Thursday, June 6th, 2019


Wall Street flat as rate cut hopes offset trade tensions

NEW YORK, June 6 — US stocks treaded water today as hopes of a rate cut helped counter fears of a further escalation in the trade war with China following comments from President Donald Trump. Trump said he would decide on more China tariffs…

US trade deficit narrows in April; labour market strong

WASHINGTON, June 6 — The US trade deficit unexpectedly narrowed in April as imports of goods dropped to a 15-month low, which could support the economy as it slows after a temporary boost from exports and an accumulation of inventories early this…

Futures pare gains after Trump comments, ECB forecast

NEW YORK, June 6 — US stock index futures gave back most of their gains today after President Donald Trump said he would decide on more China tariffs “probably right after the G20,” stoking fears of a further escalation in trade tensions. The…

Trump threatens higher tariffs on at least another US$300b of Chinese goods

SHANNON (IRELAND)/BEIJING: US President Donald Trump threatened to hit China with tariffs on “at least” another US$300 billion (RM1.25 trillion) worth of Chinese goods but said he thought both China and Mexico wanted to make deals in their trade disputes with the United States.

Tensions between the world’s two largest economies have risen sharply since talks aimed at ending a festering trade war broke down in early May.

While Trump said today that talks with China were ongoing, no face-to-face meetings have been held since May 10, the day he sharply increased tariffs on a US$200 billion list of Chinese goods to 25%, prompting Beijing to retaliate.

“Our talks with China, a lot of interesting things are happening. We’ll see what happens … I could go up another at least US$300 billion and I’ll do that at the right time,” Trump told reporters, without specifying which goods could be impacted.

“But I think China wants to make a deal and I think Mexico wants to make a deal badly,” said Trump before boarding Air Force One at the Irish airport of Shannon on his way to France for D-Day commemorations.

In Beijing, China’s Commerce Ministry struck a defiant tone.

“If the United States wilfully decides to escalate tensions, we’ll fight to the end,” ministry spokesman Gao Feng told a regular news briefing.

“China does not want to fight a trade war, but also is not afraid of one. If the United States wilfully decides to escalate trade tensions, we’ll adopt necessary

countermeasures and resolutely safeguard the interests of China and its people.”

The Commerce Ministry also issued a report on how the US has benefited from years of economic and trade cooperation with China, saying US claims that China has taken advantage in bilateral trade were groundless.

“Since the new US administration took office, it has disregarded the mutually beneficial and win-win nature of China-US economic and trade cooperation, and has advocated the theory that the United States has ‘lost out’ to China on trade’, the ministry said in a research report.

“It has also taken the trade deficit issue as an excuse to provoke economic and trade frictions.”

Adding to concerns China may target US companies in the trade war, the ministry last week said it was drafting a list of “unreliable entities” that have harmed Chinese firms’ interests.

Gao said the list did not target specific industries, companies or individuals, and details would be disclosed soon. Companies that abide by Chinese laws and market rules had nothing to worry about, he added.

The International Monetary Fund warned on Wednesday that escalating tariff threats were sapping business and market confidence and could slow global growth that is currently expected to improve next year.

US Treasury Secretary Steven Mnuchin is scheduled to meet People’s Bank of China governor Yi Gang this weekend at a gathering of G20 finance leaders in Japan, the first face-to-face discussion between key negotiators in nearly a month.

Mexican and US officials were also set to resume their talks in Washington yesterday aimed at averting an imposition of tariffs on Mexican goods.

After saying that “not enough” progress on ways to curb migration was made when the two sides met on Wednesday, Trump told reporters today that Mexico had made progress in the talks but needed to do more.

He reiterated that 5% tariffs on all Mexico’s exports to the US due to start on Monday would go ahead if progress was not made. The tariffs can rise to as much as 25% later in the year.

“Mexico was in yesterday (Wednesday). They’re coming back this morning … I think a lot of progress was made yesterday, but we need to make a lot of progress,” Trump said.

Analysts divided on outlook for local stocks after muted Q1 corporate earnings

PETALING JAYA: Analysts are divided on the market outlook for the year, following a muted quarter of corporate earnings.

Despite a downward revision to its end-2019 FBM KLCI target, PublicInvest Research remains positive over the near to medium-term market outlook and expects the earnings cycle to improve.

“Our optimism is premised on, among others, the government’s focus on growth, an undervalued ringgit which should encourage capital inflows, and an expected resolution to the US-China trade spat, albeit piecemeal, but sufficient to make both parties coming out looking like ‘winners’,” it said in its report on Tuesday.

