Economy

US: Fed raises rates as Powell keeps options open for future hikes. The Federal Reserve resumed raising interest rates and Chair Jerome Powell left open the possibility of further hikes, which he emphasized will depend on incoming data that has recently signalled a resilient US economy. After pausing rate increases in June, policymakers lifted borrowing costs again at their policy meeting on July 26 for the 11th time since March 2022 to curb inflation. The quarter percentage-point hike, a unanimous decision, boosted the target range for the Fed’s benchmark federal funds rate to 5.25% to 5.5%, the highest level in 22 years. While Powell pointed to encouraging signs that the Fed’s rate hikes are working to curb price pressures, he reiterated that policymakers have a long way to go to return inflation to their 2% goal. (Bloomberg)

EU: Credit data points to hard landing threat. Monthly data on credit published by the European Central Bank is the third indicator released this week that suggests the euro-area economy is showing signs of significant stress from monetary tightening and a hard landing remains a possibility. While Bloomberg Economics still expects the Governing Council to remain focused on high core inflation and continue raising interest rates by 25bps in July and Sept, a move in the latter month seems increasingly up in the air. The credit impulse for households and non-financial corporations in the euro area fell to -3.2% of GDP in June from -2.0% in May. M3 money supply growth fell short of the consensus forecast in the latest reporting period. (Bloomberg)

Japan: Government retains economic view. Japan's government retained its view on the economy as the private consumption and business investment are expected to support moderate recovery, and upgraded its assessment on business conditions. The economy is recovering at a moderate pace. The office has kept the same wording since May. The improvement in employment and income situation underpinned by the impact of the policies will help the economic recovery. However, slowing down of global economies amid ongoing monetary policy tightening was cited as a downside risk to the Japanese economy. Current business conditions are picking up. Premier Fumio Kishida's government confirmed that the budget will turn positive in the fiscal year ending March 2027 based on the assumption that the economy will grow about 2% in real terms. In the twice-yearly projections, the cabinet office projected a surplus of JPY2.3trn for the year ending March 2027, which was JPY200bn smaller than the previous outlook released in Jan. The government lowered its deficit estimate for the fiscal 2025 to JPY1.3trn, citing the increasing tax revenue on the back of strong corporate earnings. (RTT)

Hong Kong: Raises benchmark rate as fed resumes hiking cycle. The Hong Kong Monetary Authority raised its base rate by 25bps, hours after the Federal Reserve resumed its interest-rate hiking cycle. The HKMA increased the rate to 5.75% from 5.5%, according to a statement from the city’s de-facto central bank. Interest rates in Hong Kong move in lockstep with the Fed’s rates, given the local currency’s peg to the greenback. Attention will now turn to whether Hong Kong’s largest banks — including HSBC Holdings Plc and Standard Chartered Plc — will increase their best lending rates. Hong Kong borrowing costs have seen a volatile rise since the Fed began its tightening cycle. The one-month Hong Kong Interbank Offered Rate — or Hibor — climbed to 5.21% this month, the highest since 2007. That rate is a reference for mortgage loans, so any further pressure on it may pose a risk to the city’s property market. (Bloomberg)

Singapore: Industrial production falls 4.9%. Singapore's industrial production declined for the ninth successive month in June, though at a slower rate. Industrial production fell 4.9% YoY in June, following a 10.5% drop in May. Economists had expected a decrease of 6.8%. Excluding biomedical manufacturing, industrial production slid 5.2% annually in June after a 13.1% fall in the previous month. On a monthly basis, industrial production recovered strongly by 5.0% from May, when it decreased by 3.6%. Among major clusters, output produced in the precision engineering segment fell the most, by 11.5% annually in June, followed by chemicals with an 8.6% decline. General manufacturing output contracted 7.5% from last year, while that of transport engineering grew 10.8%. (RTT)

Australia: Inflation slows further in Q2. Australia's inflation slowed for the second straight time in the June quarter, easing the pressure on the Reserve Bank to tighten its policy urgently at the next meeting. CPI slowed more than expected to 6.0% in 2Q from 7.0% in the previous quarter. The expected rate was 6.2%. This marks the second consecutive quarter of lower annual inflation, also known as 'disinflation,' from the peak of 7.8% in the Dec 2022 quarter. Trimmed mean annual inflation of 5.9% was also lower in the June quarter compared to 6.6% in the March quarter. (RTT)

Markets

VS Industry (Outperform, TP: RM1.02) : Sues NEP Holdings, three directors for oppression. VS Industry Bhd has filed an oppression law suit against NEP Holdings (M) and three of its directors, alleging the directors had conducted or exercised their powers as directors of NEP in a manner that was "oppressive" or "unfairly prejudicial" to VS Industry or its interests as a member of NEP. (The Edge)

Comment: With most of its investment cost already written down, the ensuing financial impact (if any) is not expected to be material. NEP Holdings was initially meant to be a major entry point into the China market. Nonetheless, we remain focused on the Group's longer-term investment merits, underpinned by healthy order flows from its existing customers. Our Outperform call and RM1.02 TP are maintained .

