Singapore shares will begin trade on Monday with the positive lead from Wall Street last week marred by concerns over trade tensions between the U.S. and China after their talks last week appeared fruitless. OCBC’s earnings released on Monday may also disappoint the market.
“The U.S. economy remains in the agreeable Goldilocks region, and as such, equity investors reacted favourably by taking the U.S. indices higher outweighing the negatives from strained trade talks between the U.S. and China,” Stephen Innes, head of Asia Pacific trading at OANDA, said in a note on Monday.
But he added, “Even the hint of trade war escalation is terrible news for global equities so there is the threat that any contrary Monday morning headline risks could dampen stock market sentiment right out of the gates.”
The Dow Jones Industrial Average ended Friday in the green, up 1.39 percent, while the S&P 500 added 1.28 percent and the Nasdaq advanced 1.71 percent. Futures for the U.S. indexes were in the green on Monday morning.
That was after U.S. jobs data on Friday showed the country added fewer jobs than expected, with non-farm payrolls adding 164,000 jobs in April, but that was enough to help push the unemployment rate to a more than 17 year low of 3.9 percent; the participation rate also fell. Wages, however, remained stagnant.
“The labor market is heating up with workers in short supply, but companies are still not paying up to bring in help despite the one of the tightest labor markets in a generation. Fed officials can rest easy that there is not any wage-based inflation on the horizon,” Chris Rupkey, chief financial economist at MUFG, said in a note on Friday. “Our biggest concern is that America is running out of workers for companies to employ and that this will have negative consequences for the economic outlook soon.”
But while markets ended positively on Friday, the geopolitical picture may have darkened over the weekend.
Trade tensions may continue to spur market jitters after talks between the U.S. and China, which ended on Friday, only yielded indications that both sides are sticking to their guns.
Analysts have not yet despaired of a deal.
“U.S. heavy handed demands of China look like an ambit claim. Again, classic Art of the Deal stuff. A negotiated solution remains most likely, but it will take time with a lot of posturing and near-death moments along the way,” Shane Oliver, head of investment strategy at AMP Capital, said in a note over the weekend. “But it likely won’t be resolved until after May 21 and so we may see a brief start up to tariffs or a delay to their start up if negotiations are going quickly.”
Oil prices may get an extra dollop of volatility amid saber-rattling from the U.S. about potentially pulling out of the Iran nuclear deal before a May 12 deadline. European countries still support the deal amid evidence that Iran has complied with its terms and Iran has said it won’t renegotiate.
“It’s likely Trump will not waive trade sanctions against Iran,” Oliver said. “This will mean that around 0.7 million barrels a day of Iranian oil exports will be lost to the market (against total global production of around 100 million barrels a day) which could result in further upwards pressure on oil prices. But its likely to be minimal as oil prices have already moved up in anticipation.”
And U.S. President Trump reportedly repeated on Saturday a threat to shutdown the U.S. government in September if he doesn’t get funding from Congress to build the extremely expensive, deeply controversial and feasibility-challenged wall he wants on the border with Mexico.
In addition, over the weekend, CNN reported that Trump used a tax reform roundtable in Ohio to float the idea of “closing up the country for a while.” CNN noted it wasn’t clear what Trump meant and the White House hadn’t immediately responded to a request for clarification.
However, disruptions to travel and immigration due to what Trump has described as his “Muslim ban” have already hurt U.S. companies, particularly in the technology and tourism industries. Any additional hurdles to traveling to the U.S. could bring both short- and long-term economic and earnings pain.
OCBC reported its first-quarter net profit climbed 29 percent on-year to S$1.11 billion, with strong net interest income growth, higher wealth management income, lower allowances and increased contributions from overseas banking subsidiaries.
The net interest margin rose 5 basis points to 1.67 percent, the bank said in a filing to SGX before the market open.
The results may disappoint the market after both its Singapore peers, DBS and UOB, beat expectations.
Consensus net profit forecasts were for S$1.12 billion, according to Bloomberg. Nomura had forecast net profit of S$1.271 billion, Daiwa had forecast net profit of S$1.072 billion and CIMB had forecast S$1.16 billion. Both CIMB and Daiwa had forecast OCBC would report NIM of 1.68 percent.
The bank appeared to put some of the concerns about its exposure to the troubled oil and gas sector behind it. Allowances fell to S$12 million in the first quarter, from S$176 million in the fourth quarter. Its non-performing loan ratio fell to 1.38 percent in the first quarter, from 1.45 percent in the fourth quarter. OCBC said that on-balance sheet oil and gas exposure was 5 percent of total consumer loans at the end of the first quarter, largely unchanged on-quarter.
