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IMF cuts global forecast; Fed in focus

Samantha Chiew
Samantha Chiew • 6 min read
IMF cuts global forecast; Fed in focus
SINGAPORE (July 29): The European Central Bank has signalled the need for significant stimulus in the economy, as the growth outlook deteriorates. While the ECB has held rates unchanged for now, president Mario Draghi has indicated that lower interest rat
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SINGAPORE (July 29): The European Central Bank has signalled the need for significant stimulus in the economy, as the growth outlook deteriorates. While the ECB has held rates unchanged for now, president Mario Draghi has indicated that lower interest rates as well as renewed asset purchases could come after the summer break.

On July 23, the International Monetary Fund again cut its 2019 and 2020 growth forecast for the global economy. IMF had in April estimated that the global economy would expand 3.3% in 2019, from the year before, but has now revised it down to 3.2%, the lowest level since 2009. Growth in 2020 is expected to pick up slightly at 3.5%, albeit below IMF’s earlier forecast of 3.6%.

In addition, IMF reduced expectations for growth in the global volumes of trade in goods and services to 2.5% for 2019, cutting estimates by 0.9 percentage point.

“The principal risk factor to the global economy is that adverse developments — including further US-China tariffs, US auto tariffs, or a no-deal Brexit — sap confidence, weaken investment, dislocate global supply chains and severely slow global growth below the baseline,” the fund said.

With this downside revision, it is now more likely that talks about rate cuts may come true.

Amid slowing global growth as well as increased geopolitical uncertainties stemming from the US-China trade war and rising tensions between the US and Iran, the US Federal Reserve has indicated a possible rate cut at the Federal Open Market Committee (FOMC) meeting scheduled for end-July. The expectation follows comments made by two Fed officials.

Richard Clarida, Fed vice-chair, said on July 18, “You don’t need to wait until things get so bad to have a dramatic series of rate cuts.” Earlier that day, New York Fed president John Williams said in a speech, “When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress.”

However, the New York Fed clarified that Williams’ comments were purely “academic” and should not be considered as a reflection of current policy considerations.

Han Tan, market analyst at FXTM, says, “Investors are paring back expectations that the Fed would lower interest rates by 50 basis points next week, with Fed funds futures now showing a less-than-20% chance of the Fed easing its policy settings by a bigger margin, versus the widely expected 25bps cut.”

Most global equities rallied on the expectation of a US rate cut. On July 24, the Standard & Poor’s 500 index closed 0.47% higher at 3,019.56, while the Nasdaq Composite Index closed 0.85% higher at 8,321.50. The Dow Jones Industrial Average closed 0.29% lower at 27,269.97. The Straits Times Index closed 0.38% higher on July 25 at 3,381.26.

Stocks in focus

Cycle & Carriage Singapore (C&C), owned by Jardine Cycle & Carriage, announced on July 25 that it would be launching a car leasing business — Cycle & Carriage Leasing — that will provide a range of leasing options from daily rentals to long-term car rentals of up to three years, which will also be available for private-hire drivers to lease. It will also lease and manage fleets of cars for corporate clients. Cycle & Carriage Leasing has secured a fleet partnership with its first corporate client — on-demand ride-hailing operator Gojek. On the back of this news, shares in Jardine Cycle & Carriage increased 0.77%, or 28 cents, to close at $36.47 on July 25.

ISOTeam on July 24 acquired a clutch of six companies from Pure Group for $24 million to boost its regional presence. ISOTeam said the acquisition would expand its capability to offer the full suite of project and construction management services, on top of its existing engineering services and solutions. Under the sale and purchase agreement, ISOTeam will acquire Coney International’s entire stake in Pure Group, which owns 100% of Pure Group (Singapore); 99.9% of Pure Projects (Philippines); 100% of Pure Projects Construction Advisory Shanghai; 100% of Pure Projects Management; 100% of Pure Projects SEA and 49% of Pure Projects SEA. Shares in ISOTeam closed 2.04% higher at 25 cents on July 25.

On July 22, The Trendlines Group announced that it had secured a US$8 million ($10.9 million) investment from Librae Holdings, a company related to multibillion--pound real estate portfolio holder Vincent Tchenguiz. As part of the investment, Librae will be acquiring 103.6 million new ordinary shares in the company at 10.5 cents each, representing a 14.55% stake in Trendlines. This news triggered a surge in the stock, as it opened 28.2% higher on July 23 at 10 cents, compared with its 7.8 cent close the previous day. As at July 25, shares in Trendlines are trading 2.35% higher at 8.7 cents.

Prime US REIT made its debut on the Singapore Exchange on July 19 and closed at its IPO price of 88 US cents. The largest IPO on SGX year to date with a market capitalisation of US$813 million, the counter saw 10.7 million units traded on its first trading day. The units closed at 89 US cents on July 25, 0.56% lower for the day.

This earnings season has been harsh on some stocks. Airline gateway services and food solutions provider SATS saw its share price tumble 7% from July 18 to close at $4.95 on July 25, following the announcement of its lacklustre 1QFY2020 results on July 18. The group posted a 14.4% y-o-y drop in earnings to $54.7 million, missing consensus by a mile. The disappointing results came on the back of weakening air cargo volumes, even as SATS was affected by one-off events including the suspension of Jet Airways, the grounding of Boeing’s 737 Max aircraft and credit provisions.

The week ahead

The earnings season is in full swing. On July 29, DBS Group Holdings, Raffles Medical Group and Mapletree North Asia Commercial Trust will be reporting their results. Already, 10 companies have announced that they will be releasing their results on July 30. They include Ascott REIT, Sembcorp Marine, Frasers Hospitality Trust, CDL Hospitality Trusts and ESR-REIT.

CapitaLand Retail China Trust, Parkway Life REIT, Roxy-Pacific Holdings, Singapore Exchange and Singapore Airlines will be announcing their earnings on July 31. The following day, Great Eastern Holdings, Ascendas Hospitality REIT, Lippo Malls Indonesia Retail Trust and three Jardine Matheson Holdings companies — Dairy Farm, Hong Kong Land and Mandarin Oriental — will announce their results. Jardine Matheson and Jardine Strategic Holdings will release their results on Aug 2, along with Hi-P International, Oversea--Chinese Banking Corp, United Overseas Bank and Genting Singapore.

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