Your bite-sized weekly update (16 July)

THIS WEEK IN MARKETS

What’s the key number that investors were looking out for in the past week? No, it’s not the $11 million prize money for the 14 July Toto draw. 

The market was watching closely for how much US consumer prices rose in June. And the figure that came out – a 9.1% increase compared to the previous year, took most by surprise. 

Take a minute to digest this. For a basket of consumer goods that cost $100 just a year ago, it’s now going to cost US consumers $109. 

This led the market to start talking about the Fed raising interest rates by 1.00 percentage point at its upcoming meeting later this month. That’s a whopping 1% increase all at once. 

Again, take a minute to think about how this will change might affect how you think about your investments and mortgages. 

It’s no wonder that stock markets had a volatile week, ending the week slightly down as investors digested these developments.  

IMPORTANT

• MAS acts to strengthen the Singapore dollar. In a surprise move to tame red-hot inflation, the MAS has tightened Singapore’s monetary policy. The move came as the MAS raised its full year inflation forecasts. Core inflation, which excludes private transportation and accommodation costs, is now expected to be 3.0-4.0% this year, from 2-5-3.5% previously. Following the announcement, we saw an immediate strengthening of the Singapore dollar against the US Dollar.
• The economic slowdown is real. Singapore’s GDP was flat in 2Q22 compared to the previous quarter, missing market expectations for a 1% growth. The Chinese economy performed worse with lockdowns to control the Covid outbreak, shrinking by 2.6% in 2Q22. The IMF has warned that the outlook has ‘darkened significantly’, and the MAS has said that “Singapore’s GDP growth is expected to moderate further in 2023.”
• US consumer prices soar. US consumer prices rose by 9.1% YoY in June, exceeding market expectations of 8.8% increase. The high level of inflation led more economists to expect the Fed to raise interest rates by 1.00 percentage points at its upcoming meeting. 

ICYMI

• US banks start the earnings season with mixed fortunes. US bank results are always closely watched, for they give an early indication of the health of the US economy. It’s a mixed bag here. JPMorgan and Morgan Stanley both reported weaker than expected earnings, which also led JPMorgan to temporarily suspend share buybacks. Citigroup’s shares had their best day since March 2020 after a blowout quarter in its trading division. (Source: Bloomberg)
• Chinese tech companies face renewed regulatory scrutiny. Chinese tech stocks saw selling pressure after Tencent and Alibaba were fined for failing to comply with anti-monopoly rules and not disclosing past transactions. The sell-off deepened after questions were raised about Alibaba’s role in China’s largest cybersecurity breach. (Source: Bloomberg)
• Twitter’s wild ride continues. The Twitter-Musk drama took a few more turns after Elon Musk withdrew his offer to buy Twitter for $44 billion.Twitter came back to sue Musk in an attempt to force him to pay the agreed-upon price. Even then, Musk has asked the court to reject Twitter’s request for a speedy trial, saying that the trial should wait until next year. (Source: Bloomberg)
• Genting Singapore draws takeover interest. Bloomberg reported that MGM Resorts International had recently approached the company’s controlling shareholder, the billionaire Lim family, to express its interest in a deal. While these discussions didn’t lead to an agreement, other potential suitors have also been in the preliminary stages of studying Genting Singapore. (Source: Bloomberg)

THE BIG IMPORTANT STORY

Should you take up the Mapletree Commercial Trust (MCT) preferential offering?

• The ongoing preferential offering by MCT is intended to fund the cash-only option given to MNACT holders as part of the merger between the two REITs.
• With the preferential offering price of S$2.0039 higher than MCT's current market price of $1.78, I would be less inclined to take up the offering.
• If investors do not take up the preferential offering, Mapletree Investments, the sponsor of both MCT and MNACT, has committed to take up the maximum number of preferential offering units. 
• Even if Mapletree Investments' shareholder in the merged entity were to increase, the transaction is still expected to be accretive to MCT unitholders by 4.3-6.8%.

WHAT’S UP THIS WEEK

Monday, 18 Jul

• Goldman Sachs, Bank of America report results

Tuesday, 19 Jul

• Netflix reports results

Wednesday, 20 Jul

• Tesla reports results

THAT’S INTERESTING

• Grab draws commuters’ ire. Some commuters in Singapore were unhappy after Grab announced that it will reduce the grace waiting period for ride-hailing bookings from five-to-three minutes. Todayonline reported that one business owner has asked his employees to stop using Grab. Small business owner Oo Gin Lee said “I won’t support a company that I feel doesn't really care about its ultimate customers”
• Where are the founders of Three Arrows Capital? The whereabouts of the founders of bankrupt crypto hedge fund Three Arrows Capital were unknown, according to the fund’s liquidator. One of the co-founders, Zhu Su, subsequently emerged on Twitter to accuse the liquidators of “baiting”.