PublicInvest Research

PublicInvest Research Headlines - 6 Jun 2023

Publish date: Tue, 06 Jun 2023, 11:00 AM
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US: Service sector growth slows more than expected in May . Service sector activity in the US saw only modest growth in the month of May, according to a report released by the Institute for Supply Management on Monday, with the index of activity in the sector falling by more than expected. The ISM said its services PMI fell to 50.3 in May from 51.9 in April, although a reading above 50 still indicates growth in the sector. Economists had expected the index to edge down to 51.5. The bigger than expected decrease by the headline index was partly due to a slowdown in the pace of growth in new orders, as the new orders index slid to 52.9 in May from 56.1 in April. (RTT)

US: Payrolls rose 339,000 in May, much better than expected in resilient labor market . The US economy continued to crank out jobs in May, with nonfarm payrolls surging more than expected despite multiple headwinds, the Labor Department reported. Payrolls in the public and private sector increased by 339,000 for the month, better than the 190,000 Dow Jones estimate and marking the 29th straight month of positive job growth. The unemployment rate rose to 3.7% in May against the estimate for 3.5%, even though the labor force participation rate was unchanged. The jobless rate was the highest since October 2022, though still near the lowest since 1969. (CNBC)

US: Factory orders climb slightly less than expected in April . The Commerce Department released a report showing new orders for US manufactured goods increased by slightly less than expected in the month of April. The report said factory orders rose by 0.4% in April after climbing by a downwardly revised 0.6% in March. Economists had expected factory orders to climb by 0.5% compared to the 0.9% advance originally reported for the previous month. The increase in factory orders came as orders for durable goods jumped by 1.1% in April after surging by 3.3% in March. Orders for transportation led the way higher, spiking by 3.7%. Meanwhile, the report said orders for non-durable goods edged down by 0.1% in April after tumbling by 1.8% in March. (RTT)

EU: Eurozone investor confidence sinks on recession concerns – Sentix . Euro area investor confidence dropped sharply in June, led by the "problem-child" Germany that already entered a technical recession in the first quarter, as fears of a severe economic downturn intensified, results of the latest survey by the

UK: Service sector maintains strong growth momentum . The UK service sector continued to expand at a solid pace in May amid robust rises in output and new business despite mounting inflationary pressures fueled by higher wage costs, survey data from S&P Global revealed. The final Chartered Institute of Procurement & Supply services Purchasing Managers' Index dropped to 55.2 in May from 55.9 in April. A reading above 50 indicates expansion in the sector. The growth of the service sector largely relied on higher consumer spending, particularly on leisure and tourism services. Despite the continued economic uncertainty, strong sales pipelines and greater consumer willingness to spend boosted order volumes in May. The rate of growth in new business eased only marginally from April's 13-month high. (RTT)

China: Services activity picks up in May on improved demand — Caixin PMI . China's services activity picked up in May, a private sector survey showed, as a rise in new orders shored up a consumption-led economic recovery in the 2Q. The Caixin/S&P Global services purchasing managers' index (PMI) rose to 57.1 in May from 56.4 in April. The 50-point mark separates expansion from contraction in activity. The reading contrasts with the official PMI released last week that showed a slower pace of expansion in the services sector. Some economists warn the pent-up demand for in-person services may fade due to slowing income growth and mounting unemployment pressures, raising headaches for policymakers already struggling with weak foreign demand and an uneven post-Covid recovery. (Reuters)

Indonesia: Inflation eases to central bank target sooner than expected. Indonesia's annual inflation rate eased to 4% in May, matching the upper end of the central bank's target range earlier than expected, data from the statistics bureau showed. Inflation in Southeast Asia's largest economy had been above Bank Indonesia's (BI) 2% to 4% target range since June 2022 due to pressures from rising global food and energy prices. Peaking near 6% in Sept, inflation has since eased gradually after the central bank hiked interest rates by a total of 225 bps. The core inflation rate, which strips out government-controlled and volatile food prices, eased to 2.66% in May from 2.83% a month before. The poll had expected 2.80%. (Reuters)

Singapore: Retail sales growth eases to 3.6%. Singapore's retail sales growth eased further in April, data from the Department of Statistics showed. Retail sales climbed 3.6% YoY in April, slower than the 4.5% gain in March. Excluding motor vehicles, retail sales grew 4.2% yearly in April after a 4.0% increase in the preceding month. Sales of food and alcohol grew the most, by 30.5% from a year ago, though well below the previous month's 55.0% surge. Similarly, the annual sales growth in apparel and footwear eased to 13.0% from 26.5%. (RTT)


