Economy

US: Mortgage applications decline in latest week as rates steadily rise – MBA. The number of applications for US home mortgages declined last week, driven by a decrease in both refinancing and purchase activity as mortgage rates rose. The Mortgage Bankers Association (MBA) said its seasonally adjusted market index fell 4.0% in the week ended July 16 from a week earlier. That reflected a 2.8% decrease in applications to refinance existing loans, while purchase applications declined 6.4% to their lowest level since May 2020. The average contract interest rate for traditional 30- year mortgages increased to 3.11% from 3.09% the prior week. Last week, the average contract interest rate dropped to its lowest level since Feb. “Limited inventory and higher prices are keeping some prospective homebuyers out of the market,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a statement. (Reuters)

EU: ECB set to rewrite stimulus pledge after raising inflation goal. The ECB starts a potentially heated two-day meeting, with officials needing to decide how their newly unveiled monetary strategy affects near-term policy. After raising their inflation goal to 2% earlier this month and pledging to be “forceful or persistent” to hit it, the challenge for policy makers is to make clear what such an approach means for interest rates and bond-buying. Disagreements immediately surfaced when drafts of potential wording were circulated, Bloomberg reported last week. President Christine Lagarde heightened the anticipation by promising “interesting variations and changes” to Thursday’s policy announcement and her press conference. She also acknowledged that the unanimity she achieved in the strategy review when it concluded this month will be hard to replicate. (Bloomberg)

UK: Huge public borrowing falls in June, debt costs rise. British public borrowing last month was almost a fifth lower than a year earlier, when the economy was feeling the full force of the coronavirus pandemic, but rising inflation put upward pressure on debt costs. Public sector net borrowing, excluding public sector banks, fell to GBP22.8bn (USD31.0bn) in June, still the second-highest June figure on record. Economists polled by Reuters had forecast a drop to GBP21.6bn. Reflecting the surge in borrowing by British finance minister Rishi Sunak to soften the hit from the pandemic, the data showed Britain's budget deficit leapt to 14.2% of GDP during the financial year to the end of March 2021, its highest share of GDP since World War Two. (Reuters)

UK: Budget deficit narrows in June. The UK budget deficit narrowed in June as the economy started to recover, yet the borrowing was the second-highest on record for the month, the Office for National Statistics said. The public sector net borrowing decreased GBP5.5bn from the last year to GBP22.8bn in June and was below the Office for Budget Responsibility's forecast of GBP25.2bn. Nonetheless, this was the second-highest June borrowing since monthly records began in 1993 and exceeded the economists' forecast of GBP21.5bn. In June, central government receipts grew 18% annually, while the expenditure rose only 3.1%. Interest payments on central government debt came in at GBP8.7bn in June, which was the highest monthly payment on record. In the financial year-to-June period, public sector net borrowing decreased by GBP49.8bn from the last year to GBP69.5bn. (RTT)

Australia: Retail sales fall more than expected in June. Australia's retail sales declined more than expected in June, preliminary data from the Australian Bureau of Statistics revealed. Retail sales decreased 1.8% MoM in June, in contrast to a 0.4% rise in May. This was also bigger than the economists' forecast of -0.5%. Food retailing was the only industry to rise in June, up 1.5% with those states entering lockdown during the month driving the increase. All other industries decreased as COVID-19 restrictions curtailed foot traffic and household movements, while retailers moved back to online distribution channels. On a yearly basis, growth in retail sales eased to 2.9% from 7.7% in May. (RTT)

Japan: Economic activity to improve more than expected on vaccine rollout - BOJ. Acceleration in the vaccine rollout will help Japan's economic activity to improve more than expected, Deputy Governor of the Bank of Japan Amamiya Masayoshi said. In other countries where vaccinations are progressing ahead of Japan indicates that private consumption, including that of face-to-face services, is expected to pick up again in Japan, Amamiya said at a meeting with local leaders in Niigata. It is projected that the virtuous cycle that has started to operate in the corporate sector will spread to the household sector, thereby intensifying the cycle in the overall economy, he said. (RTT)

Japan: Exports jump on solid US, China demand. Japan’s exports jumped in June led by US demand for cars and China-bound shipments of chip-making equipment, supporting hopes for an exportled recovery in the world’s third-largest economy. Exports rose 48.6% in June from a year earlier, the fourth straight month of double-digit gains, although growth was largely exaggerated by a COVID-led plunge last year. Export growth has remained strong even as a global chip shortage weighs on Japan’s car output and shipments. With consumer spending weakening due to renewed coronavirus curbs in Tokyo, policymakers are counting on external demand to pick up the slack. (Reuters)

