HEADLINES

Economy

US: Fed is about to nod at rate cut as job growth moderates. Federal Reserve officials are on the verge of lowering borrowing costs within months, a move chair Jerome Powell may signal in the coming week as the risks grow of imperilling a solid but moderating job market. US central bankers, who’ve kept interest rates at a more than two-decade high for a full year, are widely expected to leave them there again when their two-day meeting ends. Instead, investors see Fed officials lowering their benchmark rate in Sept. Recent data have been promising, with milder price increases alongside robust economic growth, but the Fed wants a bit more assurance that inflation will continue to fall toward their 2% target. The downdraft in price pressures, paired with an upward creep in the unemployment rate, has brought the Fed’s two goals — maximum employment and stable prices — more into balance. Officials want to tame inflation, but they also don’t want to cause undue harm to the labor market by holding rates high for too long. (Bloomberg)

US: Inflation rises moderately, consumer spending cools. US prices increased moderately in June as the declining cost of goods tempered a rise in the cost of services, underscoring an improving inflation environment that could position the Federal Reserve to begin cutting interest rates in Sept. The report from the Commerce Department also showed consumer spending slowed last month. Signs of easing price pressures and cooling demand could boost the confidence of Fed officials that inflation is moving toward the US central bank's 2% target. "Inflation continues to moderate and is slowing approaching the Fed's target," said Jeffrey Roach, chief economist at LPL Financial. "At the upcoming meeting, we should expect the Fed to highlight the slowdown in hiring as one reason to cut rates at the September meeting. (Reuters)

EU: Inflation expectations remain unchanged. Eurozone consumers' inflation expectations remained stable in July, the latest consumer expectations survey published by the European Central Bank showed. Inflation expectations for the coming year was steady at 2.8% after having fallen in May to their lowest level since Sept 2021. Inflation expectations for the next three years also remained unchanged in July, at 2.3%. However, economic expectations became more negative. The median forecast for economic growth over the next 12 months dropped to -0.9% from - 0.8% in May. Meanwhile, expectations for the unemployment rate over the coming twelve months decreased to 10.6% from 10.7% in May, the lowest level since the start of the series. (RTT)

EU: Spain jobless rate lowest since 2008. Spain's unemployment rate fell to the lowest level in nearly 16 years in the second quarter as tourism boosted job creation, data from the statistical office INE revealed. The jobless rate fell to 11.27% in the second quarter from 12.29 percent in the first quarter. This was the lowest rate since the third quarter of 2008. Economists had forecast the rate to fall to 11.4% in the second quarter. The number of employed decreased to 21.68m in the second quarter. Compared to the previous year, employment rose by 426,300. Faster economic growth helped the nation to create more jobs. The statistical office is scheduled to publish the second quarter GDP data on July 30. (RTT)

China: Industrial profits post faster gains in June despite faltering economy. China's industrial profits grew at a faster clip in June, official data showed, even as businesses were grappling with a downshift in consumers' sentiment amid a shaky economic recovery. A 3.6% YoY rise in profits last month followed a 0.7% gain in May, while first-half earnings were up 3.5%, accelerating from a 3.4% increase in the January-May period, National Bureau of Statistics (NBS) data showed. (Reuters)

Singapore: Maintains monetary policy for fifth time; cuts inflation outlook. Singapore's central bank left its monetary policy unchanged for the fifth consecutive meeting despite downgrading the inflation outlook. The Monetary Authority of Singapore decided to maintain the prevailing rate of appreciation of the S$NEER policy band. There will be no change to its width and the level at which it is centered. The MAS applies the exchange rate against a basket of currencies within an undisclosed band as its monetary policy tool. The central bank last tightened its policy in Oct 2022. The MAS lowered its headline inflation outlook to 2.0 to 3.0% this year, from the previous forecast of 2.5 to 3.5%. (RTT)

Markets

Hibiscus Petroleum (Outperform, TP:RM3.20): Awarded 65% participating interest in PSC by Petronas. Hibiscus Petroleum has been awarded a 65% participating interest (PI) and operatorship in a production sharing contract (PSC) by Petroliam Nasional. Its unit Hibiscus Oil & Gas Malaysia Ltd (HML) had secured the 65% PI, while the remaining share is held by Petronas Carigali SB.

