DAILY MORNING NOTE | 6 July 2023
Market Trend Analysis
Analyst: Zane Aw
• The US M2 Money Supply is down 0.88% over the past year, a rare decline given that it has been rising annually for the past 20 years. This report looks at the relationship between annual changes in US M2 Money Supply and S&P 500 over the past 2 decades, representing 2 economic cycles, to find out the impact of a shrinking money supply for investors going forward
• There is generally a positive relationship between annual changes in US M2 Money Supply and S&P 500. In the last 19 instances when M2 rose year-on-year, the S&P 500 recorded a gain in the corresponding year 15 times (78.9%)
• However, the strength of this relationship appeared to be weak with a low positive correlation coefficient of 0.15. In addition, the coefficient of determination showed the annual change in M2 was only able to predict just 0.2% of the variation in S&P 500’s return over the year. Hence, investors should also pay attention to many other variables such as GDP, unemployment rate, consumer confidence etc. which also influence the performance of S&P 500.
Singapore Shares fell 0.6 per cent or 18.39 points to 3,185.38 on Wednesday (Jul 5), as investors mulled over weak economic data from Singapore and China. Across the broader market, losers beat winners 288 to 228, after 1.1 billion securities worth S$760.6 million changed hands. On Wednesday, Singapore posted retail sales growth of 1.8 per cent year on year in May, down from the 3.7 per cent growth that was recorded in April. Month on month, retail sales fell 0.2 per cent, reversing a 0.5 per cent gain from a month earlier.
WALL Street stocks dipped Wednesday (Jul 5) as US Treasury bond yields pushed higher and minutes from the Federal Reserve’s June meeting signalled the possibility of more interest rate hikes ahead. The broad-based S&P 500 fell 0.2 per cent at 4,446.82, while the tech-rich Nasdaq Composite Index also declined 0.3 per cent to 13,791.65. The Dow Jones Industrial Average dropped 0.4 per cent to 34,288.64.
A FREEHOLD two-storey retail podium at The Linq @ Beauty World has been put up for sale through an expression of interest exercise at an indicative guide price of S$136 million. The indicative guide price for the collective sale of all 53 strata-titled units is about S$4,580 per square foot (psf) of the total strata area, said marketing agent CBRE on Wednesday (Jul 5). The Linq is an integrated mixed-use development at a corner freehold land plot along Upper Bukit Timah Road and Jalan Jurong Kechil.
The government will consider allowing Singapore Post (SingPost) to introduce postage rate adjustments to “better reflect the cost of letter mail business” following a sharp decline in domestic letter volumes since the Covid-19 pandemic. Minister of State for Communications and Information Tan Kiat How, announcing this in Parliament on Wednesday (Jul 5), said: “Domestic postage rates have largely been held constant since 2014, apart from a small increase at the start of this year.
BANKS are pushing customers away from the less secure authentication method of SMS One-Time Passwords (OTPs), and promoting app-based methods instead. They stopped short of phasing out SMS OTPs completely, though. This comes as the Monetary Authority of Singapore (MAS) has required banks to phase out SMS OTPs as a sole factor to authenticate high-risk transactions, such as adding payees and changing fund transfer limits.
The US dollar held steady against other major currencies on Wednesday (Jul 5) as traders waited for minutes from the Federal Reserve’s last policy meeting that could offer clues to the outlook for interest rates.
US crude oil gained about 3 per cent on Wednesday (Jul 5), narrowing the price gap with global benchmark Brent in a post-holiday response to supply cuts announced on Monday by Saudi Arabia and Russia.
While TikTok’s success in Indonesia helps shelter the business from the impact of a possible US ban, there are still uncertainties. Even with the growing purchasing power of Indonesia’s middle class, many of its users are earning far less than US consumers. TikTok’s customers in Indonesia spend around US$6 to US$7 on average, according to research firm Cube Asia. That’s why, despite facing multiple bills in Congress that could ban the app, the US is still so important for TikTok’s e-commerce business.
TOYOTA Motor’s sales rose 7.1 per cent in the second quarter – and more than double that rate in June – as car buyers in the US drove more Camry sedans and RAV4 compact SUVs out of showrooms in line with stepped up production.The Japanese automaker said on Wednesday (Jul 5) US sales last month came to 195,448 vehicles, up 15 per cent from a year ago, led by the best-selling RAV4. For the quarter ended Jun 30, its sales climbed to 568,962 vehicles.
Source: SGX Masnet, Bloomberg, Channel NewsAsia, Reuters, CNBC, WSJ, The Business Times, PSR
Target Price: S$0.50; Analyst: Peggy Mak
• Industry contract awards fell 13.5% in the first four months of 2023. At this rate, total contract awards for 2023 could come in at the lower end of BCA’s forecasts of S$27bn-32bn, and fall below 2022’s S$29.8bn. Lower contract awards will translate into lower construction output and building materials consumption in the following 6 to 12 months.
• A ramp up in the 2H 2023 government land sale programme will lift total supply of private housing units in 2023 to 9,250, nearly 50% higher than 2022. The development projects are expected to be awarded from early 2024, leading to an uplift in demand for building materials from 2H24e.
• We lower our FY23e net earnings estimates by 20% to factor in lower volume. Maintain BUY with lower TP of S$0.50 (prev. S$0.54). The business generates strong operating cash flow, underpinning a dividend yield of at least 4.5%.
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