SINGAPORE (June 24): As expected, the US Federal Reserve kept interest rates unchanged at between 2.25% and 2.5%, following the conclusion of the Federal Open Market Committee (FOMC) meeting on June 18 and 19. This came amid growing economic uncertainty and risks despite a largely robust US economy so far this year.
Fed chairman Jerome Powell recalled that the US central bank’s policy stance had been “broadly appropriate” since the beginning of the year, and that it had been “patient” to make any changes. However, “in the light of increased uncertainties and muted inflation pressures, we now emphasise that the committee will closely monitor the implications of incoming information for the economic outlook and will act [appropriately]”, he said at a press briefing following the FOMC meeting.
In particular, trade uncertainty arising from escalating tensions between the US and China was the chief concern. Both countries have yet to reach a deal, which was supposed to be inked earlier this year. “We do not know how or when these issues will be resolved,” said Powell.
Market observers are now predicting that the Fed will implement rate cuts in the second half of the year. The expectation for a July rate cut has now surged to 100% from 88% previously, according to CMC Markets analyst Margaret Yang in a June 20 commentary.
Pimco US economist Tiffany Wilding says the Fed’s policy outlook now appears largely in line with the fund management firm’s expectations that the policy outlook is binary. “If US-China trade tensions aren’t at least de-escalated around the G20 meeting or if other downside risks to the US economy materialise, we see the potential for a 50-basis-point policy rate cut as early as the July 31 FOMC meeting,” she writes in a June 20 market commentary. “Conversely, if trade tensions improve and economic data is stable, we expect the Fed will try to delay taking any action.”
Asset prices up and down
In response to the Fed’s decision, US equity markets finished broadly higher on June 19. The Nasdaq Composite Index, Standard & Poor’s 500 index and Dow Jones Industrial Average closed 0.4%, 0.3% and 0.1% higher, respectively. Sectorial performance suggests cautious optimism, however, as defensive sectors — such as healthcare, utilities and real estate — were leading the gain, says CMC’s Yang.
Gold prices also hit their highest in the last five years. The precious yellow metal traded at about US$1,380 an ounce on June 20. “A shift in the global central bank’s policy guidance is the main driver behind precious metal prices. As more money is created in a prolonged easing cycle, fiat currency circulating in the financial system will gradually depreciate against physical goods. In other words, the eroding purchasing power of paper money has led to a rush into traditional, physical currencies for a store of value,” says Yang.
Meanwhile, the pound and other UK-based assets are expected to be hit as the UK searches for a new leader to guide the country out of the European Union. Five candidates are currently vying to be the UK’s next prime minister, following the resignation of Theresa May last month. Former foreign minister Boris Johnson is said to be in the lead. The others are Secretary of State for Foreign and Commonwealth Affairs Jeremy Hunt, Secretary of State for Environment, Food and Rural Affairs Michael Gove, Home Secretary Sajid Javid and Secretary of State for International Development Rory Stewart.
Nigel Green, founder and CEO of finance advisory firm deVere Group, says the debate between the five men on June 18 failed to instil confidence. “None of them could answer how they would get their version of Brexit over the line,” he says. “The chaos and uncertainty triggered by Brexit — which was recently intensified by the race to become the new Prime Minister — has put the pound on a considerable downward trajectory. An already-battered pound has lost almost 5% of its value against the US dollar since the start of May. Similarly, it continues six straight weeks of falls against the euro.”
Astrea V PE bonds see reduced popularity
In Singapore, the Astrea V private-equity bonds, which were open for subscription from June 12 to 18, were not as popular as its immediate predecessor, the Astrea IV PE bonds. Astrea V, which is the issuer, received nearly $820 million in valid applications from a total of 30,816 applicants. This translates into a subscription rate of 4.5 times, lower than Astrea IV PE bonds’ 7.4 times last year.
According to Azalea Investment Management, parent of the issuer, all valid retail applicants who applied for $5,000 or less received full allocations. Those who applied for less than $50,000 received some allocation. This comprised 75% of the $180 million retail public offer of the Class A-1 bonds. For applicants who applied for $50,000 or more, balloting was conducted with successful applications allocated in part, says Azalea. Those who did not receive their allocation should have their respective balances already refunded through their bank accounts by 6pm on June 20.
In total, the amount of valid subscriptions received by the issuer for all three classes of bonds, including both the placement to institutional and accredited investors and the public offer, was US$4 billion ($5.4 billion). This represented a total subscription rate of 6.7 times. Distribution of the bonds was a “good” mix of high-quality institutions (55%), accredited investors (23%) and retail investors (22%), according to Azalea. The Astrea V Class A-1 Bonds commenced trading on the Singapore Exchange on June 21.
In the corporate scene, real estate developer Yanlord Land Group registered total pre-sales of RMB1.34 billion ($265.2 million) from the inaugural launch of Yanlord Four Seasons Gardens in Shenzhen, China. The company sold 283 of the 323 apartments launched during the opening weekend at an average selling price of RMB51,000 psm. The total gross floor area of the 283 units sold was 26,300 sq m. Yanlord shares closed on June 19 at $1.29, up 3.2%.
Fortune REIT, which has a primary listing in Hong Kong, will remove its secondary listing on the Mainboard of SGX. The delisting move is because of reasons such as administrative overheads, costs of compliance and low trading volume in Singapore.
SGX says has it no objections to the delisting as long as Fortune REIT bears costs such as fees for the unit transfer process and gives a three-month notice period before the delisting date. Fortune REIT has already received in-principle approval from the Monetary Authority of Singapore to withdraw its authorisation as a collective investment scheme in Singapore. It ended June 19 at HK$10.66, up 0.57%.
The week ahead
Following weeks of uncertainty, US and Chinese presidents Donald Trump and Xi Jinping earlier this week confirmed that they would be meeting on the sidelines of the G20 meeting in Osaka on June 28 and 29, bringing some relief to market watchers hoping that trade tensions will not to worsen. Trump is also expected to meet Russian President Vladimir Putin.
Economic data out this coming week includes Singapore’s consumer price index on June 24 and industrial production figures on June 26.
