PublicInvest Research

PublicInvest Research Headlines - 11 Jun 2024

PublicInvest
Publish date: Tue, 11 Jun 2024, 12:02 PM
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An official blog in I3investor to publish research reports provided by PublicInvest Research team.

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HEADLINES

Economy

US: Fed's new economic projections may come with a dose of maybe, maybe not. Updated economic projections from Federal Reserve officials this week are expected to show fewer interest rate cuts than policymakers anticipated three months ago, faster expected inflation, and slower growth, a pinpoint economic outlook that will carry the weight of the U.S. central bank's authority. It may also come with what amounts to a consumer warning from Fed Chair Jerome Powell: Actual results may vary. With their forecasts stymied last year by faster economic growth and lower inflation than expected, and now by higher inflation and slowing growth, Fed officials of late have supplemented discussion of their outlook with the top alternate paths they think the economy may follow. Both a nod to what they don't know and a way to keep public expectations more fluid, it's a strategy Powell may well follow in his press conference after the end of a two-day policy meeting on Wednesday as a way to shift the center of attention from the new Summary of Economic Projections and its market-shaping plot of where officials think the policy interest rate is heading, with a focus on the median. (Reuters)

EU: ECB could wait several meetings between rate cuts, Lagarde says. ECB interest rates are not on a linear downwards path and policymakers could at times wait more than one meeting before cutting them again, ECB President Christine Lagarde said in a newspaper interview. The ECB cut rates from a record high last week but held off committing to any more policy easing given stubbornly high wage growth and yet another increase in inflation projections. "We’ve made the appropriate decision, but it doesn’t mean interest rates are on a linear declining path," Lagarde told several major European newspapers in a joint interview. "There might be periods where we hold rates again," Expansión, Handelsblatt, Il Sole 24 Ore and Les Échos all quoted her as saying on Monday. When asked if this meant the ECB could hold rates for longer than a single meeting, she said "it's a possibility". Markets now expect little more than one rate cut over the four meetings left this year and see between 3 and 4 reductions through the end of 2025, so in the next 12 policy meetings. (Reuters)

EU: Macron's shock election call rocks euro and French markets. The euro fell while French stocks and bonds tumbled, following President Emmanuel Macron's decision to call a snap parliamentary election after being trounced in a European Union vote by the far right. The euro fell by as much as 0.6% to a onemonth low of EURUSD1.0733 and hit a 21-month trough against EURGBX84.49. French government bond prices also fell , pushing 10-year borrowing costs to their highest this year, around 3.20%. Centre, liberal and Socialist parties were set to retain a majority after the European Parliament elections, but eurosceptic nationalists made the biggest gains, raising questions about the ability of major powers to drive policy in the bloc. Making a risky gamble to reestablish authority, Macron called a parliamentary election with a first round on June 30. (Reuters)

China: Home de-stocking push to bring developers little cheer. China's efforts to clear massive inventory by turning unsold homes into affordable housing are unlikely to help cash-strapped developers due to the programme's limited size and potentially low prices, analysts and developers say. As part of a support package for the crisis-hit property sector, Beijing announced last month a plan for a CNY300 bn (USD41 bn) lending facility, which could result in 500 bn worth of bank financing for local state-owned enterprises (SOEs) to purchase completed and unsold homes. Chinese banks are expected to extend cheaper loans to SOEs via the facility, backed by the central bank, to help them buy the homes from developers at "reasonable prices" to turn into affordable housing. Some private developers, however, see very few, if any, of their projects being selected as the lending facility is inadequate and the scheme is only expected to launch in bigger cities where affordable housing is available. Price offers from SOEs are also likely to be low, they say. (Reuters)

Japan: Q1 GDP fell less than first reported on revised capex. Japan's economy contracted less than initially reported in JanMarch on upward revisions to capital spending and inventory data, lending modest support to the central bank's plans to raise interest rates again this year. Analysts expect the Japanese economy to have bottomed out in the first three months of the year, although a stubbornly weak yen and disruptions at major automaker plants continue to cloud the outlook for the current quarter. Japan's GDP shrank a revised 1.8% annualised in the first quarter from the previous three months, Cabinet Office data showed, a smaller decline that economists' median forecast for a 1.9% contraction and a 2.0% decline in the preliminary estimate. The revised figure translates into a QoQ contraction of 0.5% in price-adjusted terms, unchanged from the initial reading issued last month. (Reuters)

Japan: Service sector mood hits nearly 2-year low in May. Japan's service sector sentiment worsened in May to levels unseen in nearly two years, government data showed, as rising fuel and food costs from a weak yen dragged on household spending. The data highlights the fragile nature of consumption, making it harder for the BoJ to justify further interest rate hikes. An index measuring sentiment among service-sector firms like taxi drivers and restaurants stood at 45.7 in May, down 1.7 point from the previous month and hitting the lowest level since August 2022, the survey showed. Moreover, a gauge of firms' sentiment on the economic outlook also fell 2.2 points to 46.3, worsening for the third straight month and marking the lowest level since July 2022. The "economy watchers" survey is closely watched by markets as a leading indicator of household spending and the broader economy, due to the polled firms' proximity to consumers. (Reuters)