OCBC said that profit from life assurance rose to S$166 million in the quarter, up from S$49 million in the year-earlier quarter.
CEO Samuel Tsien said in the statement that the bank was pleased with the results, but he also sounded a note of caution.
“The group’s income growth was broad-based, loan growth was sustained, assets under management growth continued and allowances were much lower. Our Hong Kong, Malaysian and Indonesian banking subsidiaries also reported higher year-on-year earnings,” he noted.
But he added, “we remain vigilant to geo-political events including increased global trade tensions and the effects of higher interest rates on investment activities and the overall economy.”
Keppel DC REIT
Keppel DC REIT requested a trading halt before the market open to announce that it is buying a 99 percent stake in Kingsland Data Centre for S$295.1 million.
The REIT said in an SGX filing before the market open on Monday that the acquisition, which was expected to be completed this quarter, was expected to be accretive to distribution per unit (DPU).
It said the purchase would be funded by the net proceeds of a private placement of 224.0 million new units in the REIT, which was also announced on Monday before the market open, as well as the remaining net proceeds of a preferential offering launched in October 2016.
The new units will be issued at S$1.353 each, a discount of about 4.9 percent to the volume weighted average price of the unit’s price on May 4, the REIT said. The placement’s gross proceeds were expected to be around S$303.1 million, the filing said. The new units will increase the number of units by around 19.9 percent, it said.
Trading of the new units on SGX was expected to start on May 16, the filing said.
Millennium & Copthorne Hotels reported its first-quarter profit before tax rose by GBP13 million on-year to GBP26 million, which included the GBP3 million gain from the disposal of two Australian hotels owned by CDL Hospitality Trusts. City Developments held an around 65 percent stake in M&C as of October 9, 2017.
Revenue per available room (RevPAR) was at GBP68.48, down 3.1 percent on-year in the reporting currency and up 3.2 percent in constant currency terms, the hospitality company said in an SGX filing after the market close on Friday.
City Developments reported that M&C’s 2017 profit after tax and minority interests (PATMI) was GBP124 million (S$223.86 million), up 59 percent on-year; that compared with City Development’s total PATMI of S$538 million for 2017.
City Developments’ earnings report is due after the market close on Friday, May 11.
PACC Offshore Services
PACC Offshore Services said it is seeking arbitration against Mexico under the Bilateral Investment Treaty with Singapore. The arbitration is over investments the company made in Mexico to charter vessels to state-owned oil company Petroleos Mexicanos, or Pemex, PACC said in an SGX filing before the market open on Monday.
The company said starting from 2014, Mexico took actions that contravened the treaty with Singapore.
“These actions prevented the company from continuing to charter those vessels to Pemex, and thereby destroyed those investments that the company made in Mexico. The company is seeking compensation from Mexico for the value of those investments,” PACC said.
According to an Offshore Energy Today report from 2014, one of PACC’s joint ventures, Servicios Maritimos Gosh, or GOSH, chartered six vessels to Oceanografia (OSA), which were then chartered by OSA to Pemex. But in 2014, OSA was placed under the control of the Mexican State Administrator due to investigations of alleged fraud from OSA’s billings to Pemex, the 2014 report said, adding that Pemex would be paying the fees to the administrator.
Mexico’s embassy in Singapore did not immediately reply to Shenton Wire’s email seeking comment, which was sent outside of office hours.
CH Offshore reported an after-tax loss of US$2.79 million for its fiscal third quarter ended March 31, widening from the year-earlier quarter’s US$1.02 million loss. Revenue for the quarter fell 38 percent on-year to US$2.15 million, the company said after the market close on Friday.
CH Offshore charters vessels for use in the offshore oil and gas industry.
The company’s outlook was cautious despite recent signs of recovery in the global oil market.
“The OSV industry is still facing a situation of excess supply against a backdrop of slow pick up in demand. This resulted in intense downwards pressure on vessel utilisation rates and charter rates,” it said in the statement. “Due to the time required for planning and permitting of new offshore projects, an increase in demand for offshore supply vessels may only be realized later beyond current financial year. In the meantime, the group will continue to develop ways to increase operational efficiency, cut costs and preserve cash, which will allow us to ride out the rest of the downturn and be ready for the rebound in the industry.”
ASL Marine issued a profit warning in a filing to SGX after the market close on Friday.
For both its fiscal third quarter and its fiscal nine-month period, both ended March 31, the ship building and repair company said it expected to report a net loss. It said the fiscal third quarter loss was primarily due to a weak contribution from the shipbuilding segment.