Economy

US: Labor market still tight. The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, touching the lowest level in two months amid ongoing labor market tightness and defying efforts by the Fed to slow demand. The second straight weekly decline in claims reported raised cautious optimism that the economy could avoid a dreaded recession this year. It followed recent data showing inflation subsiding in June. Labor market strength is also supporting wage growth, helping consumer spending to continue plodding along. Initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 228,000 for the week ended July 15, the lowest level since mid-May. Economists polled by Reuters had forecast 242,000 claims for the latest week. Unadjusted claims fell by 326 to 257,976 last week. Claims surged by 5,059 in California and increased by 4,616 in Georgia. (Reuters)

US: Existing home sales fall; annual house price decline slows. US existing home sales dropped to a five month-low in June, depressed by a chronic shortage of houses on the market that slowed the pace of decline in annual house prices. Existing home sales fell 3.3% in June to a seasonally adjusted annual rate of 4.16m units, the lowest level since January. Economists polled by Reuters had forecast home sales would drop to a rate of 4.20m units. Sales rose in the Northeast and were unchanged in the Midwest. They fell in the West and the densely populated South. Home resales, which account for a big chunk of U.S. housing sales, plunged 18.9% on a YoY basis in June. (Reuters)

US: Leading indicators point to recession starting soon. An index designed to track turns in U.S. business cycles fell for the 15th straight month in June, dragged down by a weakening consumer outlook and increased unemployment claims, marking the longest streak of decreases since the lead-up to the 2007-2009 recession. The Conference Board said its Leading Economic Index, a measure that anticipates future economic activity, declined by 0.7% in June to 106.1 following a revised decrease of 0.6% in May. (Reuters)

EU: No technical recession in euro zone as Eurostat revises up Q1 GDP. Euro zone gross domestic product was flat in the first three months of this year against the previous quarter, the EU's statistics agency Eurostat said on Thursday, revising a previous reading of a 0.1% QoQ contraction. The revision means that the 20 countries sharing the euro currency did not, after all, enter a technical recession after a 0.1% QoQ contraction in the last three months of 2022, as indicated by Eurostat's data in June. (Reuters)

China: Keeps lending benchmarks unchanged; economic weakness tests policymakers. China left its lending benchmarks unchanged on Thursday, after the central bank stood pat on a key policy rate earlier this week even as signs of a faltering economic recovery called for more stimulus. China's economy grew at a frail pace in the second quarter, raising investor hopes for more supportive measures to ensure Beijing's growth target for the year remains on track. However, many market watchers said the stimulus could be targeted and limited in scale as any more rate cuts could widen the interest rate differentials with the US further and pressure an already weak yuan. The one-year loan prime rate (LPR) was kept at 3.55%, while the five-year LPR was unchanged at 4.20%. (Reuters)

China: June exports to North Korea fell 6.6% MoM. China's exports to North Korea fell 6.6% last month versus May, customs data shows, though they remained eight times higher than in June 2022 when the secretive state was reporting tens of thousands of COVID-19 cases per day and had shut its border. The data set is erratic, with exports often increasing in value by as much as 200% one month and falling by an equally dramatic amount in another. Chinese customs typically does not explain why trade with North Korea fluctuates so much. Outbound shipments from the world's second-largest economy to North Korea totalled USD154.7m last month, Chinese customs data showed. (Reuters)

Japan: Exports underwhelm in June, global weakness drags on economy. Japan's annual exports grew much-less than expected in June, highlighting weak Chinese and Western demand that continues to undercut the post-COVID recovery in the world's third-biggest economy. The risk of a world recession amid monetary policy tightening since last year has cast a pall over export-led economies, with many countries including Japan relying on domestic consumption to underpin growth. The trade data, released by the MOF, showed exports rose 1.5% YoY last month, below the 2.3% gain expected by 15 economists in a Reuters poll, but faster than a 0.6% rise in May. It marked the first trade surplus since July 2021. (Reuters)

Japan: Government expects inflation to sharply exceed BOJ target. Japan's government on Thursday forecast inflation sharply exceeding the central bank's 2% target this year, acknowledging broadening price rises that may keep alive market expectations of an end to ultra-low interest rates. The estimates come ahead of closely watched BoJ policy meeting next week, when the board will revise its quarterly forecasts and debate progress on sustainably meeting its price target . In its mid-year review, the government expects overall consumer inflation to hit 2.6% for the fiscal year that began in April, up sharply from 1.7% projected in January. Inflation last year was 3.2%. The government projects inflation to slow next fiscal year but, at 1.9%, stay close to the central bank's target. (Reuters)

