Market Snapshot Thursday, 01 August 2013 US Fed: Keep Calm and Continue Stimulus Key Global Indices Global Equities Index Last Change (%) YTD (%) US equities opened Wednesday higher with a cheery GDP figure, but took US DJIA 15499.54 -0.14 18.28 gains off the table as investors digested the Federal Reserve’s dovish tone US S&P 500 1685.73 -0.01 18.20 in its latest policy-setting meeting minutes. The Dow and the S&P 500 were both unchanged, while the Nasdaq rose 0.3%. All three indexes US NASDAQ 3626.37 0.27 20.10 posted sharp gains for July, with the S&P 500 logging the best month UK FTSE 100 6621.06 0.76 12.26 since January. Nikkei 225 13668.32 -1.45 31.49 Europe DJ STOXX 600 299.58 0.05 7.12 The economy expanded a stronger-than-expected 1.7% on-year in 2Q-13, though the reading for 1Q-13 was revised down to 1.1% from 1.8%. Asia & Emerging Markets Payroll processor ADP reported 200,000 private-sector jobs were added in Index Last Change (%) YTD (%) July, above estimates of 183,000. However, a reading for economic Singapore STI 3221.93 -0.72 1.73 activity in Chicago came in slightly below forecasts for the same month. Hong Kong Hang Seng 21883.66 -0.32 -3.41 Inflation remained steady at 0.8% on-year in the quarter, well below the Shanghai SE Composite 1993.80 0.19 -12.13 Fed’s 2% target. India Sensex 19345.70 -0.01 -0.42 The Fed gave no indication when it plans to taper, and reaffirmed that Taiwan TWSE 8107.94 -0.68 5.30 ultra-easy monetary policy will be needed for a “considerable period” Malaysia KLCI 1772.62 -1.25 4.95 after quantitative easing ends officially. Some highlights: Korea KOSPI 1914.03 -0.16 -4.16 A slight downgrade in its assessment of the economic recovery, Indonesia JCI 4610.38 0.04 6.80 calling the pace of growth “modest” rather than “moderate” as it Thailand SET 1423.14 -0.86 2.24 had consistently done for most of the past year. Brazil BOVESPA 48234.49 -0.67 -20.86 Mortgage rates have risen, and this could be a possible headwind Russia RTS 1313.38 -0.98 -13.99 to the housing recovery. Risks to inflation running too low. The central bank “recognizes Fixed Income inflation running persistently below its 2% objective could pose Previous Day risks to economic performance” but expects it to move back up Last Change (bps) Close over the medium term. 2-yr US Treasury 0.31 0.31 -0.38 Europe shares rose, cheering on upbeat data releases from the region. 5-yr US Treasury 1.38 1.39 -1.14 Unemployment in the euro zone fell on-year in June, the first in more than 10-yr US Treasury 2.58 2.61 -3.39 two years, Eurostat said. Annual inflation held steady at 1.6% in July, after 3M Sibor 0.37 0.38 -0.12 rising for the past two months. Elsewhere, German retail sales 3M Libor 0.27 0.27 0.06 unexpectedly fell in June, down 1.5% from May and 2.8% from a year ago. The FTSE 100 rose 0.8% while the Stoxx 600 ended flat. iBoxx US Treasuries TR Index (USD) 214 Southeast Asia Southeast Asia markets ended mostly down, locking in profit ahead of the 212 Fed outcome. Singapore's STI fell 0.7%. Indonesia's JCI ended flat. 210 Inflation hit an annual 8.18% in July, the fastest pace since Feb 2009, due to the recent fuel price hikes. Bank Indonesia Governor Agus 208 Moartowardojo said he is confident it will fall back to a 3.5-5.5% range by 206 next year. Malaysia's KLCI fell 1.3%, extending losses after ratings 204 agency Fitch lowered its outlook on Malaysia’s sovereign debt on Tuesday. 202 North Asia 200 Japan’s Nikkei fell 1.5%, weighed further by uninspiring results from companies such as Fujifilm Holdings and Fuji Heavy Industries also 198 weighed. The Nikkei eased 0.1% down in July. Separately, a senior official 196 in Prime Minister Shinzo Abe’s ruling party said a planned sales tax hike will likely go ahead despite calls from within the government to delay or dilute the increase. Head of the Liberal Democratic Party’s tax commission, Jan-13 Jun-13 Feb-13 Apr-13 Mar-13 May-13 Takeshi Noda, said confidence in Japan could fall if Tokyo is perceived to be faltering on the tax issue. Source: Bloomberg, iBoxx Limited. Data stated in local currency terms and is as of the last business day. Market Snapshot 1 August 2013 Commodities China stocks ticked up 0.2% as property developers rose on hopes Beijing O/N Change 52-week 52-week may not tighten the real estate market further. State-run Xinhua News Agency Last (%) High Low reported the Politburo saying it will keep economic growth steady in 