Fed cuts rate, but neutral stance disappoints markets; oil prices ease with assurance of supply

On Sept 18, the US Federal Reserve lowered interest rates for the second time this year by 25 basis points to between 1.75% and 2%. Fed chair Jerome Powell says the US economy remains strong and unemployment low. He adds, however, that “there are risks to this positive outlook”. If the economy weakens, a “more extensive sequence of rate cuts could be appropriate”.

Powell’s “very neutral” stance in his post-meeting comments disappointed the market, which was expecting a stronger easing bias. “Powell’s reluctance to confirm that the Fed continues to have an easing bias was another likely source of disappointment for the market,” writes DBS’s chief economist Taimur Baig in a Sept 19 commentary.

In addition, members of the Federal Open Market Committee were not unanimous in their votes, which did not help boost investor confidence either. “We largely view the guidance as mixed, as the increasingly obvious division among the FOMC members’ opinions has increased uncertainty on how much further rates would fall,” writes Phillip Futures analyst Samuel Siew in a Sept 19 commentary.

The cruise missile and drone attacks on Saudi Arabia, purportedly by Iran, caused oil prices to surge in the immediate aftermath. As Saudi Arabia, the world’s largest oil exporter, gave assurances that supply would quickly recover, oil prices eased. Prices surged as much as 20% on Sept 16, but have fallen from Sept 17. Higher-than-expected US inventory for oil helped lower oil prices.

Jeffrey Halley, senior market analyst for Asia-Pacific at OANDA, warns that risks remain. “The lack of response from the international community will probably embolden further mischief from Iran. The price action we saw on [Sept 16] in oil could quickly recur, and traders ignore that risk at their peril,” writes Halley in his Sept 19 commentary.

Active stocks

IHH Healthcare announced on Sept 17 that its wholly-owned subsidiary, Pantai Holdings, will be acquiring Prince Court Medical Centre in Malaysia for RM1.02 billion ($336 million) from Pulau Memutik Ventures, a wholly-owned subsidiary of Malaysian sovereign wealth fund Khazanah Nasional. The acquisition, which is immediately earnings-accretive, is expected to be completed in 1Q2020. By then, the group would have 16 hospitals across Malaysia. Singaporetraded IHH shares closed on Sept 19 at $1.84, down 0.54%.

F&B company BreadTalk Group will not be convening an extraordinary general meeting to seek shareholders’ approval for its proposed $80 million acquisition of Food Junction Management, the company said on Sept 17. BreadTalk said that, in response to its waiver application, the Singapore Exchange had advised that it had “no objection” to the company’s view that the proposed acquisition was “in the ordinary course of business”. Upon completion of the acquisition, BreadTalk will be Singapore’s third-largest food court operator. Analysts have noted, however, that the $80 million consideration is too high for a company whose net tangible assets are valued at $12.3 million. BreadTalk shares closed unchanged at 63 cents on Sept 19.

Shares in TEE International rose last week, as controlling shareholder Phua Chian Kin sold 150 million shares, or 23% of the company, to Low Ee Chin at six cents each — a premium over the market price. Phua, who was forced to step down as group CEO of the engineering firm, was recently found to have made remittances from the company without the board’s knowledge to entities he controls. Following the sale of his shares, Phua will be left with a direct stake of 16.24% and a deemed stake of 6.37%. Shares in TEE International rose 2.17% on Sept 19 to close at 4.7 cents, with about 40.2 million shares traded.

Pek Lian Guan, CEO and executive director of construction company Tiong Seng Holdings, is being probed by the Corrupt Practices Investigation Bureau in connection with certain staff loan transactions. On Sept 16, Tiong Seng said Pek was interviewed by CPIB on Sept 12 and its group’s project director Pay Teow Heng was interviewed the day before. Both Pek and Pay are currently out on bail and no charges have been filed. Tiong Seng shares closed unchanged at 21.5 cents on Sept 19.

The week ahead

Singapore will release its consumer price index for August on Sept 23. On Sept 26, industrial production figures for August will be released. E