Daily Morning Note – 3 March 2022

Asian stocks may get a boost from a Wall Street rally after Federal Reserve Chair Jerome Powell backed a measured interest-rate lift-off while flagging economic resilience and inflation vigilance. Treasuries slid.

Futures for Japan, Australia and Hong Kong rose, signalling a positive start to trading Thursday. A broad rally lifted the S&P 500 and tech-heavy Nasdaq 100.

Haven demand triggered by Russia’s invasion of Ukraine waned, with Treasury yields sharply higher. The gap between two-year and 10-year yields further narrowed, hinting at concerns about slowing growth. A dollar gauge and gold dipped. Bonds in Australia and New Zealand retreated.

A commodity index hit another record high. The sanctions imposed on Russia have caused traders to back away from its resources, stoking fears of shortfalls in energy, grains and metals. Oil scaled $110 a barrel.

Stocks to watch: Oiltek International

SG

Integrated process and renewable energy solutions provider Oiltek International‘s initial public offering (IPO) on the Catalist board was subscribed at 4.3 times for S$0.23 per share. At the close of application at 12 pm on Mar 1, there were 767 applications for the 500,000 public tranche. The tranche was 112.9 times subscribed with applicants applying for an aggregate of 56.4 million public offer shares. The 22 million placement shares were all subscribed, with interest received of about 39.3 million shares. The placement was about 1.8 times subscribed. “The positive demand from both retail and institutional investors indicates a clear signal of investors’ confidence in Oiltek’s business model and growth potential,” said Henry Yong Khai Weng, executive director and chief executive officer, Oiltek.

Property developer OKH Global has entered into a conditional share sale agreement to dispose of its holdings in Equalbase and in Deltanvil for S$51.4 million. This is more than the counter’s current market capitalisation at S$28.2 million. Equalbase is a logistics warehouse owner and developer with three logistics properties in Singapore and Malaysia; Deltanvil is a freight-forwarding provider majority-owned by Christian Paul Bischoff. The transaction involves the company’s subsidiary, OKH Transhub selling its 40-per-cent stake in Equalbase to Deltanvil. Then another OKH subsidiary, Chronoz Investment, is to sell its 15 per cent stake in Deltanvil to Bischoff.

Food and beverage manufacturer Food Empire said it does not foresee any going concern issues stemming from the Russia-Ukraine conflict. In an update on Wednesday (Mar 2), the company said that operations and sales activities in Ukraine have been suspended. The primary concern of Food Empire is for the safety and well-being of its staff, with no reported damage to equipment or properties so far. “However, based on the Group’s past experience, in the absence of a massive or permanent change in demographics, consumer demand for food and beverages is likely to remain resilient as they are essential products,” said Food Empire.

Two former directors of Kimly have been engaged as independent consultants to the company after being fined by the State Courts and disqualified from serving as directors in companies for 5 years. Lim Hee Liat, the company’s former executive chairman and Chia Cher Khiang, its former executive director, were fined S$150,000 and S$100,000 respectively last month for offences under the Securities and Futures Act. Lim was further charged under the Companies Act, with the charges relating to the 2018 acquisition of drinks company Asian Story Corporation.

US

The United States on Wednesday announced more sanctions over Moscow’s war against Ukraine, this time targeting Russian ally Belarus and Russia’s defence industry. The White House unveiled “sweeping restrictions on Belarus to choke off its import of technological goods in response to its support” of Russia’s war. It also announced “sanctions that target Russia’s defence sector” to “impose significant costs on Russian weapon development and production companies.” Authoritarian Belarus and Russia are closely linked and Belarus has been used as a key staging ground for the invasion of neighbouring Ukraine.

The Federal Reserve will move forward with plans to raise interest rates this month to try to tame high inflation, but the outbreak of war in Ukraine has made the outlook “highly uncertain” for US central bank policymakers as they plan their next steps, Fed chair Jerome Powell said on Wednesday (Mar 2). In prepared remarks for his testimony to the US House of Representatives Financial Services Committee, Powell reiterated the core Fed narrative that high inflation and an “extremely tight” labour market warrant higher interest rates. “We expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month,” Powell said, and that the Fed will follow that later this year with reductions to its roughly US$8.5 trillion portfolio of government securities.

Private US companies added more jobs than predicted in February, a survey said on Wednesday (Mar 2), potentially forecasting another month of robust hiring in the upcoming government jobs report. Payroll services firm ADP reported private employment had increased by 475,000 nationally in February, more than analysts expected. The firm also completely revised its data for January, saying employers added 509,000 positions, rather than losing the 301,000 they had initially reported. The ADP report is considered a preview of the Labour Department’s monthly hiring data due out Friday, which is expected to show employers adding 400,000 jobs as the US economy continues to recover from the Covid-19 pandemic.

Boeing suspended maintenance and technical support for Russian airlines and US energy firm Exxon Mobil said it would exit Russia, joining a growing list of Western companies spurning Moscow over its invasion of Ukraine. Airbus also stopped sending spare parts to Russia and supporting Russian airlines, but said it was analysing whether its Moscow engineering centre could keep providing services to local customers under Western sanctions. US tech giant Apple said it had stopped sales of iPhones and other products in Russia, while Ford Motor joined other automakers by suspending operations in the country.