DAILY MORNING NOTE | 26 October 2022

Local shares ended Tuesday (Oct 25) on a fairly upbeat note, as investors shrugged off slightly dour macroeconomic news of Singapore’s core inflation rising further to 5.3 per cent in September. The benchmark Straits Times Index (STI) rose 0.5 per cent or 14.2 points to end Tuesday at 2,984.15. The local stock market was closed on Monday for Deepavali. Across the broader market, decliners outnumbered advancers 288 to 266. Daily turnover came in at some 1.5 billion securities worth a total of S$1.3 billion. Elsewhere in the region, markets ended the day mixed. The Nikkei 225 was up 1 per cent and the ASX 200 rose 0.3 per cent. Meanwhile, the Hang Seng Index, Kospi and KLCI were each down about 0.1 per cent. On the local bourse, Jardine Cycle & Carriage was the top gainer, rising 2.3 per cent or S$0.71 to S$31.21. The trio of lenders were also among the top gainers. DBS was up 1.1 per cent or S$0.37 at S$32.76, OCBC added 1.5 per cent or S$0.17 to S$11.70, while UOB gained 0.5 per cent or S$0.14 to S$26.13.

Wall Street stocks rallied and the dollar slid on Tuesday on hopes for a moderation in Federal Reserve policy, while the pound shot higher as former finance chief Rishi Sunak became Britain’s prime minister. US stocks rallied for a third straight day, propelled by a drop in US Treasury yields following disappointing consumer confidence data as concerns about costs of living intensified. The data was the latest to suggest a slowing US economy, a dynamic that markets paradoxically welcome because of the prospect of a moderation in Federal Reserve policies following a series of aggressive interest rate hikes to counter inflation. “What it offers is confirmation that what the Fed is trying to accomplish is starting to work,” said Art Hogan, analyst at B. Riley Financial. All three major US indices finished solidly higher, with the broad-based S&P 500 winning 1.6 per cent. Hogan also said that corporate earnings thus far have been “better than feared,” giving the market more running room. The latest batch of results included better-than-expected profits from Coca-Cola and General Motors. While US stocks forged higher, the dollar retreated against other major currencies following the signs of a weakening US economy.

Top gainers & losers



Singapore’s core inflation rose further to 5.3 per cent in September but headline inflation held steady at 7.5 per cent, according to Department of Statistics consumer price index (CPI) data on Tuesday (Oct 25). Both readings were in line with economists’ expectations. The pickup in core inflation was due to larger price increases for items such as food, services and retail and other goods. But headline inflation – which includes accommodation and private transport costs – remained the same as higher core and accommodation inflation were offset by lower private transport inflation. The Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) maintained their full-year expectations for headline inflation at 6 per cent and core inflation at 4 per cent. For 2023, headline and core inflation are still projected to average 5.5-6.5 per cent and 3.5-4.5 per cent respectively. Excluding the transitory effects of the goods and services tax (GST) hike next year, headline and core inflation are expected to come in at 4.5-5.6 per cent and 2.5-3.5 per cent respectively. But MAS and MTI also noted upside risks to this outlook, “including from fresh shocks to global commodity prices and more persistent-than-expected external inflation”. They expect core inflation to stay elevated in the next few quarters before slowing in the second half of 2023 as domestic labour market tightness eases and global inflation moderates. Food inflation rose to 6.9 per cent in September, up from 6.4 per cent in August. Inflation rates also rose for accommodation; services; and retail and other goods. Electricity and gas inflation stayed steady at 23.9 per cent. But private transport inflation moderated to 22.3 per cent, slowing from 24. 1 per cent in August, due to a slower pace of increase in car and petrol prices. On a month-on-month basis, core CPI and headline CPI increased by 0.5 per cent and 0.4 per cent respectively.

