UOB Economic-Treasury Research www.uobgroup.com/research Company Reg No. 193500026Z
Wednesday, 09 July 2008
Global Markets
News Highlights
NY High 107.55 1.5740 1.9797 1.0350 0.9548 0.7539 1.0232 NY Low 106.25 1.5635 1.9666 1.0219 0.9503 0.7483 1.0157
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Foreign Exchange Rates (as at 8 July 2008)
JPY EUR GBP CHF AUD NZD CAD As at 09 Jul 107.46 1.5668 1.9700 1.0333 0.9540 0.7534 1.0184 Asian High Asian Low 107.25 106.36 1.5736 1.5675 1.9771 1.9708 1.0292 1.0228 0.9564 0.9508 0.7535 0.7490 1.0202 1.0160
Interest Rates
USD Fed Funds Rate EUR Refinancing Rate GBP Repo Rate AUD Official Cash Rate NZD Official Cash Rate CAD Overnight Rate Current 2.00% 4.25% 5.00% 7.25% 8.25% 3.00% Next CB Meet 05 Aug 08 Aug 11 Jul 5 Aug 24 Jul 16 Jul UOB’s Forecast 2.00% 4.25% 5.00% 7.25% 8.25% 3.00%
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Bernanke said that the Fed may extend emergency lending for Wall Street firms past year-end and must be prudent in making changes to repo markets while broader stresses continue. US May pending home sales came in below expectations, falling -4.7%mom against expectations for a 3.0%mom reading. US wholesale inventories also came in at 0.8%mom above expectations for a 0.6% read. Weaker than expected economic data released overnight however had little impact on the market. The USD was broadly higher against all the majors in LdnNY trading as the Fed's indication of its willingness to keep its emergency lending facility open into 2009 calmed credit concerns and oil prices continued its move lower. EUR/USD settled 58pips lower at the end of the Ldn-NY session at 1.5670, aided also by comments by Richmond Fed's Lacker (non-voter) that withdrawing monetary policy stimulus made 'eminent sense' as risks to economic growth ebbed, which boosted market expectations of tighter policy going forward, further boosting already positive USD sentiment with the market discounting that Lacker is not a voting member. GBP/USD was again one of the bigger movers, losing 66pips to settle at 1.9694 level on the back of broad USD weakness as well as weak domestic data. The BCC quarterly survey pointed to a sharp decline in overall manufacturing sector sales and orders, despite some pick up in export sales. Domestic sales and orders in the services sector which accounts for about 75% of GDP also registered sharp declines. We see Cable as beginning to respond to the deteriorating economic data emanating from the UK and see the GBP as likely to come under increasing pressure from here. The antipodean currencies also edged lower on broad USD strength. AUD/USD was down 29pips at 0.9535 in the LdnNY settle but eased further in early Asian trade to 0.9511 after Jul consumer confidence came in at -6.7% from a prior reading of -5.6%. Easing commodity prices are likely to weigh on the AUD and the NZD in the Asian session. We see some risks in both the antipodeans ahead of key domestic data, including NZ May retail sales and consumer prices next week which would give a clearer picture of when the NZ easing cycle is likely to begin as well as AU Jun employment data tomorrow and CPI later this month which we think would determine whether the peak in AU rates will be 7.25% o 7.50%.
