Economy

Global: IMF says US default would have 'very serious repercussions' on global economy. The IMF said that a US debt default prompted by failure to raise the country’s debt ceiling would have “very serious repercussions” for the US economy as well as the global economy, including likely higher borrowing costs. IMF spokesperson Julie Kozack also told a news briefing that US authorities needed to stay vigilant on new vulnerabilities in the U.S. banking sector, including in regional banks, that could emerge in the adjustment to a much higher interest rate environment. Kozack said the IMF could not immediately quantify the impact that a US default would have on global growth. (Reuters)

US: Weekly jobless claims jump to highest level since late 2021. The number of Americans filing new claims for jobless benefits jumped last week to the highest level since late 2021, suggesting that higher interest rates were starting to weigh on the labor market. Initial claims for state unemployment benefits increased 22,000 to a seasonally adjusted 264,000 for the week ended 6 May, the highest reading since Oct 2021. Economists polled by Reuters had forecast 245,000 claims for the latest week. Claims had leveled off after surging in March as high-profile layoffs in the technology sector in late 2022 finally filtered through the data. There have also been job cuts in interest-rate sensitive industries like housing. (Reuters)

US: Producer prices increase moderately in April. U.S. producer prices rebounded modestly in April, leading to the smallest annual increase in producer inflation in more than two years, further evidence that inflation pressures were subsiding. The producer price index for final demand rose 0.2% last month. Data for March was revised slightly to show the PPI dropping 0.4% instead of 0.5% as previously reported. In the 12 months through April, the PPI increased 2.3%. That was the smallest YoY rise since Jan 2021 and followed a 2.7% advance in March. The annual PPI rate is slowing as last year’s large increases fall out of the calculation. Economists polled by Reuters had forecast the PPI climbing 0.3% from the prior month and rising 2.4% on year. (Reuters)

EU: ECB's de Guindos singles out services as top inflation worry. ECB Vice President Luis de Guindos on Thursday singled out the rising price of services as his top concern in the ECB's fight against inflation, saying they were being driven up by higher wages. Inflation in the euro zone has fallen from record levels, but the price of services, which range from flight tickets to haircuts, are still rising strongly. The ECB raised interest rates for a seventh straight time last week, albeit at a reduced pace, and hinted at more hikes. (Reuters)

EU: Euro zone consumers raise inflation expectations - ECB survey. Euro zone consumers raised their inflation expectations in March for the first time since the autumn, even as the rate of price growth fell and the ECB kept raising interest rates, an ECB survey showed on Thursday. The median respondent in the latest Consumer Expectation Survey saw prices growing by 5.0% in the coming 12 months, up from 4.6% in the previous survey round in Feb, the first increase since Oct. Longer-term expectations also increased sharply, with inflation three years ahead seen at 2.9% after a 2.4% reading a month earlier. These rises are an unwelcome development for an ECB that is trying to stop the current high rate of price growth from becoming entrenched. (Reuters)

UK: Bank of England raises rates and Bailey promises to 'stay the course'. The BoE raised its key interest rate by a quarter of a percentage point to 4.5% on Thursday and Governor Andrew Bailey said the British central bank would "stay the course" as it seeks to curb the highest inflation of any major economy. The BoE is no longer predicting a recession after it made the biggest improvement to its growth projections since it first published forecasts in 1997. But it now expects inflation - which remained above 10% in March - to fall more slowly than it had hoped, mostly due to unexpectedly big and persistent rises in food prices. It also saw stronger wage growth than it previously thought. (Reuters)

China: Slow consumer inflation, deepening factory gate deflation to test policy. China's consumer prices rose at the slowest pace in more than two years in April, while factory gate deflation deepened, suggesting more stimulus may be needed to boost a patchy post-COVID economic recovery. The weak consumer price rise reinforces the signals from this week's trade data suggesting domestic demand remains lacklustre, while the deflationary impulse in producer prices underlines the strains on factories - a double-whammy for the world's second-biggest economy as it tries to shake off the COVID-induced damage. The CPI in April rose 0.1% YoY, the lowest rate since Feb 2021, and cooling from the 0.7% annual gain seen in March, the National Bureau of Statistics (NBS) said. The result missed the median estimate of a 0.4% rise in a Reuters poll. (Reuters)

China: Slump in bank loans, prices raise more worries about recovery, adds pressure on central bank. New Chinese bank loans tumbled far more sharply than expected in April, adding to worries that the economy's post-pandemic recovery is losing steam and putting pressure on the central bank to ease policy. While some moderation in lending had been expected after a record first quarter, the weak readings came hours after data showed deflationary pressures were deepening in China, and days after news that imports had contracted sharply, suggesting domestic demand is still frail and more stimulus may be needed. Chinese banks extended 718.8bn yuan (USD103.99bn) in new yuan loans in April, less than a fifth of March's tally and just over half of the amount expected by analysts. (Reuters)

