Thursday, September 19th, 2019


France urges Germany to act on economy sooner rather later

PARIS, Sept 19 — Germany should act sooner rather than later to revive its flagging economy, France’s finance minister said today, as he struggled to hide frustration with the pace of Berlin’s efforts to engineer a recovery. French…

Amazon vows to being carbon neutral by 2040; will buy 100,000 EVs

WASHINGTON, Sept 19 — Inc Chief Executive Officer Jeff Bezos today committed the online retailer to being carbon neutral by 2040 and said it would order 100,000 electric delivery vehicles as part of that pledge. Cutting emissions is a…

Microsoft drives S&P 500 near record high

NEW YORK, Sept 19 — Gains in Microsoft shares pushed the benchmark S&P 500 within striking distance of its record high, a day after the Federal Reserve cut interest rates as expected but played down hopes of further monetary easing. The…

US dollar mixed, euro higher after hawkish central bank shift

NEW YORK, Sept 19 — The US dollar was mixed this morning, weaker against the euro, the Swiss franc and the Japanese yen, but stronger versus the Antipodean currencies after a slew of central bank decisions came in more hawkish than expected. The…

Khazanah to sell entire stake in Indonesian toll highway

KUALA LUMPUR, Sept 19 — Khazanah Nasional Bhd is selling its entire stake in the Cikopo-Palimanan (Cipali) toll road, one of the longest toll roads in Indonesia to the Canada Pension Plan Investment Board (CPPIB). CPPIB and its partner, PT…

Asian currencies weaken in wake of US interest rate cut

PETALING JAYA: The ringgit and most other Asian currencies closed weaker against the US dollar today after the US Federal Reserve cut its benchmark interest rate for the second time this year.

Owing to the stronger US dollar, the ringgit depreciated as much as 0.3% to 4.1982 before closing at 4.1925 at 5pm, down 0.2%.

Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said the recent stress in the money market in the US which led the Fed to reduce the interest rate on excess reserve to 1.8% from 2.1% seems to imply a credit crunch in the economy.

It was reported that money market rates for some overnight loans rose as high as 10%. In some sense, risk-off sentiment may have become prevalent as the event happened at a time when there are signs that the US economy is weakening.

“For instance, the US ISM Index for the manufacturing sector fell below the 50-point demarcation line to 49.1 points in August, and the ongoing trade war, the geopolitical development and UK Brexit all seem to indicate that the external sector remains wobbly, which led to higher demand for safe-haven currencies,” he told SunBiz.

After the Fed lowered interest rates, a slew of monetary policy decisions followed yesterday. Indonesia cut interest rates for the third month in a row, while Hong Kong slashed borrowing costs for the second time this year. Japan, Taiwan and Switzerland left their monetary policies unchanged.

HSBC head of FX strategy for the US Daragh Maher said in a report that it is unlikely that this easing will provoke a material change in the US dollar.

He said the Fed statement is little changed from July’s, retaining a cautiously confident tone on the outlook.

“Robust household consumption is helping to offset softness in business fixed investment and exports. The narrative regarding the lack of inflation pressures is retained, providing the breathing space for an easing despite forecasts of growth that remain at or above potential. Indeed, in similar fashion to the statement, the changes to the Fed’s economic projections were modest.”

Kenanga Research said though the Fed’s next move would continue to be a tough guessing game, it all boils down to how the global economic situation pans out over the next six to 12 months.

With trade tensions here to stay and a possible US-led currency war on the horizon, it is hard to see a catalyst for a speedy turnaround in global growth anytime soon. This means manufacturing and exports, Malaysia’s growth drivers, would remain weak for a longer duration. Coupled with slowing domestic demand and limited fiscal policy space to support the economy, it gives monetary policy a more significant role to play.

“This raises the probability that Bank Negara Malaysia (BNM) would cut the Overnight Policy Rate by 25 bps to 2.75%, the soonest being at its sixth and last Monetary Policy Committee meeting for the year on Nov 5, 2019,” said Kenanga.

HLIB Research said should US-China trade tensions continue with negative impact on the global economy and markets, it may lead the Fed to cut another 25bps towards the end of the year. It maintained its expectation for BNM to reduce the OPR by 25bps within six months.

Federal Reserve makes small changes to control benchmark rate, hints at more to come

NEW YORK/WASHINGTON: The Federal Reserve (Fed) on Wednesday made only minor changes to help it better manage its benchmark interest rate after the US central bank briefly lost control of it earlier in the week.

But it signalled that before long the Fed may take the bigger step of slowly bulking up its balance sheet to try to keep the problem from cropping up again.

