DAILY MORNING NOTE | 21 July 2022

After a slight stutter in the previous session, the Straits Times Index (STI) jumped 1.7 per cent or 52.5 points to 3,170.29 points on Wednesday (Jul 20), as Asian equity markets soared on the coat-tails of an “impressive” rally by Wall Street overnight. Across key Asian markets, Hong Kong’s Hang Seng Index, Japan’s Nikkei 225 index, South Korea’s Kospi, the Jakarta Composite Index and the FTSE Bursa Malaysia KLCI rose between 0.6 per cent and 2.7 per cent.

Wall Street indices closed higher on Wednesday, extending the prior session’s rally into a second day, a bright spot in a dismal year for equities. The Dow Jones Industrial Average rose 0.2 per cent to finish at 31,878.20. The broad-based S&P 500 added 0.6 per cent to close at 3,959.95, while the tech-rich Nasdaq Composite Index gained 1.6 per cent to 11,897.65. While the better-than-expected tone of quarterly earnings reports has helped, Karl Haeling of LBBW said the bounce mostly reflects investors readjusting and notably moving back into tech shares.

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SG

Certificate of entitlement (COE) premiums ended higher in all categories at the latest tender exercise on Wednesday (Jul 20), with the Open category setting a new high for the second time in a row. The premium for the Open category COE, which tends to be used for larger cars, ended at S$114,001, a 3.1 per cent increase from last round’s S$110,524. Premiums for cars with engines above 1,600cc or 130bhp, as well as electric vehicles (EVs) with power output above 110 kilowatts rose by 2 per cent from S$107,800 to S$110,003. For smaller and less powerful cars and EVs, COE premiums went up by 1.2 per cent from S$78,001 to S$78,899. The commercial vehicle COE premium went up from S$54,001 to S$54,889, a hike of 1.6 per cent. The price of motorcycle COEs rose by S$21 from S$10,889 to S$10,910.

Sabana Industrial Real Estate Investment Trust (Sabana Reit) on Wednesday (Jul 20) posted a distribution per unit (DPU) of S$0.0159 for the first half of its fiscal year ended June, up 7.4 per cent from S$0.0148 in the corresponding year-ago period. Donald Han, chief executive of Sabana Reit’s manager, said that the company has “improved” on its portfolio value over the past 6 months, which has translated to a higher net asset value per unit and higher net property income. “Together, these have enabled us to reward unitholders with a higher DPU,” he added. “We’ve been in pole position in the industrial real estate investment trust (Reit) space in Singapore,” Han said at a briefing accompanying the results announcement. He noted that Sabana Reit had outperformed key indices in the first 6 months of the year, with its unit price rising 2.3 per cent for a total return of 5.8 per cent for H1. In comparison, the benchmark Straits Times Index (STI) dipped 0.7 per cent from January to June 2022, while the iEdge S-Reit Index declined 6.1 per cent and the FTSE ST All-Share Reit Index retreated 5 per cent. Gross revenue for H1 was up 14.7 per cent year on year to S$44.9 million from S$39.1 million, due primarily to higher a portfolio occupancy of 88.2 per cent – which in turn came largely on the back of a newly secured 10-year master lease for 30 and 32 Tuas Avenue 8.

Food company QAF is expected to report a “significant improvement” in both profit before tax and profit after tax and exceptional items figures for H1 ended June compared to the corresponding period in 2021, the company said in a bourse filing on Wednesday (Jul 20). This improvement is attributable to the group getting its first interim insurance payment of S$9.6 million under its insurance policy for covering the damage to its property, plant and equipment on the back of the severe flooding at one of its Malaysian factories. QAF added that it had received a further S$6.3 million this month as the second interim insurance payment under the same insurance policy. This amount will be reported as an exceptional item in the group’s H2 results. The insurers are currently processing the claims submitted under this insurance policy, but QAF estimates that the total claim under the policy will amount to about S$35 million.

US

Tesla reported second-quarter earnings that beat Wall Street estimates, reflecting the company’s progress in getting production back on track while tackling supply-chain hurdles and Covid lockdowns at its factory in China. The market leader in electric vehicles posted adjusted earnings of US$2.27 a share, besting analysts’ expectations for US$1.83 a share based on an average of estimates compiled by Bloomberg. But that was below the US$3.22 Tesla made in the first quarter, marking the first sequential profit decline since the end of 2020. “The bottom line is it wasn’t pretty, but it was a lot better than what a lot of investors were expecting,” said Gene Munster of Loup Ventures. “They are doing a good job navigating a difficult environment.” Shares of the company traded little changed at US$746.32 as of 5.00 pm in New York, losing the momentum of an initial spike after the results were announced. The stock had fallen 30 per cent this year as of the close Wednesday (Jul 20) in New York.

US existing home sales fell for a fifth straight month in June to the lowest level in 2 years as record-high prices and fast-rising interest rates make buying a home too expensive for a growing share of American households. Sales of previously owned homes fell 5.4 per cent to a seasonally adjusted annual rate of 5.12 million units last month, the lowest level since June 2020 when sales were rebounding from the Covid-19 lockdown slump, the National Association of Realtors (NAR) said on Wednesday (Jul 20). Sales have now fallen each month since January. Economists polled by Reuters had forecast sales decreasing to a rate of 5.38 million units. Sales were unchanged in the Northeast and fell in the Midwest, the West and South. Home resales, which account for nearly 90 per cent of US home sales, dropped 14.2 per cent on a year-on-year basis. The median existing house price climbed by 13.4 per cent from a year earlier to an all-time high of US$416,000 in June. Sales remained concentrated in the upper-price end of the market amid a paucity of entry-level houses.

Oil edged lower as growing stockpiles of crude and petrol tempered fears of a tight market. West Texas Intermediate for September delivery settled below US$100 a barrel in a volatile session. A US inventory report showed a build in inventories at the largest storage hub in Cushing, while petrol stockpiles grew more-than-expected 3.5 million barrels last week, according to an Energy Information Administration report. Petrol demand rose week over week but remains below where it was this time of year in 2020, when Covid lockdowns kept millions off the road. Oil prices have struggled to find meaningful direction in recent days as trading volumes have thinned out with summer trading. Open interest – the total number of contracts held by traders – for West Texas Intermediate has fallen to its lowest level since 2015, according to CME Group Inc. data. Crude has fluctuated around US$100 a barrel with traders weighing demand impacts from a potential recession with a weakening dollar and a pipeline outage that has tightened the US market.

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

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