In terms of stocks, it favours EA Technique, Sapura Energy, D&O Green Technologies, Mega First, Ta Ann and Alliance Bank while Uzma and Perak Transit were dropped in favour of CIMB Group and Serba Dinamik.

“The current result reporting cycle saw some cuts to significant market moving sectors in the benchmark index, most noticeably in plantations. Banking saw some minor tweaks lower owing to the recent Overnight Policy Rate (OPR) cut while telecommunications were adjusted for accounting standard changes.

“Reaction has again been relatively muted thus far, with the benchmark FBM KLCI actually inching 4.55 points higher on Monday (June 3) to show some resilience, despite weaker global markets on account of President Donald Trump now ‘picking a fight’ with Mexico and India,” said PublicInvest Research.

Its earnings growth assumption for 2019 and 2020 are 2.5% and 6.2% respectively due to prevailing weak conditions. The adjustments to earnings resulted in a reduction of its end-2019 FBM KLCI target to 1,690 points.

MIDF Research has also cut its 2019 baseline target for the local benchmark from 1,800 points to 1,720 points, following the reduction in its aggregate forward earnings estimates for 2019 and 2020.

“Having reasoned the above, however, we take cognisance that equity price is a function of both underlying value and valuation. Granted, the performance of corporate earnings (which is a key measure of underlying value) may have been less than buoyant lately hence the decision to cut our FBM KLCI 2019 baseline target. Nevertheless, valuation expansion is a bona fide risk to our baseline outlook on the local benchmark,” it said.

Meanwhile, Affin Hwang Capital said there is no significant catalyst for the market, especially given the poor corporate earnings delivery while PE valuations for the KLCI remain at a premium over its peers.

“We maintain our ‘neutral’ rating on the KLCI although our 2019 year-end estimate for the KLCI is reduced to 1,679 (based on an unchanged 18 times 2019 KLCI EPS), from 1,810 previously.

“We make no change to our sector positioning for now, and remain overweight on the autos, gaming, healthcare, insurance, oil and gas, and rubber gloves sectors, where we believe the risk-reward is still favourable and earnings growth is still a key consideration,” it said.

However, it believes that equity outflows may recede over the near term as foreign shareholdings appear to have plateaued at 23%.

“Note that the KLCI was one of the only markets within the Asia-6 that saw significant equity outflows. Year-to-date, RM4.8 billion has been withdrawn and contributing to the 2.5% drop of the KLCI.”

Rising trade tensions could slow global growth but no recession: IMF chief

WASHINGTON: The International Monetary Fund (IMF) does not see the threat of a global recession brought on by a widening US-China trade war and potential US tariffs on Mexican goods and autos, IMF managing director Christine Lagarde said on Wednesday.

Lagarde told Reuters in an interview, however, that such escalating tariff threats were sapping business and market confidence, and could slow growth that is currently expected to improve next year.

“We don’t see a recession,” Lagarde said when asked whether US President Donald Trump’s threatened tariff actions could turn global growth negative. “Decelerating growth, but growth nonetheless – 3.3% at the end of this year, and certainly a strong US economy. We do not see at the moment, in our baseline, a recession.”

Earlier on Wednesday, the IMF said current and threatened US-China tariffs could cut 2020 global gross domestic product by 0.5%, or about US$455 billion (RM1.9 trillion) – a loss larger than Group of 20 (G20) member South Africa’s annual economic output.

The estimate includes a recent US tariff increase to 25% on a US$200 billion list of Chinese imports as well as Trump’s threat to tax another US$300 billion worth of consumer imports, representing nearly all trade between the world’s two largest economies.

The IMF’s estimate does not include Trump’s threatened 5% tariffs on goods from Mexico starting on Monday over immigration issues and ratcheting up monthly. Mexico has overtaken China this year as the largest US trading partner.

Lagarde called such actions “self-inflicted wounds” that must be avoided, a message she will take to a G20 finance ministers and central bank governors meeting in Fukuoka, Japan this weekend.

“One more tariff here, one more threat there, one more negotiation that has not yet started, add to a global uncertainty which is not conducive to additional growth,” she told Reuters.

In a briefing note for G20 finance leaders, the IMF said US tariffs and Chinese retaliatory measures currently in place could cut 2020 output 0.3%, with more than half of that impact coming from negative effects on business confidence and financial market sentiment.

