Economy

US: Regulators, wary of risks, want more bond market data. Two years after the most abrupt bond-trading disruption in recent memory, US regulators appealed on Monday for a clearer view of trading in the vast Treasury market so to better understand what causes such shocks and to understand looming risks. The USD13.6trn market for US government debt is the world's deepest, drawing investors globally to its ultra-safe assets that serve to backstop other more risky activities. But the mostly electronic market shocked traders and supervisors alike when on Oct 15, 2014 bond prices swung wildly within minutes for no apparently reason. (Reuters)

US: Fed's Evans sees three rate hikes by end of 2017. The US central bank will raise its policy rate three more times by the end of next year, one of the Federal Reserve's most vocal policy doves said on Monday, as long as inflation expectations and the labor market continue to improve. “My growth forecast is such that I can imagine that appropriate policy would have three rate increases" by the end of 2017, Chicago Fed President Charles Evans said. "I suppose I've probably got ... three (rate hikes) priced in between now and the end of next year." (Reuters)

EU: Euro zone inflation outlook still in the balance: ECB's Hansson. The outlook for euro zone inflation still hangs in the balance, ECB rate setter Ardo Hansson said on Monday, adding it was too early to discuss a possible extension of the ECB's money-printing program. The ECB will decide on the future shape and duration of its EUR80bn (USD87bn) monthly bond-buying scheme in Dec, when it publishes new inflation and growth forecasts. Hansson, the Estonian governor who has sometime sided with the hawkish members of the ECB's Governing Council, said it was still too early to draw any conclusion on the outlook for inflation. (Reuters)

EU: Euro-area economy gathers momentum as price pressures increase. Euro-area economic momentum accelerated to the fastest pace this year, adding to evidence that growth is becoming more resilient. A PMI for manufacturing and services rose to 53.7 in Oct from 52.6 in Sept, IHS Markit said. This is the fastest pace since the beginning of 2016. The currency bloc’s recovery has continued at a steady if slow pace in the face of headwinds ranging from the UK’s vote to leave the European Union, slowing global trade and political uncertainty fueled by an upsurge of populist movements. (Bloomberg)

EU: Euro-area deficit falls to eight-year low as prospects brighten. Budget deficits in the euro area narrowed to an eight-year low in the second quarter amid mounting signs that the economic recovery is gaining traction. The euro area’s seasonally-adjusted budgetary shortfall fell to 1.5% of output compared with 2.1% in the same period a year ago, the European Union’s statistics agency said. That is the smallest shortfall since early 2008. Having contended with bank bailouts, recessions and a sovereign debt crisis, European authorities hope to return to tighter budget discipline as prospects for growth improve. (Bloomberg)

UK: Export optimism rises on boost from weaker pound, CBI says. Export optimism in the UK has risen to the highest in two-and-a-half years thanks to the pound’s depreciation since the Brexit vote, according to the Confederation of British Industry. The London-based lobby group said that overseas orders at factories have also improved, with its gauge rising to 8 in Oct from minus 2 in July. The latest quarterly reading is the highest since April 2014. Data on Thursday may show the economy grew 0.3% in the 3Q, a slowdown from the previous three months, but far better than the recession some warned Brexit would trigger. (Bloomberg)

Japan: Some BOJ officials are said likely to tolerate yield volatility. Some BOJ officials are likely to tolerate larger movement in 10-year government bond yields from their 0% target in times of volatility than they will when market movement is more orderly, said people familiar with discussions inside the central bank. There won’t be any specific range above and below zero for managing the yield, said the people. In times of an orderly market, including gradually declining yields, the BOJ will be ready to reduce purchases of bonds to keep near the zero target, they said. (Bloomberg)

Markets

TM (Underperform, TP: RM5.95): Broadband at higher speed and lower prces. Telekom Malaysia’s (TM) will unveil more affordable packages in stages to make broadband services considerably cheaper within the next two years. The immediate beneficiaries will be existing UniFi customers who are entitled to a free higher speed upgrade for the same price. “We are still in discussions with the Government on how to implement this (reduction in pricing). We have a window of two years to work on it. (StarBiz)

Huat Lai: Takeover bid. The founding family of Huat Lai Resources has launched a takeover offer for the remaining shares they do not own in the company for RM5 a share. The Lim family owns a 74.6% stake in the poultry company and would be forking out RM98.9m for the remaining shares. Shares in Huat Lai closed at RM4.80 yesterday, a 4.2% discount to the offer price of the takeover. The Lim family is also the management and sits on the board of directors of the Malacca-based company. (StarBiz)

