SINGAPORE (Aug 26): The minutes of the Federal Open Market Committee’s July 31 meeting have indicated that the officials were widely divided in the US Federal Reserve’s decision to ease monetary policy.
While most Fed officials voted to cut the interest rate by 25 basis points, “a couple” of members were more hawkish, preferring a reduction of 50bps instead. Their stance was justified on the premise that “stronger action” was needed to address “stubbornly low inflation”. On the other side of the fence, Boston Fed president Eric Rosengren and Kansas Fed president Esther George wanted to keep interest rates unchanged, as they were convinced that “the real economy continued to be in a good place”.
Indeed, the diversity in views could complicate issues facing the Fed, especially since the market is anticipating another interest rate cut before the year ends. For one, fears of a recession have intensified following the inversion of the US yield curve. This is compounded by slowing global growth and the unresolved trade tensions between the US and China. Fed officials will meet again in September.
Stephen Innes, managing partner at Valour Markets, nevertheless reckons the US central bank will continue to ease monetary policy. “The minutes painted a convincing enough picture that the Fed will continue to go along with the market’s expectations for more cuts, as they will not want to tighten financial conditions, but at the same time not feel pressured to get ahead of the curve,” he writes in an emailed commentary dated Aug 22.
Alvin Liew, senior economist at UOB Bank, is of a similar view. He says the minutes do not change his expectations that the Fed will stay on pause in September before delivering a 25bps cut in December. However, he is keeping a close watch on the ongoing development in the US-China trade talks and the yield inversion in the 10-year US Treasury note.
Active stocks
On the local corporate front, Creative Technology reported a poor set of results for FY2019 ended June 30. The company chalked up a net loss of US$3.8 million ($5.3 million) compared with earnings of US$40.4 million in the preceding year. Revenue declined 17% to US$54.9 million from US$66.1 million a year ago. Despite the uncertain economic conditions, the company expects better numbers this current year because of a slate of new products to be launched. Creative closed on Aug 22 at $3.13, down 8.5% for the day.
Raffles Education Corp, however, did better in FY2019. The company reported that revenue rose 1% to $97.9 million and earnings quadrupled to $40.2 million, or 2.92 cents a share, from a year ago. The improved bottom line was due to a one-off $37.4 million gain from the disposal of subsidiary Langfang Development Zone Oriental University City Sino-Singapore Education Investment Co. Raffles Education closed on Aug 22 at 7.5 cents, up 2.7%.
At PS Group Holdings, executive chairman Teo Choon Hock and managing director Kwek Keng Seng are offering to buy shares of the little-known bolts and nuts supplier that they do not already own at 11.8 cents each. Based on the company’s share price of four cents on Aug 6 — the last day the counter was traded before the offer announcement — the offer price represents a premium of 194.1%. The company had a net asset value per share of 16.02 cents as at June 30. Teo and Kwek own 38.5% and 31.5% of the company respectively. As the offer was made to resolve PS Group’s low trading volume, Teo and Kwek do not intend to maintain the company’s listing status. PS Group closed on Aug 22 at 11.3 cents, up 182.5% from the previous day’s close.
Meanwhile, the operations of Yangzijiang Shipbuilding (Holdings) are in the “good hands” of Ren Letian, son of executive chairman Ren Yuanlin, according to an Aug 21 report by DBS Group Research, which hosted an investor conference call with the company. The report noted that Letian succeeded his father as CEO in March 2015, after having managed various divisions of the shipyard for nearly 10 years.
In the call, chief financial officer Liu Hua gave the assurance that Yangzijiang’s operations were being carried out as usual. She added that the chairman had taken leave of absence to assist in an investigation, but that the investigation was not related to the company. DBS believes the clarification should alleviate some concerns, but reckons that the issue is likely to remain as an “overhang” and cause share price volatility, which had been aggravated by short-sellers, “until the dust settles”. The stock closed on Aug 22 at 93 cents, down 3.6%.
The week ahead
The G7 summit will take place in Biarritz, France from Aug 24 to 26. Companies scheduled to report earnings include Metech International on Aug 27, followed by Karin Technology, Wilton Resources, Sino Grandness and Union Steel on Aug 28.
