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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 6 Dec 2019, 9:18 AM

 

PublicInvest Research Headlines - 23 Aug 2019

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Economy

US: Factories show signs of trouble; labor market still firm. Activity is contracting in the US manufacturing sector but the number of Americans filing applications for unemployment benefits fell last week, signs that factories are suffering from a global slowdown even as the broader labor market remains healthy. IHS Markit said its Flash Purchasing Managers’ Index (PMI) for manufacturing fell to 49.9 earlier this month from 50.4 in July, pointing to a contraction in the sector for the first time since Sept 2009. Readings below 50 point to reductions in activity and the August data could heighten fears the US economy is on track to slip into recession, dragged down by economic weakness overseas and an escalating trade war with China. Its surveys also pointed to slowing growth in the US service sector. (Reuters)

US: Leading economic index climbs more than expected in July. A report released by the Conference Board showed its reading on leading US economic indicators rose by much more than anticipated in the month of July. The leading economic index climbed by 0.5% in July after edging down by 0.1% in both May and June. Housing permits, unemployment insurance claims, stock prices and the Leading Credit Index were the major drivers of the improvement. However, the manufacturing sector continues exhibiting signs of weakness and the yield spread was negative for a second consecutive month. The leading economic index suggests the economy will continue to expand in the 2H of 2019 but noted it is likely to do so at a moderate pace. The coincident economic index rose by 0.2% for the second consecutive month. (RTT)

US: Weekly claims drop more than expected to 209,000. First-time claims for US unemployment benefits fell by much more than expected in the week ended Aug 17th, according to a report released by the Labor Department. The initial jobless claims dropped to 209,000, a decrease of 12,000 from the previous week's revised level of 221,000. Economists had expected jobless claims to dip to 216,000 from the 220,000 originally reported for the previous week. Meanwhile, the less volatile four-week moving average inched up to 214,500, an increase of 500 from the previous week's revised average of 214,000. The continuing claims, a reading on the number of people receiving ongoing unemployment assistance, tumbled by 54,000 to 1.67m in the week ended Aug 10th. The four-week moving average of continuing claims slipped to 1,697,000. (RTT)

US: Sales of previously owned homes rise to five-month high . Sales of previously owned US homes increased in July to a five-month high, underscoring stability in the residential real estate market that may be starting to get a boost from falling borrowing costs. Contract closings rose 2.5% to a 5.42m annual rate, the National Association of Realtors said. That compares with the median forecast of 5.40m pace projected by economists. The median sales price increased 4.3% from a year earlier to USD280,800. Declining mortgage rates, smaller annual home price gains and robust labor conditions are laying the ground for a pickup in sales in 2H19. At the same time, the market is being constrained by a shortage of inventory at the lower end of the market, likely limiting sales to first-time buyers. (Bloomberg)

US: 30-year, 15-year mortgage rates fall to lowest since Nov 2016 - Freddie Mac. Borrowing costs on US 30-year and 15-year fixed-rate mortgages fell to their lowest levels since Nov 2016, in line with the recent decline in bond yields because of trade and recession fears, Freddie Mac said. Last week, the yields on 10-year Treasury notes briefly dipped below those on two-year notes US2US10=TWEB for first time in a dozen years. The “curve inversion” among these two debt maturities has often preceded prior US recessions. This market phenomenon touched off a fresh wave of buying in US Treasuries, sending 30-year yields US30YT=RR to record lows. The decline in mortgage rates is expected to help home sales and to stoke refinancing, putting more cash into consumers’ pockets. (Reuters)

EU: ECB policymakers saw need for stimulus package. The ECB policymakers supported the proposal to design a stimulus package for the euro area as growth is likely to be weaker than earlier forecast, minutes of the July 24-25 Governing Council meeting showed. The view was expressed that the various options should be seen as a package, i.e. a combination of instruments with significant complementarities and synergies, since experience had shown that a policy package such as the combination of rate cuts and asset purchases was more effective than a sequence of selective actions. In the July session, the ECB left its interest rates unchanged and altered its forward guidance to signal that they will be reduced in future. Members broadly supported the reintroduction of an easing bias to the Governing Council's forward guidance on interest rates. (RTT)

EU: Private sector logs subdued expansion in Aug. The euro area private sector growth improved unexpectedly in Aug from a three month-low, but the overall pace of expansion remained subdued amid Germany facing a risk of recession, a closely watched survey showed. The IHS Markit flash composite output index rose unexpectedly to 51.8 in Aug from 51.5 in July. Economists had forecast a score of 51.2. Nonetheless, the reading was one of the weakest in six years. The survey revealed a wide divergence in performance between the manufacturing and service sectors. The services PMI modestly improved to 53.4 from 53.2 a month ago, while it was expected to ease to 53.0. At the same time, the manufacturing sector remained in the negative territory in Aug. The indicator fell to 47.0 versus 46.5 in July. (RTT)

UK: British retail sales fall at fastest pace since 2008 - CBI. British retailers reported the sharpest decline in sales volumes and orders since 2008, the Distributive Trades Survey from the Confederation of British Industry showed. About 10% of respondents reported that sales volumes were up on a year ago in Aug, while 58% said they were down, giving a balance of -49%. A net 10% expects sales volumes to fall at a slower pace next month. Further, a balance of 57% reported a fall in orders in Aug, the biggest decline since Dec 2008. Orders are forecast to fall again next month. Retailers expect the biggest deterioration in business conditions since Feb 2009 in months ahead. About 2% of respondents expect the business situation to improve over the next three months, with 27% expecting a deterioration, giving a rounded balance of -25%. (RTT)

