DAILY MORNING NOTE | 20 April 2023

Technical Pulse: Calm before the volatility storm for US markets

Analyst: Zane Aw

– The current rally for the US markets could be the calm before much greater volatility that lies ahead after studying the relationship between several economic and technical indicators

– Recent data suggests sustained contraction in PMIs and job openings, tightening credit conditions along with greedy market conditions would lead to rising unemployment rate thereafter, a significant headwind for equities

– Broad market strength remains lacking given low breadth and investors should brace for an upcoming surge in volatility with the Volatility S&P 500 Index (VIX) at its lowest reading since December 2021, suggesting probable downside ahead

Singapore shares managed to buck the downtrend in most key Asian bourses on Wednesday (Apr 19). The poor showing in the region came after two Federal Reserve officials overnight reaffirmed views that more interest rate hikes were needed. Singapore shares rose 0.4 per cent or 14.49 points to 3,324.05 at the closing bell. OCBC closed 0.9 per cent higher at S$12.89, UOB climbed 0.8 per cent to S$30.10, while DBS rose 0.6 per cent to S$32.95.

US stocks closed mostly flat on Wednesday following another day of mixed company results. The markets have been digesting quarterly earnings from the biggest American banks, with Morgan Stanley reporting a sharp decline in profits earlier in the day. The Wall Street bank’s shares ended the day up 0.7 per cent, while streaming company Netflix saw its stock fall by 3.2 per cent after the release of its first quarter results as well. The Dow Jones Industrial Average was down 0.2 per cent at 33,897.34, while the broad-based S&P 500 was almost unchanged at 4,154.54. The tech-heavy Nasdaq Composite Index was also relatively flat at 12,157.23.

SG

Catalist-listed Accrelist will acquire a 51 per cent stake in four medical aesthetic clinics for S$550,000, the group said late on Tuesday (Apr 18). Accrelist, which has businesses in skincare products, medical aesthetics and electronics solutions, will acquire 102,000 shares in SJY Medical, which operates the four clinics at Novena Medical Centre, NEX Serangoon, Jurong Point, and SingPost Centre. The book value of the sale shares is valued at S$358,507 for the Aug 1, 2022, to Mar 31, 2023, period.

Mainboard-listed Nanofilm Technologies, which specialises in advanced materials and coatings, posted a 40 per cent fall in revenue to S$33 million for its first quarter ended Mar 31, 2023. Q1 is typically cyclical in line with production cycles, while revenue was also hit by China’s slow and soft recovery since its reopening, the company said in a business update on Wednesday (Apr 19).

Keppel Infrastructure Trust (KIT) has closed its private placement at S$0.477 per unit. The private placement closed at the highest end of KIT’s proposed price range, and follows the trust’s announcement of its plans to launch an equity funding exercise on Tuesday (Apr 18). KIT’s manager said on Wednesday that book orders for the placement have closed for the day. It expects the placement units to be listed on the Singapore Exchange at 9 am on Apr 27.

Keppel Reit posted a distributable income from operations of S$50.2 million for its first quarter ended Mar 31, 2023, down 6.7 per cent from S$53.8 million in the same period a year earlier. This was mainly due to higher borrowing costs, the Reit’s manager said in a business update on Wednesday (Apr 19). However, the Reit will also be distributing an anniversary distribution of S$5 million for the quarter, in celebration of its 20th anniversary in 2026. The manager earlier announced that the Reit would distribute a total of S$100 million of the anniversary distribution over a five-year period.

Elite Commercial REIT has renewed leases for 134 of its properties that will see its total annual rental income from these properties increase 13% from £31.8 million to £36 million following the revisions. The rent review, which took effect on April 1, is pegged to the UK consumer price index. The tenant for these properties is the UK government. As at Dec 31, 2022, the REIT has 155 properties in its portfolio, valued at £466.2 million.

Iron miner Fortress Minerals has renewed an offtake agreement with a steel mill. Fortress Minerals has an existing 15-month offtake agreement with the same mill signed back in Oct 2021. The new agreement is for 9 months covering April to December this year. Under this agreement, Fortress Minerals will deliver around 270,000 wet metric tonnes of iron ore. The delivery volume is subject to a variance of an additional or a reduction of 20% at the option Fortress Minerals.

US

Morgan Stanley’s first-quarter profit beat expectations as rising revenue from its wealth management division offset declines in its investment banking and trading units. Shares, however, fell more than 2 per cent in premarket trading. Revenue from investment banking fell 24 per cent to US$1.25 billion, while the wealth management unit saw a 11 per cent jump, bringing in US$110 billion in net new assets.

Alphabet’s Google has offered to give Android app makers a choice of billing systems in the UK, the country’s competition regulator said. “By breaking the link between app developers’ access to Google Play and Google’s payment system, the commitments could allow Google Play users to access new special offers and in-app deals that are not permitted under current Google Play rules,” the Competition and Markets Authority (CMA)said in a statement on Wednesday (Apr 19).

Audio streaming platform Spotify was back up for most users, the company said on Wednesday (Apr 19), after a brief outage that disrupted service for tens of thousands of users globally. The company did not disclose the number of users affected by the disruption, but outage tracking website Downdetector.com showed more than 20,000 incidents in the US and over 8,000 in the UK at the peak of the outage. The site tracks outages by collating status reports from sources including user-submitted errors on its platform.

Tesla missed first-quarter profit estimates after a series price cuts designed to boost demand squeezed margins. Revenue rose 24 per cent to US$23.33 billion in the quarter, nearly in line with Bloomberg estimates of US$23.35 billion. Profit excluding some items fell to 85 cents a share, slightly below the 86 US cent average of estimates compiled by Bloomberg, while free cash flow slumped to a two-year low of US$441 million. Analysts had expected free cash flow to reach US$3.24 billion in the quarter.

Meta Platforms is set to commence companywide layoffs on Wednesday (Apr 19) as it restructures teams and works towards founder Mark Zuckerberg’s goal of greater efficiency. The Facebook parent company notified managers to prepare to announce job cuts on Wednesday, via a memo seen by Bloomberg News. It indicates Facebook, WhatsApp, Instagram and Reality Labs — which houses the firm’s virtual reality efforts and Quest hardware — will all be impacted. The move is part of a cost-cutting push that will eventually whittle away 10,000 positions at the company, as announced by Zuckerberg in March. A further round of cuts is set to follow in May.

Walt Disney plans to start cutting thousands of jobs next week, including about 15 per cent of the staff in its entertainment division, people familiar with the matter said. The cuts will span TV, film, theme parks and corporate positions, and affect every region where Disney operates, said the people, who asked not to be identified because the details aren’t public. Some affected workers will be notified as early as Apr 24.

Abbott Laboratories reported quarterly profit above expectations on Wednesday (Apr 19), driven by sales of its diabetes care devices and an improved demand for other devices due to a resumption in non-urgent medical procedures. Improvement in staffing levels at hospitals across the US, along with the easing of pandemic restrictions in various countries were expected to aid in the recovery of procedure volumes, and in turn, help Abbott and other medical device makers generate strong sales this quarter.

Sumitomo Mitsui Financial Group (SMFG) sold yen Additional Tier 1 (AT1) bonds, becoming the first major global bank to issue such debt since the collapse of Credit Suisse Group last month. The deal is another sign that the global financial turmoil triggered by the failure of Silicon Valley Bank is easing. The Tokyo-based lender sold 140 billion yen (S$1.4 billion) of AT1 notes in two parts, according to sole underwriter SMBC Nikko Securities.

Source: SGX Masnet, Bloomberg, Channel NewsAsia, Reuters, CNBC, WSJ, The Business Times, PSR

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