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Market Snapshot Market Snapshot Tuesday, 17 September 2013 Summers’ Exit Ushers in Stock Spring Key Global Indices Global Equities Index Last Change (%) YTD (%) US equities carried on higher, as Lawrence Summers’ bowing out of the US DJIA 15494.78 0.77 18.24 race for the US Federal Reserve’s top job raised hopes that money policy US S&P 500 1697.60 0.57 19.03 could stay easy for some time yet. The Fed is expected to, after their two- US NASDAQ 3717.85 -0.12 23.13 day pow-wow, tap lightly on the brakes, reducing treasury purchases by UK FTSE 100 6622.86 0.59 12.29 USD5 billion. With Summers, the former Treasury Secretary out of the Nikkei 225 14404.67 0.00 38.57 picture, Fed Vice-Chair Janet Yellen is now the front-runner in Europe DJ STOXX 600 313.42 0.63 12.06 Washington’s top guessing game of the summer. In coming months, the Fed will also have to grapple with filling vacated seats on the Federal Open Asia & Emerging Markets Market Committee, as well as headship at some regional Fed banks. Index Last Change (%) YTD (%) Frenzy over Summers’ exit eclipsed an unexpected fall in New York Singapore STI 3179.48 1.90 0.39 manufacturing activity, as the Empire State index fell to 6.29 in September Hong Kong Hang Seng 23252.41 1.47 2.63 from 8.24 in August. A rise to 9 was expected. Factory output and Shanghai SE Composite 2231.40 -0.22 -1.66 capacity utilisation data rose in line with forecasts, rising 0.4% on-month India Sensex 19742.47 0.05 1.63 and to a 77.8% level respectively. Taiwan TWSE 8255.34 1.39 7.22 Malaysia KLCI 1770.80 0.00 4.85 Europe shares also got a boost from Summers’ Fed race withdrawal, with Korea KOSPI 2013.37 0.96 0.82 the DJ Stoxx 600 pushing 0.6% higher, Germamy’s DAX surging 1.2%, Indonesia JCI 4522.24 3.35 4.76 UK’s FTSE climbing 0.6%, and France’s CAC-40 rising 0.9%. Separately, Britain’s public investment authority has kick-started selling its stake in Thailand SET 1445.11 3.14 3.82 Lloyds, one of the banks it bailed out during the 2008 financial crisis. Brazil BOVESPA 53821.63 0.04 -11.70 Russia RTS 1436.14 2.83 -5.95 Southeast Asia Fixed Income Southeast Asia stocks saw some of the best gains; they were hit hardest Previous Day by earlier by talk of Fed tapering. Singapore's STI rose 1.7%, Thailand’s Last Change (bps) Close SET jumped 2.6% and Philippine’s PSEC added 1.9%. Indonesia's JCI 2-yr US Treasury 0.39 0.43 -4.42 rose 3.3%, helped by investors still positive that the central bank is actively 5-yr US Treasury 1.62 1.69 -7.11 battling inflation after it hiked policy rates to 7.25% last week. This feel- 10-yr US Treasury 2.86 2.88 -2.03 good also pushed one-month rupiah forwards up. Malaysia markets were 3M Sibor 0.37 0.37 0.00 closed for a holiday. 3M Libor 0.25 0.25 -0.21 In economic news, Singapore’s non-oil domestic exports unexpectedly slid iBoxx US Treasuries TR Index (USD) 6.2% on-year and fell 6% on-month in August. Electronics exports also showed weakness, tumbling 9.2% on-year. 214 North Asia 212 210 Asia equities started the week strong, rejoicing over Summers bowing out 208 from the Fed’s race to the top. Hong Kong’s Hang Seng rose 1.2%, South Korea’s Kospi gained 1%, and Taiwan’s TWSE ticked 1.4% up to 206 its highest close since 17 July. In other news, the shuttered Kaeseong 204 industrial complex reopened five months after North Korea threatened the 202 South with nuclear attacks. Japan markets were closed for a holiday. 200 Hong Kong equities were supported by a rally in gold producers as easing 198 Syria tensions helped the bullion cinch a second day of gains, clawing 196 back some of last week’s losses. Zhaojin Mining Industry rose 4.4%. Also helping was internet giant Tencent’s 1.6% gain as its market value topped 194 USD100 billion with the explosive growth of China’s internet use. Jul-13 China shares however fell 0.2% as investors continued locking in profit Jun-13 Apr-13 Mar-13 Aug-13 May-13 after a string of data showed growth is gaining speed, and Shanghai was Source: Bloomberg, iBoxx Limited. bestowed free trade zone status. Data stated in local currency terms and is as of the last business day. Market Snapshot 17 September 2013 Commodities South Asia O/N Change 52-week 52-week Last (%) High Low India equities were flat after inflation quickened its pace to a six-month high in August, stoking fears