Indonesia: Unexpectedly cuts key interest rate for second month. Indonesia's central bank unexpectedly slashed its key interest rate for a second straight month in Aug. The Board of Governors, led by Governor Perry Warjiyo, decided to reduce the 7-day reverse repo rate by 25 basis points to 5.5%. Economists had expected the rate to remain unchanged. The previous change in the rate was a quarter-point reduction in July, which was the first cut since Sept 2017. Both the deposit and lending rates were reduced to 4.75% and 6.25%, respectively. The current policy is consistent with low inflation forecasts that are below the midpoint of the target and continues to give attractive returns on investment in domestic financial assets to foreign investors. The rate cut is also a pre-emptive measure to cushion the impact of the global economic slowdown on the economic growth. (RTT) 

Markets

ARB: Seals RM84m per year contract with Cambodian firm. ARB has signed a contract with a Cambodia agriculture products firm to provide an enterprise resource planning (ERP) system. ARB said the contract with Tatan Land Co Ltd is expected to contribute an estimated USD20m (c.RM84 million) to the group’s topline per year. ARB will provide a customised ERP system and system integration solution (SIS) to TLCL. The system's features include real-time sales tracking, real-time sales and inventory, inventory management, warehousing, and logistics optimisation, the group said. The one-year contract can be renewed automatically when TLCL achieves the agreed target of USD20m in gross merchandise value. (The Edge)

Gas Malaysia: Perak natural gas project to be completed mid- 2020. About 77% of Perak’s natural gas pipeline project, which stretches for 140 km from Ayer Tawar, Manjung to Lembah Kinta has been completed, and is expected to be ready by the middle of next year. Gas Malaysia CEO Ahmad Hashimi Abdul Manap said so far, six factories in Perak had benefited from the project. “We hope to get up to 40 industry customers. The most important thing is the completion of the project,” he said. Nihon Canpack is one of the companies which had benefited from the natural gas pipeline project. (The Edge)

Tasco: Well prepared for good or bad effects of US-China trade war. Tasco is well prepared for the impending effects, both negatively or positively, of the US-China trade war, said its group MD Freddie Lim Jew Kiat. “We are prepared if the volume suddenly comes in. In the event that there is a surge, we are prepared to cater for the surge. But if there is a drop, we are also able to cushion the loss because we do not run all our businesses by ourselves. We have partners who we can cut off to reduce our loss,” he said. However, Lim pointed out that Tasco has not felt the disruption on its business due to the trade war. (The Edge)

Tropicana: Higher progress billings keep Tropicana 2Q earnings steady. Tropicana said higher progress billings across some of its on-going projects boosted its results in 2QFY19. Net profit improved to RM39m compared with RM38mil made a year ago. Revenue rose 6.4% to RM299.5m, the company said. "Moving forward, the group remains well positioned to deliver sustainable earnings performance with unbilled sales standing at healthy level of RM830.6m," it said. This is anchored by 14 on-going projects and strategic approaches to unlock the value of over 1,071 acres of prime landbank in locations such as Klang Valley, Genting and southern regions with potential GDV of RM48.6bn. (StarBiz)

Kelington: 2Q profit up 15%, proposes one sen dividend. Kelington Group’s 2QFY19 net profit rose 15.89% YoY to RM5.1m, thanks to higher contribution from its Singapore and Malaysian operations, which more than offset the decline from China and Taiwan. EPS for 2QFY19, however, fell to 1.71 sen from 1.79 sen previously. The group has proposed a first interim dividend of one sen per share, unchanged from last year. Kelington’s 2QFY19 revenue rose 6.56% to RM95.08m. Singapore operations’ contribution rose 73% to RM68.94m, mainly supported by the three fold increase in the process engineering segment there. (The Edge) 

Market Update

The FBM KLCI might open flat today after US stocks were mixed overnight as Federal Reserve officials cast doubts on further rate cuts and a reading on domestic manufacturing stoked concerns over the health of the economy. The S&P 500 ticked 0.1% lower after drifting between gains and losses, with investors turning their attention to the central bank’s annual summit where Chairman Jay Powell will speak on Friday. The Nasdaq Composite was down 0.4%, while the Dow Jones Industrial Average rose 0.2% on a rally in shares of Boeing. Central bankers from around the world have descended on Jackson Hole, Wyoming, for a policy symposium that is closely watched by investors seeking clues on monetary policy. Market participants are looking for the Fed to follow its July rate cut with another one in September, but at the start of the Jackson Hole gathering on Thursday, Philadelphia Fed President Patrick Harker and Kansas City Fed President Esther George indicated in television interviews that they would not back further cuts. In Europe, the FTSE 100 fell 1.1% and the Stoxx 600 index nudged 0.4% lower.

Back home, the FBM KLCI index gained 7.88 points or 0.49% to 1,602.7 points on Thursday. Trading volume increased to 2.04bn worth RM1.75bn. Market breadth was negative with 382 gainers as compared to 401 losers. The regional markets also finished mixed with the Shanghai Composite gained 0.11%, the Nikkei 225 rose 0.05% while the Hang Seng lost 0.84%.

Source: PublicInvest Research - 23 Aug 2019

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