Economy
US: Yellen bet on pulling workers back to labor force is paying off. Even as US unemployment crept lower in recent years, Federal Reserve Chair Janet Yellen stuck with a glacial pace of policy tightening that she justified with a powerful message: there were still millions of potential workers to pull in from the labor market’s sidelines. The latest news from the labor market is proving her right. While June’s US payroll report keeps the central bank on track to raise rates once more this year and begin unwinding its USD4.5trn balance sheet, it also suggests that Yellen’s decision to hold interest rates lower than some critics and colleagues preferred has helped heal some of the harm done by the Great Recession. (Bloomberg)
EU: ECB officials disagree on how much is too much for stimulus plan. ECB policy makers continued to air their differences over when to rein in stimulus, sending conflicting signals on whether pumping cash into the economy for much longer will help the euro area or hurt it. “Underlying inflationary pressure remains subdued” and “we still need a long period of accommodative policy,” Executive Board member Peter Praet, the ECB’s chief economist said. Governing Council member Klaas Knot warned that the central bank is “very close to the point” of keeping quantitative easing for too long. The remarks reflect the dissonance since the start of the year in the Governing Council over when officials should discuss winding down their EUR2.3bn (USD2.6bn) asset-purchase program. (Bloomberg)
EU: ECB’s Villeroy sees autumn as the season to adapt stimulus. The ECB is likely to decide on the next change in its stimulus settings in the fall, when it will continue the process of tweaking its measures to reflect the euro area’s upturn, according to Governing Council member Francois Villeroy de Galhau. The French central-bank governor’s remarks may be the most definitive yet on when the ECB will take action on its EUR2.3trn (USD2.6trn) asset-purchase program, which is currently scheduled to run until the end of the year. (Bloomberg)
UK: BOE policy hawks face new signs of weakening economy. The hawks circling over the BOE may have just got their wings clipped. Unexpectedly weak manufacturing, construction and trade data Friday all darkened the economic outlook, casting doubt over the UK’s performance in the 2Q and reining back expectations of tighter policy. The data follows weeks of speculation that the BOE may raise rates as soon as their Aug meeting, sparked by dissenting calls for a hike by three of eight voters at their June meeting and a fourth subsequently suggesting he might follow suit. (Bloomberg)
UK: Business says no Brexit deal isn’t an option in EU talks. UK companies are overwhelmingly opposed to Britain walking away from talks to leave the EU without a deal, a survey by the British Chambers of Commerce shows. More than a third of businesses want the UK to stay in the EU single market and customs union, according to the poll of 2,400 firms published. Almost 30% said a new comprehensive agreement would be best, while only 2% said that no deal, or a reversion to WTO rules, would be an acceptable objective. EU Chief Negotiator Michel Barnier said last week that Britain needs to do more to build trust if a deal is to be put in place before the two-year deadline expires. (Bloomberg)
UK, US: UK-US trade deal will not make up for leaving the EU. A post-Brexit trade deal with the US would not be enough to make up for leaving the EU, British justice minister David Lidington said, tempering Prime Minister Theresa May's enthusiasm about the US offer. May had warmly welcomed assurances on Saturday by US President Donald Trump that a "very powerful" trade deal with Britain would be reached "very, very quickly" after Britain leaves the EU. (Reuters)
China: No intention of devaluing its currency. China has no intention of devaluing its currency, the yuan, to boost its competitiveness, said the head of the country's foreign exchange regulator. There is also no necessity for China to devalue its currency, Pan Gongsheng, head of the State Administration of Foreign Exchange, said. The yuan slumped about 6.5% against the dollar last year in its biggest annual drop since 1994. But since then, the yuan has regained its vigour, rising 2.4% against the dollar in the 1H2017. (Reuters)
Japan: BOJ draws line in sand but faces long battle to cap bond yields. The BOJ faced down the market on Friday with its offer to buy an unlimited amount of bonds. The battle over yield control may just have begun. The swift action allowed the BOJ to quickly assert authority over the 10-year yield, bringing it down from a five-month high of 0.105%. The question is how far the central bank would have to go, and the costs to its balance sheet, as a hawkish tilt by peers spurs a widening yield gap with German bunds and US Treasuries. (Bloomberg)
Markets
Genting Malaysia (Neutral, TP: RM5.50): Says it's working to recover RM1.49bn from halted US casino project. Genting Malaysia (GENM) announced that it is working to recover its investment of USD347.4m (RM1.5bn) in an integrated gaming resort in Massachusetts US, which has been put on hold pending the resolution of a legal case. (The Edge) Comments: As mentioned in our note dated 4 Jan 2017 and commentary on 22 May 2017, the near term risk to GENM is a potential write-off of its initial investment in promissory notes issued by the Mashpee Wampanoag Tribal Gaming Authority due to an on going dispute between the tribe and local government. GENM’s venture in Massachusetts started in April 2016 when it first announced its participation as the manager of the First Light Resort & Casino. We are projecting a net profit of RM1.58bn for FY17. A complete write-off of the entire sum could potentially wipe off our FY17F earnings forecast. However, core net profit will remain unaffected. At this juncture, we maintain our Neutral rating on GENM with an unchanged TP of RM5.50.
