DAILY MORNING NOTE | 22 September 2023

The Federal Reserve’s hawkish stance tamed markets in the Asia-Pacific on Thursday (Sep 21), with key bourses from South Korea to Australia swimming in a sea of red hours after the United States central bank’s policy rate decision. Singapore shares were not spared the rout as it dipped 1.2 per cent or 39.19 points to 3,202.81 points. Only four stocks of the 30-constituent blue-chip gauge closed higher. The Fed left its policy rate range unchanged on Thursday at 5.25 per cent to 5.50 per cent, the highest in 22 years. Phillip Securities Research analyst Shawn Sng noted that the signalling by the US central bank of an incoming additional hike at the end of this year along with the possibility that further rate increases have not been taken off the table have caused a dampening in market sentiments as rates will stay elevated.

Wall Street stocks fell sharply on Thursday as worries about a potential US government shutdown added to angst over lofty interest rates. Far-right members of the House of Representatives have so far blocked key spending bills in Congress, adding to the chance of a government shutdown after midnight on September 30. That comes on top of worries about interest rates after the Federal Reserve opened the door to additional rate hikes. The Dow Jones Industrial Average finished down 1.1 per cent at 34,070.42. The broad-based S&P 500 dropped 1.6 per cent to 4,330.00, while the tech-rich Nasdaq Composite Index fell 1.8 per cent to 13,223.98.

Top gainers & losers





The application for the first fortnightly October tranche of MAS 6-month T-bills is open on Thursday for investors to apply. The Auction Date, where the cut-off yield for this tranche will be announced on 3rd Oct 2023.
Latest Singapore 6-Month Treasury Bill result:
Cut-Off Yield: 3.73%
% of Non-Competitive Application Allotted: 100%

EC World Real Estate Investment Trust (EC World Reit) has extended the suspension on the trading of its units, its manager said in a bourse filing late on Thursday (Sep 21). The Reit manager said it had told unitholders that it had satisfied the Reit’s trustee, DBS Trustee Limited, that it was in the best interest of unitholders for the dealing in units to remain suspended. The Reit’s units have not been traded since Aug 31; that was when the manager disclosed that the ECW Group, comprising the Reit and its subsidiaries, could not fully repay its offshore interest expenses. Earlier on Thursday, the manager announced that around 11.3 million yuan (S$2.1 million) had been released from its onshore interest reserve to repay, in full, the Reit’s onshore interest expenses, which had fallen due on Wednesday (Sep 20).

Singapore banks are increasing scrutiny of some China clients with other citizenships, following last month’s crackdown on money laundering involving more than S$2.4 billion worth of assets that has rattled the Asian financial hub. Some lenders have been reviewing new account openings and transactions with clients of Chinese origin carrying investment-linked passports, people with knowledge of the matter said. At least one international bank is closing some accounts of clients with citizenship from countries including Cambodia, Cyprus, Turkey and Vanuatu, one of the people said, asking not to be identified as the information is not public. Other lenders in the city-state have started to evaluate whether to take fresh funds from clients with similar profiles on a case-by-case basis, said the people. The process is taking longer and more questions are being asked, the people added.

Germany-based Delivery Hero is in talks for a potential sale of its foodpanda business in Singapore and six other South-east Asian markets. A media report had cited Grab as a potential buyer. On Thursday (Sep 21), Delivery Hero confirmed that it is in negotiations to sell foodpanda’s businesses in Singapore, Malaysia, the Philippines, Thailand, Cambodia, Myanmar and Laos. The negotiations were earlier reported by business magazine Wirtschaftswoche. The publication also cited Grab as a potential buyer. The Singapore-based mobility company could pay over one billion euros (S$1.46 billion) for the acquisition, the report said. Founded in 2012 and headquartered in Singapore, foodpanda operates across 12 markets in Asia-Pacific. It was acquired by Germany’s Delivery Hero in 2016.

From next year, four insurers headquartered in Singapore will face a 25 per cent capital add-on to increase their higher and lower supervisory intervention levels, as well as Common Equity Tier 1 and Tier 1 capital requirements. The insurers are: AIA Singapore, Income Insurance, Prudential Assurance Company Singapore and The Great Eastern Life Assurance Company. These four comprise the Monetary Authority of Singapore’s (MAS) inaugural list of domestic systemically important insurers (D-SIIs) announced on Thursday (Sep 21). Like domestic systemically important banks (D-SIBs), failures of these particular insurers have been assessed to have a significant impact on the financial system and broader economy in Singapore. The D-SII framework comes into effect on Jan 1, 2024, to facilitate the annual impact assessment of insurers based on their size, interconnectedness, substitutability and complexity.


