Welcome to the latest edition of top stock market highlights where we cover the latest corporate developments as well as other interesting business news.
Taiwan Semiconductor Manufacturing Co. Ltd (TPE: 2330)
Taiwan Semiconductor Manufacturing Co., or TSMC, is the world’s largest contract chip manufacturer and also the largest listed company in Taiwan.
In a sign of possible weakness for the technology industry, TSMC slashed its capital spend target for 2022 by 10%.
The company now expects to spend around US$36 billion, down from about US$40 billion previously.
This reduction shows that the world’s largest chip manufacturer is bracing for a slowdown in demand from various sectors such as smartphones, servers, and electric vehicles.
To make matters worse, the US government had also imposed restrictions on TSMC and its peers from doing business in China.
These moves are designed to stymie China’s attempts at developing superior technological capabilities as the US views the Middle Kingdom as a credible threat.
Unfortunately, this protectionist attempt will only serve to exacerbate supply chain disruptions that were already widespread due to the lingering effects of the pandemic.
TSMC produces microchips for blue-chip global names such as Qualcomm (NASDAQ: QCOM), Apple (NASDAQ: AAPL) and Nvidia (NASDAQ: NVDA).
Closer to home, the fortunes of companies that are tied to the semiconductor cum electronics sectors may be negatively impacted.
Some examples are stocks such as electronic component manufacturer Micro-Mechanics (Holdings) Ltd (SGX: 5DD), test-handler AEM Holdings Ltd (SGX: AWX), blue-chip contract manufacturer Venture Corporation Limited (SGX: V03), and semiconductor component manufacturer UMS Holdings Limited (SGX: 558).
US inflation data
Inflation data from the US has never been more closely watched by investors.
The US Federal Reserve has undertaken three consecutive rate hikes of 0.75 percentage points each to tame runaway inflation that is running at a four-decade high.
In light of surging interest rates, perhaps the fixation on this economic metric isn’t that surprising after all.
Unfortunately, US consumer prices rose more than forecast, keeping up the pressure on the central bank to continue raising rates.
The core consumer price index (CPI) rose 6.6% year on year, the highest since 1982, while the overall CPI climbed 8.2%, albeit falling slightly from the 8.3% logged in August.
This sobering piece of news, coupled with a jobs report last week that suggested the US economy was strong enough to withstand higher rates, has all but cemented expectations of yet another sharp rate hike when the Federal Reserve meets in early November.
There may even be a five such increase in December when the central bank meets for the final time this year.
The current policy rate stands between 3% to 3.25%.
A November hike of 0.75 percentage points will bring this range to between 3.75% to 4%, and if December sees a fifth consecutive three-quarter percentage point increase, it will bring interest rates to a range of 4.5% to 4.75% by end-2022.
The Monetary Authority of Singapore’s policy shift
Speaking of rate hikes, Singapore’s central bank, the Monetary Authority of Singapore (MAS), is making some moves of its own.
The MAS announced that it will “re-centre” the mid-point of the SGD nominal effective exchange rate (S$NEER) to its prevailing level.
This move will reduce imported inflation and help to buffer domestic price pressures.
Singapore’s central bank has already tweaked monetary policy three times this year, and this fourth move shows its commitment to ensuring price stability.
Still, core inflation is likely to hover around 5% for the remainder of this year and spill over into early 2023.
For the whole of next year, core inflation is projected to remain fairly high at between 3.5% to 4.5%.
The MAS has also warned that events such as geopolitical tensions could result in higher-than-expected inflation and cause some economies to tip into a recession.
Investors need to brace for a possible recession in Singapore as the country is reliant on external trade and will not be insulated from headwinds should other developed nations witness a downturn.
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Disclaimer: Royston Yang owns shares of Apple and Micro-Mechanics (Holdings) Ltd.