Sime Darby (Outperform, TP: RM9.72): Incorporates unit in China for auto parts sales, services. Sime Darby has incorporated Kunming Bow Chuang Motor Sales and Services Co Ltd (KMBC), an indirect 65%-owned subsidiary of Sime Darby, in the People's Republic of China as a limited company. The business licence was issued by the market supervision administration of Kunming Panlong District. The licence was then received by Yunnan Bow Yue Vehicle Trading Co Ltd (YNBY), an indirect 65%-owned subsidiary of Sime Darby, on July 5. The entire registered capital of KMBC of CNY20m is held by YNBY. (The Edge)
SCGM (Outperform, TP: RM4.26): To set up factory in Klang Valley, allocates RM20m capex. SCGM is setting up a manufacturing facility in the Klang Valley to boost its market share in central peninsular Malaysia. The 47,000 sq ft facility, housed in rented premises in Telok Panglima Garang, Klang, would produce thermoform lunchboxes for Klang Valley market, the group said. It added it is allocating RM20m in capex for machinery. (The Edge)
Star (Neutral, TP: RM2.10): Approval of Cityneon stake sale triggers 90 sen per share general offer. Shareholders of Star Media Group have approved the sale of the company’s stake in Cityneon Holdings, triggering a mandatory general offer of 90 sen for each share. In an EGM held, Star Media shareholders approved the sale of their 52.51% stake in Cityneon to Lucrum 1 Investment for a consideration of SGD115.6m. (The Edge)
OWG: Plans placement to raise up to RM36.92m for expansion. Only World Group Holdings (OWG) is planning to place out up to 10% of its issued share capital to selected private investors to raise up to RM36.92m for business expansion. The proposed placement represents the issuance of up to 242.88m shares, at an indicative price of RM1.52 per placement share, said OWG. (The Edge)
Sunzen Biotech: Seeks to diversify into traditional Chinese medicine, herbal health F&B. Sunzen Biotech plans to diversify into the manufacturing and trading of traditional Chinese medicine and herbal health food and beverages business, through the acquisition of a 70% equity stake in health and wellness company Ecolite Biotech Manufacturing SB. The purchase consideration will be satisfied via the issuance of 37.66m new Sunzen shares at an issue price of 32 sen per share. (The Edge)
Market Update
The FBM KLCI might open higher today after US stocks and the dollar found some much-needed support Friday from a “risk friendly” non-farm payrolls report at the end of a week that was again dominated by a bond sell-off as the debate over central bank policy normalisation intensified. Oil markets provided another big talking point this week as sellers returned following an eight session run of gains that drove Brent up nearly 11%. Gold, meanwhile, was heading for its lowest close for four months. US payroll employment growth rose to 222,000 last month from an upwardly revised 152,000, easily beating expectations. The jobless rate ticked up to 4.4% from May’s 16-year low of 4.3%, suggesting the economy remained close to full employment. The average work week climbed to 34.5 hours from 34.4, but wage growth remained soft — with average hourly earnings up just 0.2% on the month and 2.5% year-on-year. On Wall Street, the stocks finished higher Friday with the Dow Jones Industrial Average rose 94.30 points, or 0.4%, for a weekly gain of 0.3%. The S&P 500 index rose 15.43 points, or 0.6%, to end at 2,425.18, for a less than 0.1% weekly gain. The Nasdaq Composite Index closed up 63.61 points, or 1%, at 6,153.08, for a weekly gain of 0.2%. In Europe, the stocks ended in slightly negative territory on Friday, pushed lower by a slide in oil prices and nagging worries about the potential end of ultraloose monetary policy. Performance-wise, Germany’s DAX 30 rose 0.1% to 12,388.68, France’s CAC 40 shed 0.1% to 5,145.16, and the U.K’s FTSE 100 turned up 0.2% to 7,350.92.
Back home, the FBM KLCI index lost 10.60 points or 0.60% to 1,759.93 points. Trading volume decreased to 1.31bn worth RM1.55bn. Market breadth was negative with 209 gainers as compared to 644 losers. Japan’s Topix index slid 0.5%, with notable falls for consumer stocks. Elsewhere, Hong Kong’s Hang Seng also fell 0.5% and the Shanghai Composite ticked up 0.2%.
Source: PublicInvest Research - 10 Jul 2017