Solarvest: Secures solar PV installation project from US-based Dexcom in Malaysia. Solarvest has secured a contract from a US based company in Malaysia to install a 3.6 megawatt-peak (MWp) solar photovoltaic (PV) system at its manufacturing facility in Batu Kawan, Penang. Solarvest will provide engineering, procurement, construction and commission (EPCC) services to Dexcom Malaysia SB to install rooftop solar PV at Dexcom’s main building facilities and carpark, according to a joint statement from the company and the Malaysian Investment Development Authority (Mida). (The Edge)

JAKS Resources: To participate in Italy solar photovoltaic project. JAKS Resources has teamed up with a Germany-based renewable energy company to participate in a solar photovoltaic project with an installed capacity of 63.3 MW in Tuscany, Italy. JAKS said its wholly-owned subsidiary, JAKS Power SB has signed a memorandum of understanding with Zero Carbon Energy Europe GmbH (ZC Energy). Under the MOU, JAKS Power has three months to conduct its due diligence exercise, after which it may sign a definitive project investment agreement with ZC Energy. (The Edge)

Ekovest: Signs tripartite MOU with Chinese parties to explore cross-border collaboration. Ekovest has signed a tripartite MOU with China-based parties to explore cross-border socio-economic strategic collaboration with Shenzhen Maoxiong Co Ltd (MX) and Anxi County People's Government (Anxi). The agreement involves joint efforts in property and infrastructure development, fresh produce, agriculture, and aquaculture distribution and processing development in Malaysia and China. (The Edge)

Ewein: MGO concludes with no change in Ooi Eng Leong's stake. The mandatory takeover offer (MGO) for the balance 49.41% stake in Ewein launched by NationGate Holdings MD and major shareholder Ooi Eng Leong concluded with acceptances for a mere 1,099 shares received. With this, Ooi along with the two persons acting in concert — Datuk Seri Hong Yeam Wah and Goh Kiang Ten — saw their combined stake in Ewein remain at the 50.59% level. (The Edge)

Pharmaniaga: Inks MOU with China's CSPC. Pharmaniaga Bhd's wholly-owned subsidiary Pharmaniaga LifeScience SB has entered into a MOU with CSPC Holdings Co Ltd to explore a collaboration in the research and development, manufacturing and commercialisation of pharmaceutical and biopharmaceutical products. Pharmaniaga said that CSPC Pharmaceutical Group Ltd is a leading pharmaceutical group in China, and listed on the Main Board of the Hong Kong Stock Exchange since 1994. (StarBiz)

Market Update

The FBM KLCI might open without much fanfare today after US stocks ended flat after a choppy trading session on Wednesday, unmoved by the Federal Reserve’s latest action to raise benchmark interest rates. The US central bank lifted the federal funds rate to a target range of between 5.25% and 5.5%, its highest level in 22 years. The S&P 500 swung between losses and gains while Fed chair Jay Powell spoke to journalists. The stock index ended the day practically unchanged. The Europe-wide Stoxx 600 fell 0.6%, with consumer cyclicals leading declines after Louis Vuitton and Tiffany owner LVMH reported a decline in second-quarter revenues. The Stoxx Europe Luxury 10 index lost 2.4%. London’s FTSE 100 index dropped 0.2%, with Lloyds Banking Group among the biggest fallers after the lender reported that its earnings had fallen below expectations in the second quarter, in part because of higher charges for bad loans.

Back home, Bursa Malaysia staged a strong rally to end higher for a fifth consecutive day on Wednesday, pushing the benchmark FBM KLCI to an intraday high, due to strong market sentiment. At the closing bell, the KLCI had risen 0.87% or 12.50 points to settle at its intraday high of 1,449.29, from 1,436.79 at Tuesday’s close. In the region, Hong Kong’s Hang Seng index lost 0.4% and China’s benchmark CSI 300 declined 0.2% after Beijing vowed to stimulate the country’s slowing economy earlier in the week, but failed to convince investors.

Source: PublicInvest Research - 27 Jul 2023