Markets

Hextar Global (Outperform, TP: RM1.27): Joins consortium for digital bank venture. Hextar Global has entered into a consortium agreement with Arcadia Acres SB and Ihsan Equity SB to establish a Syariah-compliant digital bank pursuant to the submission to BNM for a digital banking licence. Hextar said the consortium believes the unconventional approach and experience as well as a focus on eco-systems will allow for a better understanding of the requirements and needs of each community that the bank would be serving. (StarBiz)

Comment: Comment: We are neutral on this development, with the Group's prospects at securing the license a long-shot at this juncture. A whole host of companies ranging from property developers to media and consumer-based companies, amongst others, have thrown in their hat to secure the 5 digital banking licenses on offer. We continue to like Hextar's chemical-based growth prospects nonetheless, amplified by its acquisition-driven growth strategies. Our Outperform call is affirmed.

AirAsia (Underperform, TP: RM0.19): seeks extension for private placement. AirAsia Group is seeking an extension from Bursa Malaysia to complete the private placement of 198.18m shares that it has yet to issue. The low-cost carrier said it had submitted an application to Bursa for an extension of time from 2 Aug up to 31 Dec for the company to implement the private placement. The airline intends to raise a total of RM454.51m from share placement to recapitalise, on top of cash call and raising borrowings. So far, it has raised RM336.47m via placement of new shares. (The Edge)

Favelle Favco: Bags RM121.1m orders. Favelle Favco’s subsidiaries have collectively secured RM121.1m of purchase orders for the supply of offshore and tower cranes, compressor system (CCC) manpower, solar system and upgrade works. The company said all the orders were likely to be delivered/mobilised between July 2021 and 3Q of 2022. The contracts are expected to contribute positively to the earnings and net assets of Favelle Favco for the FYE 31 Dec 2021 and beyond. (BTimes)

Inix: To raise up to RM4.48m in private placement for glove business diversification. Inix Technologies Holdings has proposed to undertake a private placement of 46.66m new shares in the company to diversify into the glove business. The private placement is expected to raise gross proceeds of up to RM4.48m, based on the illustrative issue price of 9.6 sen per placement share. (The Edge)

TFP Solutions: To launch shariah-compliant digital gold investment platform, OneGold. TFP Solutions (TSB) plans to launch its digital gold investment platform, OneGold, in the 3Q of this year, enabling retail investors to invest in digital gold for as little as RM25. OneGold is a shariah-compliant digital gold trading platform that supports multiple apps from various organisations and communities. (BTimes)

KAB: Forms SPV to boost mechanical engineering ops. Kejuruteraan Asastera (KAB) has entered into a firm agreement with Vodex Technical Services SB to form a 60:40 SPV called TVT Link Tech Solutions SB. The O&M contracts are expected to provide an estimated 10% additional contribution to KAB's bottom line in the future. (BTimes)

MARKET UPDATE

The FBM KLCI might open higher today after stock markets rose on both sides of the Atlantic on Wednesday, as a number of strong earnings figures captured investor attention away from the rapid spread of the Delta Covid-19 variant. Wall Street’s blue-chip S&P 500 index gained 0.8% in New York, climbing for a second day to reverse the entirety of Monday’s sharp drop. The gains were led by economically sensitive industries, including energy and materials groups, bank stocks, big industrials goods companies and airlines. The tech-focused Nasdaq Composite rose 0.9%, while the Russell 2000 index of small-cap companies advanced 1.8%. Several strong earnings results helped lift investor sentiment on Wednesday, with Coca-Cola raising its full-year sales and profit forecasts as it anticipated surging demand from reopened restaurants and stadiums. London’s FTSE 100 closed up 1.7% for the benchmark’s best daily performance since mid-February, while the continent-wide Stoxx 600 index rose by the same amount as traders also banked on the ECB increasing its bond-buying plans beyond the end of its EUR1.85trn pandemic emergency purchase programme at a meeting on Thursday.

Back home, the FBM KLCI closed lower as market sentiment continued to be affected by the high number of Covid-19 cases. The benchmark index finished 3.45 points or 0.23% lower at 1,516.52 after moving between 1,515.34 and 1,521.57. The regional equities also closed broadly weaker with South Korea’s Kospi index ended 16.79 points or 0.52% lower at 3,215.91, while Hong Kong’s Hang Seng index finished 34.67 points or 0.13% lower at 27,224.58.

Source: PublicInvest Research - 22 Jul 2021