Comment: As of now, we understand Hibiscus is still pursuing approval from PETRONAS to release further information in regards with the PSC awarded. Nevertheless, we view the PSC award positively as it will increase the Group’s daily production towards its target, 35k-50k boe/d in 2026. The new PSC fields are likely to share the existing topside structure in the southern field PM3 CAA due to its distance within tie-back length of the existing PM3 CAA PSC. We expect more information (such as capex, reserve, timeline, etc) will be further disclosed upon approval from PETRONAS. Maintain Outperform and TP RM3.20

AirAsia X: To take over Capital A’s aviation business directly without setting up NewCo. AirAsia X will be acquiring Capital A aviation business directly, and not via a new company (NewCo) under an internal reorganisation proposed previously, to expedite the takeover. AAX had proposed to acquire the aviation business for RM6.8bn. It planned to issue new shares worth RM3bn, 2.31bn shares at RM1.30 each, to acquire AAAGL. As for AAB, AAX proposed to acquire it for RM3.8bn, to be satisfied by assuming RM3.8bn of some RM3.83bn worth of debt that Capital A owed AAB. (The Edge)

ViTrox: Founders team up with Southern Capital to launch RM150m Cambrian Fund to boost tech ecosystem. In a move to bolster Malaysia’s technology ecosystem, ViTrox Corp’s cofounders are partnering with private equity firm Southern Capital Group to create a venture capital fund. Dubbed the Cambrian Fund, it aims to support local tech startups and nurture a robust tech ecosystem in Malaysia. The fund will focus on the Industrial 4.0 themes, including vision artificial intelligence and robotics. (The Edge)

Ekovest: Agrees to six-month extension for merger discussion between subsidiary and Knusford. Ekovest has agreed to a further extension of time to discuss a merger between its wholly owned subsidiary Ekovest Construction SB (ECSB) and Knusford. The six-month extension to Jan 27, 2025 will provide Ekovest and Knusford with additional time to evaluate and deliberate the terms of the definitive agreement for the proposed merger. The deadline was previously extended by two months from May 28, 2024 to from July 28, 2024. (The Edge)

Kitacon: Wins RM54.5m construction contract. Kumpulan Kitacon’s wholly owned subsidiary company, Kitacon SB has secured a RM54.5m construction contract from Rawang Lakes SB. The contract is for the construction of 186 units of two-storey terrace houses and one unit of Tenaga Nasional substation in Bandar Tasik Puteri, Rawang, Selangor. The contract commences on Aug 1, 2024, and is to be completed within 20 months from the commencement date. Including the latest one, Kumpulan Kitacon has announced four contracts since the start of 2024, with a total value of RM335.62m. (StarBiz)

MARKET UPDATE

The FBM KLCI might open higher today after a widespread rally swept Wall Street Friday, lifting far-reaching corners, to close a tumultuous week where stocks that had been left behind for much of this year’s record-setting run wrested the spotlight back from the market’s biggest stars. The S&P 500 jumped 1.1% for its best day in seven weeks after 3M and several other big companies delivered better profits for the spring than analysts expected. The Dow Jones Industrial Average soared 654 points, or 1.6%, while the Nasdaq composite climbed 1%. The market’s widespread gains included rallies for both Big Tech behemoths and smaller stocks. That’s a departure from recent trading, where a divide deepened between the handful of elite stocks that dominated the market for much of this year and almost everyone else. Nvidia rose 0.7% to trim its loss for the week to 4.1%. Most of the other members of the small group of stocks known as the “Magnificent Seven” also climbed to claw back some of their losses from earlier in the week. In stock markets elsewhere, stock indices were higher across much of Europe and Asia. Japan’s Nikkei 225 was an outlier and slipped 0.5% amid expectations the Bank of Japan may raise interest rates at a policy meeting this week. Back home, Bursa Malaysia ended the last trading day of the week on a slightly weaker note as market participants largely remained on the sidelines and staying cautious over the high volatility in global equities. At the closing bell, the FBM KLCI slid 2.30 points, or 0.14%, to 1,612.88 from Thursday's close of 1,615.18.

Source: PublicInvest Research - 29 Jul 2024