2H-13, Gold 1325.07 -0.10 1796.08 1180.57 and promote stable and healthy property market development. China Vanke, Poly Real Estate Group and Gemdale Corp rose in response. Crude oil 105.03 1.89 109.32 84.05 Wheat 664.25 1.37 931.75 643.75 Hong Kong stocks fell 0.3% as investors took profit on recent out- Corn 499.00 0.71 843.75 488.25 performers such as Tencent Holdings, overshadowing a surge in Chinese Soybean 1374.00 1.78 1794.75 1328.75 property stocks. The HSI closed July up 16%. Sugar 490.70 0.31 587.70 458.40 Taiwan’s Taiex was dragged 0.7% lower by disappointing earnings of Coffee 118.60 -1.41 196.75 117.10 heavyweights such as HTC, Catcher and TPK. The country’s economy expanded faster-than-expected at 2.3% on-year in 2Q-13. According to DBS Commodities Research Bureau (CRB) Index Group Research, the country’s GDP growth will remain subpar at 2.6% in 500 2013 and 3.3% in 2014, citing downbeat export outlook. South Asia 490 India’s Sensex closed flat after the rupee fell to a three-week low in anticipation of key updates from the US overnight. Bharti Airtel help to curb 480 losses after the telco giant reported better-than-expected quarterly earnings. 470 Fixed Income US Treasuries saw gains after the Fed diluted fears it would start curbing its 460 USD85 billion monthly bond-buying programme. Benchmark 10-year notes rose 8/32 to yield 2.572%. 450 Commodities Oil futures jumped on the back of strong US GDP growth data. The upbeat Jan-13 Jun-13 Feb-13 Apr-13 Mar-13 May-13 sentiment overshadowed a US Energy Information Administration report showing crude stockpiles had risen last week against expectations for a draw. Source: Bloomberg, iBoxx Limited Data stated in local currency terms and is as of the last business day where Gold spot fell on better-than-expected data releases from the euro zone and applicable. O/N represents overnight. the US. Bullion ended July with a monthly gain of more than 7%, the biggest since Jan 12. Sources: Bloomberg, DBS Group Research and Vickers (DBS), Dow Jones Newswires, Reuters. ASIAN INSIGHTS Malaysia: External Headwinds Pressure the MYR Trade Balance on a Downtrend Weakness on the external balance is exerting pressure on the Malaysian Ringgit. Against the greenback, the MYR has hit a three-year low of 3.226 recently. In fact, 14 against the SGD, it registered a 15-year low of 2.548 earlier in the week. External Trade Balance (Billions) 12 As we have pointed out before, domestic demand has been the biggest driver of growth, keeping the economy afloat in recent years when the global outlook has 10 been dire. But that probably proved too much to bear on the external balance. 8 Strong domestic demand has been driving up imports, and with external demand remaining sluggish, the trade balance has been sliding over the last three years. 6 Trade balance hit a multi-year low of MYR1.0 billion in April. Although it recovered to MYR2.5 billion in May, the risk of it turning into deficit remains. This 4 will consequently impact the overall balance of payments (BOP). Malaysia’s capital account is often in deficit. What has been holding up its BOP 2 position thus far is the current account. More specifically, it is the goods/trade accounts alone and nothing else. Therefore, if this pillar gives way, the BOP will 0 turn into deficit. Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 To rectify this, either the exchange rate has to weaken or authorities have to cool Source: Bloomberg as of 31 July 2013 the domestic engines. As it is, it appears that authorities are happy to let the currency do the necessary adjustments and keep monetary policy on steady keel. The concern is that hiking the policy rate could derail the current economic transformation and undermines growth. Malaysia’s external engine has been weak and it is probably unwise to stall growth, particularly given that monetary policy is a blunt tool. The policy rate can’t adjust on a day-to- day basis much like the exchange rate. Hence, pressure on the ringgit will remain until the external outlook picks up or somehow domestic demand cools by itself. Source: DBS Group Research. Daily Breakfast Spread. 30 July 2013. (Summarised by DBS Group Wealth Management /CIO Office.) Market Snapshot 1 August 2013 FX Pulse FX Round-up Currencies O/N Change O/N O/N Last India’s rupee fell near a record low, markets confused if the Reserve Bank of (%) High Low India’s immediate priority is growth or rupee stability.