Ekovest: Clinches new RM255m River of Life contract. Ekovest which in Apr took full control of the project delivery partner of the RM4.4bn River of Life (RoL) project in Kuala Lumpur, has been awarded its first new RoL jobs since the takeover, worth RM255.5m. The construction firm said its unit EkoRiver Construction SB (formerly Ekovest-MRCB Construction SB) had clinched two new packages, along with the contract to build an interceptor system, under the RM4.4bn project to improve and beautify the Klang and Gombak rivers. (StarBiz)

R & A Telecommunication: Given more time to submit plan. R & A Telecommunication Group has secured a reprieve from Bursa Malaysia Securities from a delisting. This comes after it inked a memorandum of understanding earlier this month for the proposed acquisition of construction firm Synergy Goldtree SB as part of its regularisation plan. The telecommunication industry player said in a statement that the regulator, which last month rejected its application for a further time extension to submit a regularisation plan, had considered its appeal and gave a further extension up to Dec 31, 2016. In its Oct 13 announcement, R & A said Synergy Goldtree had bagged construction contracts with a total value of about RM839m as at July 31, of which RM784m was yet to be billed. (StarBiz)

Bursa Malaysia: 3QFY16 net profit drops to RM44.04m. Bursa Malaysia reported a lower net profit of RM44.04m for its 3QFY16 from RM51.47m a year ago on the back of lower trading activity and a subsequent decrease in operating revenue. The stock exchange operator reported a revenue of RM119.4m for the quarter compared to RM128.83m over the corresponding period last year. No dividend was declared for the period. (StarBiz)

Property (Overweight): Johor to impose development charge on property developers. The Johor government plans to impose a development charge on property projects carried out, in accordance with the provisions of Section 32 of the Town and Country Planning Act 1976 (Act 172). State Housing and Local Government Committee chairman Datuk Abd Latif Bandi said the matter was at the final stage of coordination before being presented to Mentri Besar Datuk Seri Mohamed Khaled Nordin. He said the charge would be levied on the applicant if a development project was approved for the conversion of land use, which changed the floor area, compactness and density, would raise its value. (StarBiz)

Market Update

The FBM KLIC might open higher as US stocks pushed higher as a flurry of merger and acquisition activity helped bolster confidence at the start of a busy week for corporate earnings, even as the dollar extended its recent rally. Oil prices came under pressure from reports that Iraq had said it wanted to be exempt from any Opec production cut, plus news of a major pipeline shutdown. Brent, the international crude benchmark, fell 0.6% to settle at USD51.46 a barrel while US West Texas Intermediate briefly slipped below USD50 before pulling back to USD50.62, down 0.5% on the day.

On Wall Street, the S&P 500 equity index added 10.17 points or 0.5% to a near two-week high of 2,151.33, with AT&T down 1.8% in late trade after saying on Friday it was in advanced talks to buy Time Warner for USD85.4bn.

Meanwhile, the Dow Jones Industrial Average rose 77.32 points, or 0.4%, to finish at 18,223.03 and the Nasdaq Composite Index closed near its session high, adding 52.42 points, or 1%, to finish at 5,309.83. It was a more mixed picture across the Atlantic as a rally for banking stocks was offset by losses in the pharmaceutical sector. Spanish equities outperformed as optimism swept through the market that the nation’s 10-month political deadlock was close to coming to an end. European stocks were also bolstered somewhat by October purchasing managers’ indexes from Eurozone countries.

Performance-wise, Germany’s DAX 30 climbed 0.5% to end at 10,761.17, France’s CAC 40 advanced 0.4% to 4,552.58 and the UK’s FTSE 100 index closed down 0.5% at 6,986.40.

Back home, the FBM KLCI index added 7.78 points or 0.47% to 1,677.76. Trading volume increased to 1.64bn shares worth RM1.69bn. However, market breadth was negative with 378 gainers as compared to 407 losers.

In the region, the equity markets reversed their early weakness to notch broad gains on Monday, as traders in Japan came to appreciate that the latest import-export data, though weak, did beat expectations. The Nikkei Stock Average added 0.3%. Elsewhere, the Shanghai Composite Index rose 1.2%, the Hang Seng Index gained 1.0%, Korea’s Kospi added 0.7% and Australia’s S&P/ASX 200 lost 0.4%.

Source: PublicInvest Research - 25 Oct 2016