Turmoil this week in funding markets briefly pushed overnight bank-to-bank lending rates above the US central bank’s target range and forced the New York Fed to step in with its first emergency injections of liquidity since the financial crisis.

For the “foreseeable future”, Fed chair Jerome Powell said on Wednesday, the Fed will rely such repurchase operations whenever needed to ensure banks have enough cash to fund their daily needs.

And to make sure any future funding crunches don’t push the Fed’s policy rate above the new range of 1.75% to 2% set on Wednesday, the Fed also lowered the interest it pays on excess bank reserves (IOER) to 1.8% and set its offering rate for any emergency repo operations at 1.70%, five basis points below the bottom of the new target range.

The IOER and the repo rate function as guardrails for the Fed’s policy rate, and the adjustments were aimed at giving the central bank tighter control over the underlying policy interest rate it uses to influence financial conditions in the United States and globally.

It did not, however, address what some analysts say is the underlying problem – a scarcity of bank reserves that can only be addressed if the Fed again expands its portfolio of bond holdings.

In his news conference, Powell said the Fed would be closely monitoring the level of reserves in the system to figure out whether that is the root issue, and will be “revisiting that question during the intermeeting period and certainly at our next meeting”.

“It is certainly possible,” he added, “that we will need to resume the organic growth of the balance sheet earlier than we thought.”

The Fed’s balance sheet – comprised largely of its holding of Treasuries and mortgage-backed securities – peaked at about US$4.25 trillion in 2015 and 2016 before the Fed began shrinking it as the economy improved. It stood at about US$3.7 trillion (RM15.5 trillion) on Sept 11.

Meanwhile, the level excess reserves has fallen as well, to about US$1.4 trillion from US$2.4 trillion in September 2017. – Reuters

Oil prices jump on supply risks, US interest rate cut

LONDON: Oil prices rose sharply today, supported by supply risks brought about by last weekend’s drone attacks on Saudi oil infrastructure and a cut in US interest rates.

Brent crude futures gained US$1.78 to US$65.38 a barrel by 1219 GMT, while US West Texas Intermediate crude was up US$1.28 at US$59.39 a barrel.

The attacks knocked down more than half of Saudi Arabia’s crude production and severely limited the country’s spare capacity, a cushion for oil markets in any unplanned outage.

“Global available spare capacity is extremely low at present following the weekend attacks, leaving little room for additional outages, which tends to be price supportive,“ UBS oil analyst Giovanni Staunovo said.

Earlier this week Saudi Arabia set out a timeline for a resumption of full operations, saying it had restored supplies to customers at levels prior to the attacks by drawing from its oil inventories.

But it said it would restore its lost production by the end of this month, and bring its output capacity back to 12 million barrels per day by the end of November.

“These plans suggest Saudi Arabia will have no spare capacity for at least the next two and a half months and therefore no way to absorb any further shocks,“ consultancy Energy Aspects said.

Saudi Arabia, the world’s leading oil exporter, has said the crippling attack on its oil sites was “unquestionably sponsored” by regional rival Iran.

US President Donald Trump said there were many options short of war with Iran and added that he had ordered the US Treasury to “substantially increase sanctions” on Tehran. Iran has denied involvement in the strikes.

The head of the International Energy Agency said on Wednesday it saw no need to release emergency oil stocks as markets were well supplied.

Following the attacks, Kuwait’s oil sector is on high alert and has raised its security to the highest level as a precaution, a Kuwaiti official said. – Reuters

KESM feels trade war effects, earnings slump

PETALING JAYA: KESM Industries Bhd’s net profit slumped 79.8% to RM2.29 million for the fourth quarter ended July 31, 2019 from RM11.32 million reported for the same period of the previous year, due to lower demand for burn-in, testing and electronic manufacturing services.

Revenue for the period stood at RM70.90 million, a 16.8% decrease from RM85.27 million registered previously.

The group has proposed to declare a final dividend of 6 sen per share for the quarter under review.

KESM’s full-year net profit also plunged 84% to RM6.28 million from RM39.34 million a year ago, on the back of a 12.1% decline in revenue to RM307.38 million from RM349.78 million.

Looking ahead, the group said the market weakness caused by the series of tariff hikes between the US and China have yet to abate.

“Barring further escalation of trade wars and major economies slipping into recession, the group is expecting a progressive recovery in 2020.”

It said the group remains cautious in capital spending, and will further its staff training and development in automation to drive productivity.

KESM also noted that the global semiconductor industry is forecast to decrease 9.6% to US$429 billion (RM1.8 trillion) in 2019 from US$475 billion in 2018.

“This decline is being driven mainly by lower memory pricing, the ongoing impact of the trade disputes between US and China and the forecast of sluggish growth in China.”