Singapore Airlines (SIA) will be redeeming for S$3.86 billion all of its 10-year mandatory convertible bonds issued in June 2020 at a redemption rate of 110.408 per cent of the principal amount. In a notice filed on the Singapore Exchange on Tuesday (Oct 25), SIA said that payout will be made to bondholders on Dec 8, 2022. For bondholders, the yield-to-call works out to 4 per cent a year. “This will be funded by existing cash reserves, which have risen in line with the strong recovery in the demand for passenger air travel,” said SIA in a statement on the same day. “The redemption of the (mandatory convertible bonds) supports the ongoing recalibration of the Group’s balance sheet as it recovers from the impact of the Covid-19 pandemic.” These mandatory convertible bonds were a part of a fundraising effort by the national carrier in the early days of the Covid-19 pandemic, as air travel was decimated from border closures around the globe. On top of the S$3.5 billion mandatory convertible bonds, the airline was also raising S$5.3 billion in new equity, bringing the total raised to S$8.8 billion. About a year later, in May 2021, it raised another S$6.2 billion by issuing a second tranche of mandatory convertible bonds. SIA has the option to redeem these zero-coupon bonds, worth a total of S$9.7 billion, any time before 2030, or these can be converted into ordinary shares upon maturity. The mandatory convertible bonds carry a yield of 4 per cent per annum during the first four years, 5 per cent per annum between the fifth and seventh year, and 6 per cent beyond that to maturity. SIA said in its statement that these bonds are presently “our most expensive financing tool, notwithstanding the rising interest rate environment”.

The manager of Mapletree Logistics Trust (MLT) on Tuesday (Oct 25) announced a 3.5 per cent increase in distribution per unit (DPU) to S$0.02248 for the second quarter ended September, from S$0.02173 in the corresponding period a year ago, despite an enlarged unit base. The amount distributable to unitholders rose 15.6 per cent to S$108 million, driven by higher revenue from existing properties and contributions from accretive acquisitions completed in Q1 FY22/23 and in FY21/22. Gross revenue climbed 11.4 per cent to S$183.9 million, while net property income was 10.8 per cent higher at S$160 million. Overall growth was moderated by the depreciation of foreign currencies – including the Japanese yen and South Korean won – against the Singapore dollar. The real estate investment trust (Reit) manager said that, at the distribution level, the impact of weakening currencies is mitigated through the use of foreign currency forward contracts to hedge the income from overseas assets. MLT’s portfolio occupancy dipped marginally to 96.4 per cent as at end-September, from 96.8 per cent as at end-June.


Google parent Alphabet reported revenue and earnings that fell short of analysts’ expectations, showing the company’s search advertising juggernaut was not immune to a slowdown in the digital ad market. The shares fell more than 6 per cent. Alphabet said third-quarter sales, excluding payments to distribution partners, were US$57.27 billion. That compared with the average analyst projection for US$58.18 billion. Net income was US$1.06 per share less than Wall Street’s estimates for US$1.25 per share. As spiralling inflation crimps growth in digital advertising, Google and rivals such as Meta Platforms’s Facebook and Snap’s Snapchat are fighting for smaller budgets. Last week, Snap reported its slowest quarterly sales growth ever, which sent Snap’s shares plunging and dragged Alphabet’s shares too. Google’s search business, which is more insulated from economic swings than social media ads, has begun to show signs of weakness. “When Google stumbles, it’s a bad omen for digital advertising at large,” Evelyn Mitchell, an analyst with Insider Intelligence, wrote in an emailed statement. Search and other related businesses generated third-quarter sales of US$39.54 billion, compared to analyst estimates of US$40.87 billion. YouTube missed the mark by an even wider margin, reporting ad sales of US$7.07 billion, compared with analysts’ average estimate of US$7.47 billion. YouTube, which also fell short of expectations in the second quarter, is locked in a fierce battle for advertising budgets and users’ attention with ByteDance’s TikTok. YouTube released a short-form video platform called Shorts to counter the popularity of TikTok, but analysts say the company still has ground to make up. Google’s closely watched cloud unit, which has yet to turn a profit, lost US$699 million, better than analysts’ projections for a loss of US$814.25 million. Although Google is a distant third in the cloud market, trailing Amazon.com and Microsoft, the unit is nonetheless viewed as one of the company’s best bets for growth as the core search business matures.