US existing home sales unexpectedly fell in August as persistently tight supply boosted prices, and a further decline is likely amid a resurgence in mortgage rates. Existing home sales slipped 0.7 per cent last month to a seasonally adjusted annual rate of 4.04 million units, the National Association of Realtors (NAR) said on Thursday (Sep 21). Existing home sales are counted at the closing of a contract. Last month’s sales likely reflected contracts signed in July, before the recent run-up in mortgage rates, which lifted the rate on the popular 30-year fixed mortgage above 7 per cent.

The US current account deficit narrowed sharply in the second quarter as surpluses on services and primary income offset a shortfall on goods, data showed on Thursday (Sep 21). The Commerce Department said the current account deficit, which measures the flow of goods, services and investments into and out of the country, contracted by US$2.4 billion, or 1.1 per cent, to US$212.1 billion last quarter. That was the lowest level since the second quarter of 2021. The current account gap represented 3.166 per cent of gross domestic product, compared with 3.234 per cent in the first quarter. The deficit peaked at 6.3 per cent of GDP in the fourth quarter of 2005. The United States is now a net exporter of crude oil and fuel. Though the deficit remains large, it has no impact on the dollar given its status as the reserve currency.

The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, but could rebound in the weeks ahead as a partial strike by the United Auto Workers (UAW) union forces automobile manufacturers to temporarily lay off workers because of shortages of some materials. Initial claims for state unemployment benefits dropped 20,000 to a seasonally adjusted 201,000 for the week ended Sept 16, the Labor Department said on Thursday (Sep 21). The labour market remains tight, with claims in the lower end of their 194,000 to 265,000 range for this year.

The Bank of England (BOE) halted its long run of interest rate increases on Thursday (Sep 21) as the British economy slowed, but it said it was not taking a recent fall in inflation for granted. A day after a surprise slowing in Britain’s fast pace of price growth, the BOE’s Monetary Policy Committee (MPC) voted by a narrow margin of 5-4 to keep the bank rate at 5.25 per cent. It was the first time since December 2021 that the BOE did not increase borrowing costs. “There are increasing signs of some impact of tighter monetary policy on the labour market and on momentum in the real economy more generally,” the MPC said in a statement.

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


Adobe Inc – Priced at a premium

Recommendation: REDUCE (Maintained); TP: US$441.00

Analyst: Ambrish Shah

– 9M23 revenue/PATMI was in line with expectations at 74%/76% of our FY23e forecasts. In 3Q23, revenue grew 10% YoY to US$4.9bn led by higher subscription sales of its creative software applications. PATMI rose 24% YoY to US$1.4bn driven by higher operating leverage and lower tax rate.

– For 4Q23e, Adobe expects GAAP EPS of US$3.12 on revenue of US$5bn (up 10% YoY). Net new Digital Media annualized recurring revenue is expected to be US$520mn with a modest contribution from generative AI tools. Adobe plans to hike pricing for some Creative Cloud products (Photoshop and Premiere Pro) by about 10% starting Nov. 1.

– We maintain a REDUCE recommendation with a higher DCF target price of US$441 (WACC 7.3%, g 4%), up from US$435. Our FY24e revenue/PATMI has increased by 1%/2% to account for new pricing and AI-related tailwinds. However, we believe ADBE is priced at a premium as its market cap is up about 43% or US$74bn over the last four months on an annual incremental profit opportunity of US$4bn assuming Creative Cloud revenue doubles with Firefly.

Phillip Macro Update – Key Points for September FOMC Meeting

Analyst: Shawn Sng

1. A halt on interest rate – In this FOMC meeting, the U.S. Federal Reserve (Fed) committee members have voted unanimously to maintain the benchmark federal funds rate at the range of 5.25% – 5.50% and this decision to leave its policy interest rate unchanged was in line with market expectations.

2. Gradual moderation observed but inflation still persists – Data points such as the Consumer Price Index (CPI) and Personal Consumption Expenditure (PCE) have continued to portray signs of slowing down within the economy with the latest August headline CPI coming in at 3.7% Y.o.Y and Core CPI at 4.3% Y.o.Y.

3. Federal Reserve Projection/Guidance – A dot plot graph was released in this meeting, and according to the plotted graph and 12 of the 19 committee members assessed that the central bank benchmark rate would be peaking in the range of 5.5% – 5.75%, while 5 members indicated the rate to remain unchanged for the rest of the year.

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