that the central bank may have little wiggle room to Gold 1312.79 -1.01 1796.08 1180.57 support growth. New Reserve Bank of India governor Raghuram Rajan makes Crude oil 106.59 -1.50 112.24 84.05 his first interest rate decision on Friday, after earlier announcing reforms. The Wheat 641.25 2.15 926.50 623.00 Sensex rose earlier in response to Summers exiting the Fed race. Wholesale Corn 456.50 1.44 800.00 450.00 prices jumped a higher-than-expected 6.1% in August, driven by food prices Soybean 1348.25 -9.44 1736.25 1271.00 growing at a three-year high of 18.18%. Sugar 485.70 -1.28 582.50 456.70 Fixed Income Coffee 119.25 -0.62 200.00 115.25 US Treasuries rose for a fourth straight session as Summers’ withdrawal led to Commodities Research Bureau (CRB) Index hopes that the Fed will be less enthusiastic about tightening quickly, raising 490 interest rates and potentially nipping economic recovery in the bud. Fed buying has been a key pillar of support for the US Treasury market. Late- afternoon, the benchmark 10-year note rose 6/32 in price to yield 2.872%. 480 Commodities Oil futures fell as continuing negotiations with Syria gave comfort that the 470 country is unlikely to face military attack anytime soon. Supply concerns also eased with Libya restoring about 25% of its crude output after talks between the government and striking workers worked out, and oil export terminals in 460 Mexico re-opened for business after Hurricane Ingrid lost steam, becoming a tropical depression instead of a hurricane. 450 Gold prices took the cue from a calmer Syria that crimped demand for the traditionally safe-haven metal. Jul-13 Jun-13 Apr-13 Mar-13 Aug-13 May-13 Sources: Bloomberg, DBS Group Research and Vickers (DBS), Dow Jones Source: Bloomberg, iBoxx Limited Newswires, Reuters Data stated in local currency terms and is as of the last business day where applicable. O/N represents overnight. ASIAN INSIGHTS US: The Fed Taper Caper, Debt and Bernanke’s Replacement US New Home Sales After months of speculation, market watchers now expect the US Federal Reserve to begin reducing monetary stimulus by around USD10-20 billion (out of the USD85 billion monthly) by the end of the two-day Federal Open Market Committee, or FOMC, meeting, which begins later today. Over the past few months, the intermediate to the longer-end US Treasuries rates have already risen sharply and are at levels not seen since mid-2011, just before the Fed anchors the entire yield curve lower with explicit forward guidance. As a result, the steepness of the yield curve in the two-year/five-year segment clearly reflects interest rate risks in the two-to-five year timeframe. More recently, the yield on two-year USTs have started rising to discount the possibility of rate hikes in 2015, but further moves have to be first confirmed by the start of tapering, which have to be a prerequisite for rate hikes down the line. Having discounted a significant amount of interest rate risks, Fed tapering may well turn out to be a “non event.” Source: Group Research The market is looking beyond this reduction, widely known as ‘taper’, and into the policy stance taken by Fed over the medium term. With geopolitical risks in Syria on the backburner, attention will be focused on US data and the choice for the next Fed Chairman when Bernanke steps down in January. With former Treasury Secretary Lawrence Summers (viewed to be more hawkish compared to main rival and Fed Vice-Chairperson Janet Yellen) quitting the race, policy continuity and a gradual pace of tapering is expected. Risks however, are apparent. US data have been mixed of late. While ISM numbers have outperformed, rising mortgage rates have put a dampener on housing data. Depressed mortgage applications will be a constraint towards the Fed’s tapering timetable. The risk in tapering now is that the Fed may have to U-turn later. Why? In a word: housing. Since early May, mortgage rates have risen by 100-120 basis points. Mortgage applications (for purchases) have fallen by 17%. New home sales in July fell by 13.4% on-month. For the past two years, housing has been the poster-child for the recovery. But in July alone, one-third of the two-year recovery in new home sales was wiped off the map. Another month or two of that and Fed tapering would come to an abrupt halt.
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