Philippine: Q1 growth cools, but on track for 2023 target. Philippine economic growth cooled to its slowest in two years in the first quarter as red-hot inflation and high interest rates dampened consumption, but a slew of positive data, including a drop in jobless rates, pointed to a rosy outlook for 2023. GDP expanded 6.4% in the first quarter from a year earlier, marking its slowest expansion since the first quarter of 2021 when economic output contracted 3.8%. (Reuters)

Markets

Genting Malaysia (Outperform: TP: RM3.30): To offload Miami unit, instead of land, for USD1.23bn . Genting Malaysia (GenM) will dispose of its unit Resorts World Miami LLC (RW Miami) for UD$1.225bn (RM5.43bn) instead of four parcels of land owned by the subsidiary in Miami. The casino operator revised its divestment plan because purchaser Smart Miami City LLC on May 10 opted to exercise its right to convert the transaction to a 100% purchase of the ownership interests in RW Miami, instead of the land, within 10 business days after the effective date. (The Edge)

Heineken Malaysia: Remains adaptive amidst challenging business environment . Heineken Malaysia will remain adaptive to a volatile environment and new market realities. “We take a long term view to build a sustainable business and will continue to focus on delivering our EverGreen strategy to future proof our business,” managing director Roland Bala said in a statement. The group also is also committed to supporting and working closely with the authorities to address the issue of illicit alcohol holistically. (StarBiz)

Ageson: RM279m industrial land disposal called off . Over a year and a half after penning a deal to dispose of a 168-acre piece of industrial land in Perak to China’s Zhejiang Guorong Digital Economy Group Ltd (ZGDEG), Ageson says the RM278.8m land sale has been terminated. The agreement inked between Ageson’s 75%-owned unit Ageson Holdings SB (AHSB) and ZGDEG, which proposed AHSB to build 33 industrial lots with a gross development value of RM278.8m, was mutually terminated by the pair. The 168- acre land is part of a larger 475-acre parcel owned by Menteri Besar Inc (MBI) Perak. (The Edge)

Favelle Favco: Bags orders worth RM84.9m . Favelle Favco (FFB) has secured three purchase orders worth RM84.9m to supply tower cranes. The crane manufacturer said its subsidiaries Favelle Favco Cranes Pty Limited and Kroll Cranes A/S secured the purchase orders. Favelle Favco Cranes bagged a tower crane supply contract from G A Caelli Holdings Trust. Kroll Cranes secured contracts to supply tower cranes to Aarsleff BIZ Sp. z o.o. and Afcons Infrastructure Ltd. The crane towers are expected to be delivered from the second quarter of 2024 to the first quarter of 2025. (StarBiz)

Bahvest: CEO ceases to be substantial shareholder after selling 9.3% stake . Bahvest Resources CEO Datuk Lo Fui Ming has ceased to become a substantial shareholder of the company after offloading some 9.3% or 115.19 million shares in the open market. Lo disposed of the shares on May 9, when the stock plunged 29% to 13.5 sen, before falling by a further 15% a day after. After the latest disposal, Lo’s ownership dropped to 3.89% from 13.18% last week. (The Edge)

Bina Darulaman: Bags RM204m road maintenance contract. Bina Darulaman has been awarded a state road maintenance contract worth RM204m from the Kedah state government. The road maintenance project will run for 36 months, from May 15, 2023 to May 14, 2026, involving Zone 1 (Kota Setar, Padang Terap/Pokok Sena, Kubang Pasu, Pendang, Yan and Sik districts). (StarBiz)

UPA Corp: Plans two-for-one bonus issue. UPA Corp has proposed to undertake a bonus issue of up to 159.2m shares on the basis of two bonus shares for every one existing share held, on an entitlement date to be determined later. (The Edge)

Market Update

The FBM KLCI might open flat today after US stocks dipped on Thursday, as lower commodity prices and jitters over the health of regional banks undercut optimism that the Federal Reserve is set to halt its campaign of interest rate rises. Wall Street’s benchmark S&P 500 index fell 0.2%, breaking a four-day winning streak. Disney was the worst performer on the index after reporting a decline in subscribers to its streaming business. Energy stocks retreated as oil prices declined almost 2%. The tech-heavy Nasdaq Composite stock index, however, eked out a 0.2% gain. The souring sentiment spread to European markets, with the region wide Stoxx 600 reversing its morning gains to end the day flat. Germany’s Dax fell 0.4%, while France’s CAC 40 ended 0.3% higher. London’s FTSE 100 edged down 0.1% after the Bank of England raised its benchmark rate for the 12th consecutive time, by 0.25 percentage points to 4.5%, as had been anticipated by markets.

Back home, Bursa Malaysia closed marginally lower on Thursday, with cautious investor sentiment pushing the key benchmark index down for a third straight day. At the closing, the FBM KLCI had eased by 0.04% or half a point to 1,425.18, from Wednesday’s close at 1,425.68. The regional equities struggled for direction after weak inflation data in China pointed to weakening demand, but traders hoped the similarly soft US data would support stock market valuations. Chinese consumer price inflation slowed to its weakest level in two years. Hong Kong’s Hang Seng index and Japan’s Topix both shed 0.1%. China’s CSI 300 finished 0.2% lower.

Source: PublicInvest Research - 12 May 2023