Welcome to the latest edition of top stock market highlights.
US Federal Reserve
The US Federal Reserve isn’t done with raising interest rates.
The central bank has pulled off its 10th consecutive interest rate increase, raising it by 0.25 percentage points, in a bid to tame inflation which is running at more than double its 2% target level.
The unanimous decision by the officials has brought the benchmark overnight interest rate to between 5% and 5.25%, the highest since August 2007.
But if you are wondering just when the Federal Reserve will stop raising rates, there’s hope for a reprieve.
Officials have said that they need time to assess the fallout from recent bank failures at Silicon Valley Bank and Signature Bank and to monitor the course of inflation.
As such, the central bank has signalled that it may pause further rate hikes but stopped short of stating that it will end its rate hike regime.
Federal Reserve chairman Jerome Powell had stated that it is too soon to say that the rate hike cycle is over as it is prepared to “do more” with rate rises if needed.
Rather than guide what it will do at its next meeting on 13 June, he carefully stated that any decision will be taken on a “meeting by meeting” basis after considering the facts and figures.
There are already expectations that the central bank will not increase rates at either of its next two meetings.
However, these higher rates look set to trickle down to the broad market and lift borrowing rates for a wide variety of loans, including mortgages.
For property investors, it feels like a double whammy as the government had recently imposed a new set of property cooling measures to curb speculation and keep HDB prices affordable.
PacWest Bancorp (NASDAQ: PACW)
Just when you thought the dust had settled on the US banking crisis, new pockets of stress have begun appearing.
PacWest Bancorp saw its share price halved on Thursday after Bloomberg reported that the bank was considering strategic options including a sale.
The regional bank had failed to inspire confidence even after it received a liquidity boost in March.
Back then, the lender had secured a US$1.4 billion asset-backed financing facility from investment firm Atlas SP Partners.
Shares of PacWest have plunged almost 90% since this crisis began on 8 March.
Aside from PacWest, another bank, Western Alliance (NYSE: WAL), saw its share price tumble 38.5% as Financial Times reported that it was exploring a potential sale.
It remains to be seen if these two banks can garner sufficient confidence to ward off a devastating bank run.
But what is clear is that the banking crisis looks far from over and that there may be further turmoil in the weeks and months to come.
CapitaLand Ascendas REIT (SGX: A17U)
CapitaLand Ascendas REIT, or CLAR, just released its fiscal 2023’s first quarter (1Q 2023) business update.
The industrial REIT’s portfolio occupancy remained decent at 94.4% as of 31 March 2023.
It also enjoyed a positive rental reversion of 11.1%.
During the quarter, CLAR completed two acquisitions worth close to S$300 million in Singapore while also announcing a divestment that will complete by this quarter.
Looking over at the REIT’s balance sheet, gearing came in at 38.2%, slightly higher than the 36.3% reported three months ago.
A worrying sign is that CLAR’s weighted average all-in cost of debt has jumped from 2.5% as of 31 December 2022 to 3.3% in 1Q 2023.
With its current gearing ratio, the REIT has a debt headroom of around S$4.2 billion before it hits the statutory ceiling of 50%.
Fortunately, 77% of CLAR’s debt is on fixed rates and the REIT manager has also quantified the effects of a continued rise in interest rates.
A two-percentage-point increase in base rates will lead to a 4.4% decline in 2022’s distribution per unit.
CLAR’s portfolio contains 229 properties worth S$16.7 billion of which the bulk (62%) are located in Singapore.
The manager is constantly working to improve the quality of the portfolio through selective acquisitions, redevelopments, and asset enhancement initiatives.
The REIT has a total of S$617.4 million of ongoing projects that are slated to complete from 2Q 2023 to 2Q 2026.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.