Coca-Cola said third-quarter sales and profit surpassed expectations and the beverage giant raised its guidance for the year, as the company got a boost from value-conscious products amid soaring inflation. The Atlanta-based soft-drink maker, whose beverages include Fanta sodas, Minute Maid juices and Powerade sports drinks, said on Tuesday (Oct 25) that it benefited from bundling different sizes and mixes of its products for inflation-wary consumers. The company said it now sees organic revenue growth of 14 per cent to 15 per cent for the full year. In July, Coca-Cola increased its full-year outlook from 12 per cent to 13 per cent. Coca-Cola’s adjusted operating revenue was US$11.1 billion in the quarter ended Sep 30, beating the US$10.51 billion Bloomberg consensus. The increased outlook for the year shows that Coca-Cola is maintaining demand with help from items like the Coca-Cola Value Bundle, which offers customers beverage options at more affordable prices. “When you segment the population, there are certain groups that are going to be under more pressure than others,” chief financial officer John Murphy said in an interview. “It’s an opportunity to offer them solutions at a price point that will be effective to them.” Key competitor PepsiCo also increased its organic revenue growth projection, to 12 per cent from 10 per cent, earlier this month. Coca-Cola said it’s seeing strong results from its ready-to-drink alcohol beverages, which include Fresca Mixed, Topo Chico hard seltzers, and Schweppes cocktail mixers and tonics. The company said consumers were continuing to return to public venues such as theatres, stadiums and restaurants, and that freight costs in some parts of the world, such as China, have declined. “I think there has been a reduction in both the container costs and a reduction in demand,” Murphy said. But within the US, he said, fuel and labour shortages continue to keep freight transportation costs high. “We will continue to see relatively high costs for trucking,” he said. Coca-Cola’s organic revenue, which excludes the impact of currency shifts and acquisitions, increased by 16 per cent in the third quarter. Analysts had expected a 9.8 per cent increase.

Microsoft posted its weakest quarterly revenue growth in five years, throttled by the surging US dollar and a slump in sales of Windows software to personal computer makers. Shares slipped in late trading. Sales in the first quarter, which ended Sep 30, rose 11 per cent to US$50.1 billion, the software maker said on Tuesday (Oct 25) in a statement. Net income was US$17.6 billion, or US$2.35 a share. While both numbers topped analysts’ average estimates, revenue from Microsoft’s closely watched Azure cloud-computing services decelerated to 35 per cent – partly because of foreign-currency exchange rates. Excluding the impact of the rising dollar, Azure sales rose 42 per cent, below some predictions. Demand has held up for Azure services, which run and store businesses’ software applications, and web-based versions of Office productivity programmes, even as customers pare some other corporate spending while the global economy teeters on the brink of a recession. Still, Microsoft gets almost half of its revenue overseas. The US dollar soared to new highs against a basket of foreign currencies last month, meaning Microsoft’s international sales were worth less when brought back home. Revenue from sales of Windows software to PC makers swooned 15 per cent in the recent period. That mirrored the quarterly contraction in PC shipments reported this month by market research firm IDC, which cited “cooling demand and uneven supply”. “The tone has definitely changed,” said Dan Morgan, a senior portfolio manager at Synovus Trust. “We’ve started to get a big change-up in software spending surveys – there’s a general consensus of ‘hey, you know, the economy is slowing down and we’re watching our expenses.’” Microsoft shares slipped about 2.2 per cent in extended trading following the report, after rising to US$250.66 at the close in New York. While the stock jumped 51 per cent in 2021, it has fallen 25 per cent so far this year amid a rout in large technology stocks. During the recent quarter, the company’s shares declined 9.3 per cent, while the Standard & Poor’s 500 Index dropped 5.3 per cent.

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


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