Yinson: Proposes to buy FPSO Atlanta for RM402.36m. Yinson Holdings is exercising a call option to acquire the entire 100% in FPSO Atlanta, which is slated for deployment to offshore Brazil, for up to USD87.9m (RM402.4m). Yinson has not finalised the breakdown of the sources of funding for the acquisition. The acquisition is conditional upon shareholders’ approval at the upcoming EGM on July 13, and is slated for completion by the second half of this year. (The Edge)

Kelington: Acquires 17% stake of Ace Gases Marketing for RM4.4m in share swap deal. Kelington Group (KGB) said that its 97.19%-owned subsidiary Ace Gases SB (AGSB) has acquired 85,000 shares or a 17% stake in Ace Gases Marketing SB (AGMSB) from Chong Ann Tsun for RM4.4m. The exercise will be wholly satisfied via allotment of 1.55m new shares in AGMSB at an issue price of RM1 per share. (The Edge)

Citaglobal: Claims alleged outstanding payment from IJM Corp for expressway project work. Citaglobal’s wholly-owned unit has served a notice of adjudication against IJM Construction SB, claiming RM20.8m allegedly owed for work done in constructing part of the West Coast Expressway. (The Edge)

Rex Industry: To decommission Penang factory by end-July. Rex Industry has announced that it expects to recognise a provision for retrenchment costs amounting to RM2m and other decommissioning expenses following the decommissioning of its production facility in Bukit Minyak Industrial Park, Seberang Perai Tengah, Penang. (The Edge)

Crest Builder: Wins RM18.4m arbitration award in payment dispute. Crest Builder said an arbitration tribunal has awarded its subsidiary RM18.4m in relation to its RM31.0m counterclaim against Saujana Triangle SB in a payment dispute. The money was awarded to Crest Builder SB for certified sums, costs of idling and dayworks and retention sum. (The Edge)

Oil and Gas: Saudi pledges big oil cuts in July as OPEC+ extends deal into 2024. Saudi Arabia will make a deep cut to its output in July on top of a broader OPEC+ deal to limit supply into 2024 as the group seeks to boost flagging oil prices. Saudi's energy ministry said the country's output would drop to 9m bpd in July from around 10m bpd in May, the biggest reduction in years. Saudi Arabia is the only member of OPEC+ with sufficient spare capacity and storage to be able to easily reduce and increase output. It was able to respond rapidly to excess supply that weakened the market in the early stages of the pandemic in 2020 when the group of producers implemented record output cuts. (Reuters)

Comments: We view the outcome of this meeting as positive to oil prices and re-affirms our initial thoughts of Brent’s psychological support at USD70/bbl. This price stabilization act would give more assurance to oil producers to continue their spending plans and would benefit the overall oil and gas service providers. Nevertheless, from a macro-economic perspective, the production cut could be a set-back for global central banks in fighting against inflation. This optimism on the oil price could be short-lived as it may prove counter-productive to overall global economic growth. We maintain our Neutral view on the sector.

Market Update

The FBM KLCI might open flat today after US stocks edged lower on Monday, trimming early gains, as investors weighed a much anticipated product launch from tech giant Apple and continued hunting for clues about the future path of interest rate rises. Wall Street’s S&P 500 closed down 0.2%, paring a small advance that had lifted the benchmark index more than a fifth above a recent low in October 2022 — briefly taking it into technical bull-market territory. Apple’s shares slid 0.8% after the group unveiled a new “mixed-reality” headset, following gains of as much as 2.2% in the run-up to the product launch. The Nasdaq Composite edged 0.1% lower as the weeks-long tech rally took a breather. The moves in equity markets came as fresh data from the Institute for Supply Management on Monday showed activity in the vast US services sector slowed in May, as new orders softened under the weight of high borrowing costs.

Across the Atlantic, Europe’s regional Stoxx 600 closed 0.5% lower, while France’s CAC 40 lost 1% and Germany’s Dax shed 0.5%. The small losses came after European Central Bank president Christine Lagarde said in a speech that underlying price pressures remained strong in the Eurozone, an indication that policymakers were likely to continue raising rates. The ECB is next due to announce a rate decision on June 15. London’s energy-heavy FTSE 100 lost 0.1%, unable to hold on to earlier gains. The regional markets were broadly up, with Japan’s benchmark Topix stock index rising 1.7% and Hong Kong’s Hang Seng index advancing 0.8%. Chinese equities bucked the upward trend, with the CSI 300 index of Shanghai- and Shenzhen-listed stocks down 0.5%.

Source: PublicInvest Research - 6 Jun 2023

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