Economy

US: Fed raises interest rates by 50 basis points in effort to fight inflation. In an effort to return elevated inflation to its 2% objective, the Fed announced its widely expected decision to raise interest rates by half a percentage point. The Fed announced that it has decided to raise the target range for the federal funds rate by 50 basis points to 0.75 to 1.0% and said it anticipates that on-going increases in the target range will be appropriate. In addition, the Fed decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1. The widely expected decision to raise interest rates came even though the Fed acknowledged that overall US economy activity edged down in the first quarter. The central bank noted that household spending and business fixed investment have remained strong, while job gains have been robust. The Fed said inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures. (RTT)

US: Private payrolls growth slows in April-ADP. US private payrolls increased less than expected in April, likely restrained by persistent worker shortages. Private payrolls rose by 247,000 jobs last month, the ADP National Employment Report showed. Data for March was revised higher to show 479,000 jobs added instead of the initially reported 455,000. Economists polled by Reuters had forecast private payrolls would increase by 395,000 jobs. According to a Reuters survey of economists, private payrolls likely increased by 385,000 jobs in April after rising 426,000 in March. With further gains in government employment expected, that would likely led to nonfarm payrolls increasing by 394,000. The economy created 431,000 jobs in March. (Reuters)

US: Service sector slows; input prices measure at record high - ISM survey. US services industry growth unexpectedly slowed in April, with employment contracting for the second time this year, while a measure of input prices raced to a record high. The Institute for Supply Management said its non-manufacturing activity index fell to a reading of 57.1 last month from 58.3 in March. Economists polled by Reuters had forecast the non-manufacturing index little changed at 58.5. A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of U.S. economic activity. The surprise slowdown could reflect persistent supply constraints, which have been worsened by new COVID-19 lockdowns in China and Russia’s war against Ukraine. (Reuters)

EU: Eurozone retail sales fall more than expected in March. Eurozone retail sales declined more-than-expected in March as sales of automotive fuel and non-food products weakened, data published by Eurostat showed. Retail Sales dropped 0.4% in March, in contrast to a 0.4% in rise in Feb. Economists had forecast a 0.1% drop for the month. Automotive fuel sales in specialized stores shrunk declined 2.9% and non-food products registered a fall of 1.2%. Mail orders and internet sales decreased 4.3% compared to last month. On a yearly basis, total retail trade growth eased markedly to 0.8% in March from 5.2% in Feb. The EU27 retail sales dropped 0.2% on month, while it gained 1.7% yearly in March. (RTT)

EU: War in Ukraine dampens German exports. The war in Ukraine and the subsequent sanctions on Russia took its toll on German exports in March, official data revealed. Exports fell by more-than-expected 3.3% on a monthly basis in March, in contrast to the 6.2% expansion seen in Feb, data from Destatis showed on. Shipments were forecast to drop 2.0%. Exports to Russia plunged 62.3% because of the sanctions imposed as a result of Ukraine's fight against Russia. At the same time, imports from Russia declined only 2.4%. Overall imports grew 3.4%, faster than the economists' forecast of 1.0%. This was followed by a 4.7% rise in Feb. Consequently, the trade surplus fell to a seasonally adjusted EUR3.2bn in March from EUR11.1bn in the previous month. The surplus remained well below the expected level of EUR9.8bn. YoY, exports growth eased to 8.1% from 14.5% in Feb. Likewise, imports rose 20.1%, following February's 25.0% increase. (RTT)

India: Hikes rates in surprise move on acute inflation pressure. The Reserve Bank of India unexpectedly raised its key interest rate and its cash reserve ratio, citing a need to withdraw the Covid-19 pandemic-triggered monetary stimulus provided two years ago, amid recent acute inflationary pressures due to a global surge in food and commodity prices and the supply bottlenecks caused by the war in Ukraine. The Monetary Policy Committee unanimously decided to raise the policy repo rate by 40 basis points to 4.40% with immediate effect, RBI Governor Shaktikanta Das said in a virtual press conference following an unscheduled rate-setting session. The repo rate was raised for the first time since Aug 2018. The RBI has now joined a league of central banks, facing record inflation figures, which have hiked rates and plan to tighten policy further while risking stagflation. (RTT)

Indonesia: Manufacturing sector accelerates in April - S&P. The manufacturing sector in Indonesia continued to expand in April, and at a faster rate, the latest survey from S&P Global showed with a manufacturing PMI score of 51.9. That's up from 51.3 in March and it moves further above the boom-or-bust line. This represented an eighth straight month of improving business conditions across the Indonesian manufacturing sector, with the rate of improvement the fastest since Jan. Manufacturing output increased at a faster rate in April, supported by higher customer demand. Though modest, the increase in production was the fastest for three months, while new order growth also picked up since March. (RTT)