Markets

Hextar (Neutral, TP: RM0.63): Proposes to diversify to include trading of commodities. Hextar Global has proposed to diversify its existing businesses to include trading of commodities, which include agriculture produces, energy resources, metals and minerals, and precious metals. The company said in view of the challenging outlook for its agriculture segment and following the exit from the consumer products segment in June 2023, the group has been contemplating alternative businesses to diversify its source of revenue and profits to supplement as well as to mitigate the risks of solely relying on its existing businesses. (StarBiz)

AirAsia X: Submits application to exit PN17, confirms The Edge report. AirAsia X Bhd (AAX) has submitted an application to Bursa Malaysia to be uplifted from its PN17 status, on recent improvements in the group and its subsidiaries' financial performance. Hence, it is also seeking a relief from having to submit and implement a plan to regularise its condition. This confirmed a report in The Edge weekly (July 17-21), quoting sources, that AAX was planning to lift itself from the PN17 classification in a matter of days, as it no longer triggered the PN17 criteria under the Main Market listing requirement. (The Edge)

Destini: Gets RM222.25m contract extension . Destini has received a contract extension worth RM222.25m from the Ministry of Defence Malaysia for the supply of non-proprietary aircraft spare parts for the Royal Malaysian Air Force. Destini said the contract tenure which expired on June 30, 2023 has been extended for another two years from July 1, 2023 to June 30, 2025. “The additional ceiling is RM222.25m, making the total value of the contract to RM403.75m. (StarBiz)

Ajinomoto Malaysia: Sells land to TS Law for RM408m cash, plans special dividend of RM2.12 sen per share . Ajinomoto (Malaysia) Bhd is selling six parcels of land with redevelopment potential that are located along Jalan Kuchai Lama here to businessman Tan Sri David Law Tien Seng, better known as TS Law, for RM408m, cash. On completion of its disposal, it plans to distribute RM128.89m in special dividend at RM2.12 per share to shareholders at an entitlement date to be determined later. (The Edge)

Ornapaper: Unit to acquire land parcels for RM30.75m . Ornapaper has entered into sales and purchase agreements with Faithview Group Development SB for the proposed acquisition of two leasehold vacant lots worth RM30.75m. Both land parcels in Mukim Krubong, Melaka are for a purchase consideration of RM18.52m and RM12.23m, respectively. The company said the proposed acquisition represents an opportunity for ORNA group to build up its landbank at a reasonable price for long-term investment purposes. (Bernama)

MCE: Bags deal to supply Proton parts . MCE Holdings has secured contracts to supply various electronic and mechatronics parts for Proton new car model. “The project is expected to generate total revenue of approximately RM13.24m for MCE Group over the 35 months period whilst the estimated total investment cost is RM610,000,” MCE said. The manufacturer and supplier of automotive electronics and mechatronics parts said the supply of these parts was expected to commence in the first quarter of the financial year ending July 31, 2024 for a duration of 35 months. (StarBiz)

Market Update

The FBM KLCI might open lower today after the Nasdaq Composite had its biggest one-day drop in more than four months as investor disappointment with results from Netflix and Tesla called into question the strong, months-long rally in the tech sector. The tech heavy Nasdaq Composite dropped 2.1% on Thursday, its biggest daily decline since March 9. Wall Street’s benchmark S&P 500 sank 0.7%. Tesla shares plunged 9.7%, its biggest single-day drop since early January, after the electric-car maker said on Wednesday its profit margins slipped as a series of price cuts aimed at boosting sales weighed on earnings. Netflix lost 8.4%, having missed sales estimates and posting lower than expected guidance for the third quarter. It was the stock’s biggest one-day drop since December 2022. Large tech companies have underpinned much of the rally on Wall Street since the start of the year, as investors have ridden the wave of artificial intelligence hype. There have also been expectations that global interest rates would not increase much further. Europe’s region-wide Stoxx 600 ended the day 0.4% higher, France’s Cac 40 added 0.8% and Germany’s Dax rose 0.6%.

Back home, Bursa Malaysia closed off its intraday high but remained firmly above the 1,400-level on Thursday, as bargain hunting activities emerged following the recent sell-off despite the weaker performance in regional bourses. At the closing bell, the FBM KLCI rose 0.26% or 3.66 points to 1,406.69 from 1,403.03 at Tuesday’s close. Asian markets finished broadly lower today with shares in Japan leading the region. The Nikkei 225 lost 1.23% while China's Shanghai Composite gave away 0.92% and Hong Kong's Hang Seng was lower by 0.13%.

Source: PublicInvest Research - 21 Jul 2023