Date: June 14, 2021
- US inflation – is it a problem or not?
- So far, Wall St seems to think any inflation is only “transitory’’ as S&P closed week at new record high;
- Bond market shares same view that inflation is not a problem – 10-year Treasury yield down to 1.45%;
- Fed to meet next week but no changes expected;
- STI gained 6 points over the week at 3,157.97;
- Singapore to ease curbs;
- Hyflux’s judicial managers said Utico’s offer has no impact on liquidation plans;
- Local economy on track for 6% growth this year despite heightened alert: OCBC;
- SGX’s securities turnover up 11.5% in May
US inflation – problem or not?
US inflation concerns have gripped Wall St over the past several weeks with investors wondering whether inflation is simmering beneath the surface and if it is, when the US Federal Reserve might raise interest rates.
These concerns have spilled over here and have led to bouts of volatility as the market tries to balance hopes of a strong recovery from the slowdown caused by COVID-19 against the prospect of higher interest rates – provided of course, inflation is really present.
US inflation has become a hot topic in the past few months thanks to a hot economy that is reopening after an accelerated vaccination programme and with trillions of fiscal stimulus dollars in the hands of consumers. Not surprising, a hot economy translates into a hot stock market, with the S&P 500 already up 14% for the year to date.
Wall St believes inflation is transitory, no Fed action expected next week
Thus far there is no consensus on whether inflationary pressures really are building – the data which has been released has not been conclusive either way although the Fed has hinted over the past few weeks that it might start tightening sooner rather than later.
However, no action is expected at next week’s Open Markets Committee meeting over Tuesday and Wednesday.
The concern is that the Federal Reserve would respond to the inflation by reducing the size of its bond-buying program, which would lower bond prices and lift yields, a negative for stock valuations.
So far, inflation is still being viewed by investors as “transitory” , and so has been shrugged off by markets, especially Wall St. Transitory inflation means prices are rising over depressed levels seen during lockdowns last year, while companies grapple with supply-chain constraints, but only for the near term.
S&P 500 set two all-time highs last week
On Thursday and Friday , the S&P 500 closed at new all-time highs despite May’s consumer price that was released on Thursday rising faster than expected. The 10-year Treasury yield, which often rises with inflation, fell to 1.45%, far below its recent high of 1.75%.
These are counterintuitive responses because the data did indicate stronger inflation: Excluding volatile food and energy costs, prices rose 0.7% in May. That was the second-highest monthly increase in consumer prices since the early 1980s, behind April’s 0.8% rise. Compared with last year, when the global economy was mired in a pandemic-driven slowdown, headline consumer prices rose at a headline rate of 5%.
“Strength was again largely led mostly by ‘transitory’ components’’ Citigroup economist Andrew Hollenhorst was quoted as saying in US newspaper Barron’s, a reflection of the prevailing consensus view.
With no real clarity on the inflation front – or at least the perception being that it is benign and transitory for the time being – trying to establish definite direction for the market is difficult and this was evident in last week’s movements, when the Straits Times Index was equally likely to weaken at any given point in time as it was to strengthen. The net result was a disjointed week during which the index rose about 6 points or 0.2% at 3,157.97.
Singapore to ease curbs
Despite a relatively nondescript week the local market did get a bit of a lift on Thursday when the STI added 9.03 points at 3,162.5 after the Government announced Singapore will exit Phase 2 (Heightened Alert) from Monday onwards and that vaccinations will be extended to citizens aged 12 to 39.
Utico said it wants to save Hyflux; JMs said Utico’s offer has no impact
Borelli Walsh (BW), the judicial managers of failed water treatment firm Hyflux said last week that the offer by Utico to save Hyflux that was reported last Monday has no impact on BW’s winding-up application.
Headquartered in the United Arab Emirates, Utico’s chief executive was reported in the Business Times to have tabled a rescue offer, while saying “liquidation should be the last option’’.
According to the BT report, Utico’s latest offer would see Hyflux’s senior creditors receive five cents on the dollar, while retail investors in the preference shares and perpetuals would get four cents.
BW said on Thursday that Utico remains unable to meet the minimum conditions required to consider an offer, just as it was when earlier discussions were terminated.
UOB’s sustainability moves
Local broker Maybank Kim Eng in a note said it recently hosted an investor call with UOB’s Chief Sustainability Officer Eric Lim. “UOB is positioning its strategy to leverage its balance sheet together with advisory, wealth and solutioning capabilities to support customers transition to sustainable opportunities’’.
“UOB is also transforming culturally within the organisation as it looks to build a sustainable growth strategy that serves all stakeholders. This should drive long-term competitive advantage for UOB, we believe. In the near term, an improving operational outlook and potential provision write backs should drive earnings momentum. Maintain Buy’’. The broker’s target price for UOB is S$29.34.
Full-year growth of 6% still possible despite heightened alert: OCBC
OCBC in its global outlook report released last week said despite tightened restrictions in May and June the momentum of Singapore’s growth could stabilize in the second half and that it expects the full-year figure to be 6% year-on-year or even higher. The floor to its forecast is 5.5% even after taking into account the Phase Two Heightened Alert measures.
SGX securities turnover up 11.5% in May
Total market turnover on SGX in May rose 11.5% to S$30.3b compared to May 2020. The figure was also 12.2% better than April’s S$27b.
The rise was thanks to optimism of a sustained economic recovery despite inflation concerns, said SGX. Securities daily average value rose 5.6% to S$1.59b. The exchange noted that the STI continued to outpace the FTSE All World Index on a year-to-date basis, generating a total return of more than 13% despite falling 1.7% over the month.