Markets

Axiata (Neutral, TP: RM4.30): Ready to fuel more vibrant banking sector with digital bank licence. The Boost-RHB consortium on Friday was named as one of the recipients of the country's five digital bank licences issued by Bank Negara Malaysia. In June last year, the consortium was formed with Boost owning a majority stake of 60% and RHB owning the remaining 40% in the digital bank. (BTimes)

Comments: Boost Holdings is a 78.1%-owned subsidiary of Axiata Group. The winning of digital banking license was not a surprise to us as Boost-RHB consortium had earlier been reported as a frontrunner. Having acquired a pool of 561k merchants and 9.7m users, Boost is in a right position to expand into digital banking. Apart from the retail market, another target market for digital banking is the SME, a segment where RHB already has a presence. Despite the growth potential of digital banking, we do not expect it to contribute meaningfully to Axiata’s bottomline in near to medium term. Maintain Neutral on Axiata.

Hong Leong Bank: Issues RM900m Green Capital Securities. Hong Leong Bank (HLB) announced the issuance of its first Green Additional Tier 1 (AT1) Capital Securities, dubbed Green Capital Securities, amounting to RM900m in nominal value. (The Edge)

Gadang: Wins RM90.4m subcontract works for Central Spine Road. Gadang Holdings has secured subcontract works valued at RM90.4m for Central Spine Road, Pakej 2. Gadang secured the contract from Binary Vista to undertake pavement and road furniture works for the new highway. (The Edge)

Pestech: To assist in MACC investigation on MRT2 project. Pestech International announced that its subsidiary CRSE is assisting in the Malaysian Anti-Corruption Commission (MACC) investigation of a corruption case related to the Mass Rapid Transit 2 (MRT2) project. (The Edge)

TH Heavy Engineering: Auditor expresses disclaimer of opinion on FY21 report. Oil and gas outfit TH Heavy Engineering's (THHE) external auditor Messrs UHY has expressed a disclaimer of opinion on its audited financial statements for the FY21. Among the unresolved matters that formed the basis of UHY's disclaimer of opinion include THHE's investment of RM297.33m in its subsidiaries. (The Edge)

WZ Satu: Taps on moneylending business ahead of anticipated OPR hike. Civil engineering and construction specialist WZ Satu (WSB) will be venturing into the higher margin moneylending business, with its executive chairman and president injecting his second private company into WSB. (BTimes)

Samaiden: Wins RM32.86m solar plant job. Samaiden Group has accepted a letter of award from Heliosel in relation to the development of a SelfConsumption (SelCo) solar photovoltaic plant in Selangor. The RM32.86m engineering, procurement, construction and commissioning works award was accepted by SSB. (StarBiz)

Market Update

FBMKLCI is expected to rise today following US stock markets rallied overnight after the Fed Reserve raised rates by a widely anticipated 0.5% and Chairman Jerome Powell ruled out getting even more aggressive in the central bank’s inflation-fighting campaign. The central bank also outlined a programme in which it eventually will reduce its bond holding by USD95bn a month. Dow Jones jumped 2.8% to close at 34,061. S&P 500 advanced 3% and Nasdaq surged 3.2% to 12,964. European stocks dropped, weighed by disappointing earnings and investor jitters ahead of a policy decision by the US Fed Reserve, which is expected to hike rates by the most since 2000 to tame inflation. French CAC tumbled 1.2% and the UK’s FTSE 100 fell 0.9%. German DAX finished 0.5% lower at 13,970. Retail stocks led losses as most sectors slid into negative territory. Asian markets were mostly lower as investors looked ahead to the US Fed Reserve’s interest rate decision expected later stateside. Hang Seng Index closed 1.1% lower at 20,869, dragged by tech stocks. Markets in Japan and China were closed for holidays.

Pacific Carriers, controlled by tycoon Robert Kuok, has disposed of 320m shares, equivalent to a 32% stake, in Maybulk, thus, ceasing to be a substantial shareholder of the shipping group. Bank Negara Malaysia announced that the five successful applications for the digital bank licences are a consortium of Boost Holdings and RHB Bank, a consortium led by GXS Bank and Kuok Brothers S/B, a consortium led by Sea Ltd and YTL Digital Capital, a consortium of AEON Financial Service and a consortium led by KAF Investment Bank S/B.

Source: PublicInvest Research - 5 May 2022