The IMF also on Wednesday cut its China growth forecasts for 2019 and 2020 due to the growing trade tensions. The Fund is due to release preliminary findings of its annual assessment of the US economy later today.

The IMF is predicting 3.6% global growth for 2020, but said this outlook is vulnerable to trade tensions, uncertainty over Britain’s exit from the European Union, and uncertain recoveries in some stressed economies such as Argentina and Turkey.

ECB pushes back rate hike again as outlook darkens

VILNIUS, June 6 — The European Central Bank (ECB) pushed back the timing of its first post-crisis interest rate hike again today and said it would continue paying banks for lending in its latest effort to revive a slowing euro zone economy. ECB…

US, Mexico to resume talks over tariffs, border as Trump seeks more progress

WASHINGTON, June 6 — Mexican and US officials are set to resume talks in Washington today aimed at heading off punitive tariffs on Mexican goods as President Donald Trump called for Mexico to take more action to curb migration at the southern US…

France on defensive after Fiat Chrysler slams brakes on proposed merger with Renault

PARIS/MILAN: France was battling to defend its business strategy today after being blamed for scuppering a US$35 billion-plus (RM146 billion-plus) merger between carmakers Fiat Chrysler (FCA) and Renault only 10 days after the plan was officially announced.

Shares in Italian-American FCA and France’s Renault fell sharply in early trade after FCA pulled out, saying “the political conditions in France do not currently exist for such a combination to proceed successfully”.

The collapse of the deal, which would have created the world’s third-biggest carmaker behind Japan’s Toyota and Germany’s Volkswagen, revives questions about how both FCA and Renault will meet the challenges of costly investments in electric and self-driving cars on their own.

The French government, which has a 15% stake in Renault, had welcomed the merger plan, but overplayed its hand by pushing for a series of guarantees and concessions that eventually exhausted the patience of FCA, sources familiar with the talks said.

Wrong-footed by FCA’s decision to with-draw its merger proposal late on Wednesday, a French official called FCA chairman John Elkann early today to see if he might reconsider, but was rebuffed, one of the sources said.

French Finance Minister Bruno Le Maire said today the government had engaged constructively, but had not been prepared to back a deal without the endorsement of Renault’s current alliance partner Nissan.

Nissan had said it would abstain at a Renault board meeting to vote on the merger proposal.

The merger had aimed to achieve €5 billion (RM23.5 billion) in annual synergies, with FCA gaining access to Renault’s superior electric drive technology and the French firm getting a share of FCA’s lucrative Jeep and RAM brands. Achieving the planned €5 billion in FCA-Renault synergies would depend partly on access to technology jointly owned by Nissan, executives had said.

However, a source close to FCA played down the significance of Nissan’s stance in the discussions and blamed the French government for succumbing to political pressure at home.

The FCA-Renault talks were conducted against the backdrop of a French public outcry over 1,044 layoffs at a General Electric factory. The US company had promised to safeguard jobs there when it acquired France’s Alstom in 2015.

French Budget Minister Gerald Darmanin told FranceInfo radio the door should not be closed on the possibility of a deal with Renault, adding Paris would be happy to re-examine any new proposal from FCA.

Renault said in a statement it was disappointed not to be able to pursue the merger, but that FCA’s interest highlighted the attractiveness of the company and its alliance with Nissan.

Nissan, which is 43% owned by Renault and has recently rebuffed a full merger proposal from its French partner, was blindsided by the FCA-Renault tie-up plan and said it would require a fundamental review of its relationship with Renault.

The collapse of the FCA-Renault deal also followed days of bickering between France and Italy over Paris’ demands.

“When politicians try to intervene in economic matters, it doesn’t always help. I won’t comment further, if FCA withdrew its offer it’s because it didn’t see an economic advantage, or other type of advantage,” Deputy Prime Minister and 5-Star leader Luigi Di Maio told Italian state radio today.

At 1210 GMT, Renault shares were down 6.3% at €52.67, while FCA shares in Milan had recovered early losses to trade up 0.1% at €11.79. PSA was up €1.9%, as some analysts speculated it could again be targeted by FCA.

Ford to close Wales engine plant in latest blow to UK car sector

LONDON, June 6 — Ford said it would close its plant in Bridgend, south Wales, next year because of falling demand for some if its engines, putting 1,700 jobs at risk in a further blow to Britain’s once booming car industry. Ford is making cuts…