Japan: Government to call for flexible policy amid price uncertainty, draft blueprint shows. Japan's government will highlight the need to work closely with the central bank and guide policy "flexibly" in the wake of soft consumption and uncertainty over the inflation outlook, a draft of its annual economic blueprint seen by Reuters showed. "Monetary policy has entered a new stage," which required the government and the Bank of Japan to "continue working closely and guide policy flexibly in accordance to economic and price developments," according to the draft. By keeping inflation stably around the BOJ's 2% target, policymakers will seek to create an environment where wages rise faster than inflation on a sustained basis, the draft said. The government draft will be presented to ruling party lawmakers for deliberations, before being finalised at a Cabinet meeting on June 21. (Reuters)

Markets

Cypark (Neutral, TP: RM0.86): After a two-year delay, Cypark achieves commercial operation date for 100MW LSS3. Cypark Resources said that it achieved the commercial operation date of its 100MW Large Scale Solar 3 (LSS3) hybrid solar plant project in Merchang, Terengganu on June 9. The group’s executive director Muhammad Ashraf Muhammad Amir also expressed confidence in the timely delivery of the LSS2 floating solar plant in Danau Tok Uban, Kelantan, targeted for COD in the third quarter of this year, as well as readiness to participate in the Third-Party Access (TPA) programme anticipated to be introduced later in 2024. (The Edge)

Scientex: Unit to acquire land in Johor for RM381.4m. Scientex’s wholly owned subsidiary Scientex Quatari SB has entered into a conditional sale and purchase agreement with Lee Pineapple Company (Pte) Ltd to acquire 14 parcels of freehold land, measuring 141.74 hectares, in Johor for RM381.4m. The property developer noted that Scientex Quatari has proposed to develop the land into a mixed-property development. (The Edge)

Deleum: Indirect unit secures PETRONAS job. Deleum’s 86.67%-owned indirect subsidiary Deleum Technology SB has secured a contract from PETRONAS Carigali SB for the provision of offshore maintenance, construction and modification services covering Peninsular Malaysia assets (gas package) for 2024. Deleum said the contract, valued at RM105mil, will run from May 16, 2024 to Dec 31, 2024. It said the contract is expected to be funded via internally generated funds. (StarBiz)

LSH Capital: Putrajaya awards LSH Capital's JV a 20-year concession for KL Tower operation. The federal government has agreed in principle to grant a 20-year concession for the operation and maintenance management of Kuala Lumpur Tower to construction company Lim Seong Hai Capital and its joint venture (JV) partner. LSH Capital said that its subsidiary, LSH BEST Builders SB, and Service Master (M) SB formed LSHBB-SMMSB JV, which received a letter from the Public Private Partnership Unit (UKAS), Prime Minister’s Department, on June 7, informing them of the government's agreement in principle for the operation and maintenance management of KL Tower. (The Edge)

Ageson: Secures RM76m construction job in Sepang. Ageson said it has secured a RM75.7m contract to undertake a construction project in the Sepang district of Selangor. The project, awarded by construction company Mateen Group SB, is for the construction of a main building at Kampung Limau Manis, a Malay reserve land near Putrajaya. Ageson said it is responsible for providing labour, materials, tools, equipment and machinery for the project, with the contract expected to last 42 months upon obtaining building plan approval. (The Edge)

PUC: To acquire fintech vertical for RM200m. PUC has entered into a heads of agreement for the purchase of the entire equity stakes in Alevate Capital SB and Alevate Solutions SB for RM200m to be satisfied in cash and shares. The vendors of the companies are Eatcosys SB, a wholly-owned subsidiary of Incite Innovation SB, and Tham Lih Chung. Under the terms of the agreement, PUC will settle the first RM100m of the purchase consideration through the issuance of 800m PUC shares at 12.5 sen a share. An additional RM7.5m in cash will be payable once Alevate Capital and Alevate Solutions achieve a pre-tax profit of RM16m from July 1, 2024, to June 30, 2025. (StarBiz)

MARKET UPDATE

The FBM KLCI might open higher after US stocks ticked to more records Monday ahead of a week with several top-tier reports on inflation due, as well as the Federal Reserve’s latest meeting on interest rates. The S&P 500 rose 13.80 points, or 0.3%, to 5,360.79 and topped its all-time high set last week. The Nasdaq composite also set a record after rising 59.40, or 0.3%, to 17,192.53, while the Dow Jones Industrial Average gained 69.05, or 0.2%, to 38,868.04. Southwest Airlines flew to one of the market’s biggest gains, up 7%, after Elliott Investment Management said it’s taken a $1.9bn ownership stake in the company and is pushing for new leadership to modernize the carrier’s software, strategy and operations. In stock markets elsewhere, France’s CAC 40 index sank 1.3% after French President Emmanuel Macron dissolved the National Assembly following surprising results in elections for the European Parliament. Far-right parties made gains, and the value of the euro dropped. Other indices also fell in Europe, though not by as much as France’s. Markets in Asia were mixed. Tokyo’s Nikkei 225 index rose 0.9% after data showed Japan’s economy shrank by less in the year’s first three months than earlier thought. South Korea’s Kospi fell 0.8%, while markets were closed in Shanghai, Hong Kong and Australia for holidays. Bursa Malaysia’s barometer index ended in negative territory as investors shifted focus on small-cap stocks. At the closing bell, the FBM KLCI fell by 3.49 points to 1,614.37 compared to Friday’s close of 1,617.86, weighed by losses in Press Metal and YTL Corporation.

Source: PublicInvest Research - 11 Jun 2024

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