Daily Morning Note – 3 February 2022

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PHILLIP SUMMARY

US equities capped a four-day winning streak by closing higher on Wednesday despite weak employment figures, amid receding fears the Federal Reserve will pull out the big guns to fight inflation. Positive earnings reports, including from Google-parent Alphabet, boosted the tech sector. The benchmark Dow Jones Industrial Average gained 0.6 per cent to finish at 35,629.33. The broad-based S&P 500 popped up 0.9 per cent to 4,589.38, while the tech-rich Nasdaq Composite Index advanced 0.5 per cent to close at 14,417.55. Stocks had been battered for weeks after the Fed signalled its plans to raise interest rates, but recent comments from some of its most hawkish policymakers quelled concerns borrowing costs will jump sharply in March and beyond.

THE euro rose for a third consecutive day on Wednesday (Feb 2), coming off a 20-month low last week, as eurozone inflation rose to a new record last month, fuelling bets the European Central Bank (ECB) might raise interest rates sooner than expected. At 5.1 per cent in January, price growth is more than twice the ECB’s 2 per cent target.

Oil prices edged up on Wednesday after Opec+ stuck to planned moderate output increases despite pressure from top consumers to raise output more quickly. Brent crude ended settling up 31 cents to US$89.47 a barrel, while US West Texas Intermediate crude gained 6 cents to US$88.26 a barrel. Global benchmark Brent has remained within striking distance of US$90 for several days now, buoyed by ongoing concerns about tight supply across major world producers and steadily increasing demand.

BREAKING NEWS

SG

Singtel signs joint development agreement with Gulf Energy and AIS to build Thailand’s leading data centre business. AIS, one of Thailand’s leading telecommunications company and a regional associate of Singtel. AIS’ strengths complement Singtel’s expertise in developing and operating world-class data centres and established relationships with multinational hyperscaler customers and Gulf Energy’s extensive local business network and access to land and power, including green energy. Gulf Energy is Thailand’s largest private power producer.Pursuant to the JDA, Singtel, Gulf Energy and AIS have agreed to work closely and expeditiously to establish the joint venture company. Site selection has already commenced, and the company will start the development of best-in-class data centres utilizing energy efficient technologies and green energy solutions in the coming months.

Singapore office market – While there’s no denying that the pandemic has turned working from home (WFH) into a permanent fixture, the death of the office – and Central Business District (CBD) Grade A offices, in particular – may have been greatly exaggerated. According to Tay Huey Ying, head of research & consultancy for JLL, CBD Grade A office rents may come under “immense upward pressure, tapering only when new supply outside of the CBD, such as the Jurong Lake District (JLD), comes onstream”, potentially from 2027 or 2028 onwards. Once fully developed, office space in JLD could multiply to 1.4 million square metres (sq m) over the next 2 decades, up significantly from 200,000 sq m currently. For now, Tay said, supply is tight in the CBD, with no new state tenders lined up for the district in the coming years. Meanwhile, demand for office space is far from cratering – supported by tech companies and asset managers, including family offices.

The total value of Singapore stocks remained largely unchanged, while the Straits Times Index (STI) gained on the strong performance of banks in January. According to data compiled by The Business Times, the total market capitalisation of the 665 companies listed here fell by S$0.5 billion, or 0.1 per cent to S$857.6 billion. Losers outnumbered gainers 365 to 146. Blue-chips in Singapore posted gains, with the STI climbing 3.8 per cent or S$19.6 billion to S$534.2 billion. Singapore Exchange (SGX) market strategist Geoff Howie noted in a report on Friday that this could have been due to gains made by the trio of banks and Singtel, which made up 50 per cent of the index weight. In total, he noted that they averaged 8.2 per cent gains on S$1.1 billion of net institutional inflows from Jan 1 to Jan 27.

CapitaLand Investment Limited’s (CLI) wholly owned lodging business unit, The Ascott Limited (Ascott) has established a development venture totalling US$150 million (S$204.8 million) in committed equity to develop student accommodation assets in the USA. Named Student Accommodation Development Venture (SAVE), Ascott will manage the venture and hold a 20% stake in the joint venture while the remaining stake will be held by Riyad Capital. Riyad Capital is one of the largest institutional capital partners in the Middle East and an existing partner from Ascott’s network of lodging property owners. When fully deployed, the venture will boost Ascott’s funds under management (FUM) by US$375 million (S$512 million).

Chip Eng Seng’s wholly-owned subsidiary CES Hospitality (CESH) has entered a JV with Tang Dynasty unit Ariva Hospitality to provide management services to hotels and serviced residences. CESH contributed S$350,000 to CES-Ariva and will own 70 per cent of the JV, while Ariva will contribute S$150,000 within 30 days of the agreement and own 30 per cent. Prior to the announcement, Chip Eng Seng’s counter closed at S$0.43 on Monday, up 1.2 per cent or S$0.005.

US

US private companies shed jobs last month for the first time since December 2020 as the Omicron coronavirus variant again complicated business – a potential harbinger of bad news for the upcoming government employment report. Data from payroll services firm ADP released on Wednesday said private employment declined by 301,000 in January, far worse than analysts expected, which the survey blamed squarely on the new virus strain. The data bolstered fears that the Labor Department employment report due out Friday will indicate weak hiring in January, perhaps as low as 200,000 or even a contraction, caused by the renewed onslaught of Covid-19 infections hitting the world’s largest economy.

Facebook owner Meta Platforms Inc shares plunged more than 20 per cent late on Wednesday as the social media company missed on Wall Street earnings estimates and posted a weaker-than-expected forecast. Meta said it faced hits from Apple Inc’s privacy changes to its operating system, which have made it harder for brands to target and measure their ads on Facebook and Instagram, and from macroeconomic issues like supply-chain disruptions. The tech giant said it expected slowing revenue growth in the coming quarter because it faced increased competition for users’ time and a shift of engagement toward such features as its short video offering Reels, which generate less revenue.

Shares of Spotify tumbled on Wednesday after the music streaming service reported a quarterly loss and projected lower profit margins in the coming earnings period. The company announced a loss of 39 million euros (S$59.4 million) and forecast its first-quarter 2022 gross profit margin would fall to 25 per cent from 26.5 per cent.

Ford Motor Co is planning a major reorganisation to prepare for the electric future, using Tesla Inc’s success as a road map and accelerating electric vehicle (EV) spending by as much US$20 billion. The effort, led by a former Apple and Tesla executive, calls for Ford to spend an additional US$10-20 billion over the next 5-10 years converting factories worldwide to EV production from making gasoline-powered cars, according to people familiar with the plan. The move is part of chief executive officer Jim Farley’s initiative to challenge Tesla’s dominance in EVs even as he takes pages from the playbook of the EV pioneer, now the world’s most valuable carmaker. Investors have bought into Farley’s vision for Ford, briefly lifting the company’s market value above US$100 billion in January. Ford shares rose in afternoon trading, climbing as much as 2.7 per cent. They traded up 1.3 per cent to US$20.56 as at 1.48 pm in New York.

Tesla will recall 53,822 US vehicles with the company’s Full Self-Driving (Beta) software that may allow some models to conduct “rolling stops” and not come to a complete stop at some intersections posing a safety risk. The National Highway Traffic Safety Administration (NHTSA) said the recall covers some 2016-2022 Model S and Model X, 2017-2022 Model 3, and 2020-2022 Model Y vehicles. NHTSA said the feature also known as FSD Beta may allow vehicles to travel through an all-way stop intersection without first coming to a stop.

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

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