first served legal letters in February 2021; the lawsuit filed by Affin Bank followed in May 2021, asking for immediate repayment of the loan. However, this was disclosed to shareholders only two months later, on Jul 29, at the request of the Singapore Exchange.
Lim resigned as chairman of Temasek-backed Heliconia Capital, months after the 73-year-old was arrested in February 2022 over the alleged disclosure breaches. Both he and Ng, 67, are independent non-executive directors; the 61-year-old Ho is a non-independent, non-executive director while Chew, 70, is controlling shareholder and founder of Raffles Education.
Teo, 74, stepped down as an independent, non-executive director in July 2021, having served on the board since October 2008, a period of more than 12 years.
The company’s shares were halted from trading before the announcement. They last traded at S$0.046.
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