Stock Indices (as at 8 July 2008)
Dow Jones Industrial Average S&P 500 NASDAQ Composite Tokyo Nikkei 225 London FTSE 100 Frankfurt DAX All Ordinaries Closing 11384.21 1273.70 2294.44 13033.10 5440.50 6304.41 5022.40 % chg +1.36 +1.71 +2.28 -2.45 -1.31 -1.43 -1.36
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Commodities (as at 8 July 2008)
NYMEX Crude (August) Comex Gold (July) Reuters CRB Index Closing 136.04 921.90 448.05 % chg -3.77 -0.58 -2.39
Bond Yields (as at 8 July 2008)
US 2-Year Bond US 10-Year Long Bond JP 10-Year JGB EU 10-Year Bund UK 10-Year Long Gilt Closing 2.48% 3.88% 1.62% 4.41% 4.91% Net chg +5 -2 -8 -2 -1
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Key Events
Date 09/07 10/07 10/07 10/07 14/07 15/07 Event BoE Monentary Policy Committee (MPC) meeting (to July 10) BoE Monentary Policy Committee (MPC) announces interest rate decision - 1100 GMT Fed Chairman Bernanke testifies before the House Financial Services Committee - 1400 GMT Fed Yellen speaks at 1930 GMT BoJ starts two-day monetary policy meeting (to July 15) RBA minutes of July monetary policy meeting - 0130 GMT
Global Markets Wednesday, 09 July 2008 p2
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Major US equity indices rose as oil prices pulled back and financial shares also gained after Bernanke said that the Fed would keep a lifeline open for Wall Street firms past yearend. Equities were also aided by the GSEs' main regulator's remarks which said that the proposed FASB 140 rule should not force both Fannie Mae or Freddie Mac to raise new capital. The DJIA rose 152.25pts (1.36%) to end at 11,384.21, the S&P500 gained 21.39pts (1.71%) to end at 1,273.70 while the Nasdaq Composite jumped 51.10pts (2.28%) at 2,294.42. The positive mood extended after the bell, with Alcoa posting stronger than expected results. Trading was moderate on the NYSE, with aout 1.7b shares changing hands, below last year's estimated daily average of 1.9b. The rise in equities, particularly in financials and healthcare, in our view does not signal a bottom as the market waits for next week's 2Q earnings from Merrill Lynch and US banks. There are no major economic data or earnings reports for today. US treasury debt prices were mixed overnight. Longer maturity debt prices rose on the back of the 2 day slide in
oil prices which eased inflationary fears while shorter dated debt prices were weighed upon by equity market gains as well as news that the Fed would continue to extend liquidity to the market. 2yr yields ended 4bps higher at 2.483% while 10yr yields ended the day 2 bps lower at 3.888%.
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Crude oil fell for a second consecutive day, ending close to 4% lower on the back of a stronger USD and reports that Hurricane Bertha, the first hurricane of the 2008 Atlantic storm season had weakened to Category 2 strength in the open Atlantic and would not hit the Gulf of Mexico. Nymex August crude traded from $135.14-142.44/bbl and settled $5.33 lower (3.77%) to end at $136.04/bbl. Weekly US inventory data is due today. Gold prices ended slightly lower, paring back losses early in the session on the back of lower crude and the USD rebound on bargain hunting after buyers came in and bought at day lows. Comex August gold traded between $914.0-926.0/oz, settling lower by $5.50 (0.6%) to end at $923.30/oz, well off the session low of $914/oz.
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URL: www.uobgroup.com/ research Email: EcoTreasury.Research@UOBgroup.com
Global Markets Wednesday, 09 July 2008 p3
Economic Indicators
Local Time 8 Jul 0600 2200 2200 2200 2200 9 Jul 0300 0701 0830 0900 0930 0930 0930 1630 1700 1700 10 Jul 0750 0800 0930 1445 1445 1900 2030 2030 11 Jul 2030 2200 12 Jul 0200 Indicators NZIER Business Opinion Survey US Pending Home Sales Index US Wholesale Sales US Wholesale Inventories US Pending Home Sales m/m Mth 2Q May May May May Actual -64 84.7 +1.6 0.8 -4.7 UOB Forecast Mkt Forecast 0.7 -2.8 Previous -64 88.9 1.6% 1.4% 7.1%
US Consumer Credit UK Nationwide Consumer Confidence AU Westpac Consumer Confidence AU Consumer Inflation Expectation AU Employment Change AU Participation Rate AU Housing Finance UK Total Trade Balance (GBP) EU Euro-Zone GDP q/q EU Euro-Zone GDP y/y
May Jun Jul Jul Jun Jun May May 1Q F 1Q F
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7.5 65 10.0 65.3 -4200 0.8 2.2
8.9bn 69 -5.6% 5.9% -19.7k 65.2% -3.0% -4325mln 0.8% 2.2%
JP Current Account Total NZ Business NZ PMI AU Unemployment Fr Industrial Production m/m Fr Industrial Production y/y GBP Repo Rate US Initial Jobless Claims US Continuing Claims
May Jun Jun May May Jul 11 Jul 6 Jun 29
5.00 -
1934.8 -0.6 1.5 5.00 395 3140
1380.9bn 49.3 4.3% 1.4% 3.2% 5.00% 404k 3116k
US Trade Balance US U of Michigan Confidence
May Jul P
-
-62.5 55.5
-60.9bn 56.4
US Monthly Budget Statement
Jun
-
30.0
27.5bn
Jimmy Koh (65) 6539 3545 Jimmy.KohCT@UOBgroup.com
Thomas Lam (65) 6538 2169 Thomas.LamTL@UOBgroup.com
Licia Kok (65) 6539 3549 Licia.KokHL@UOBgroup.com
Disclaimer: This analysis is based on information available to the public. Although the information contained herein is believed to be reliable, UOB Group makes no representation as to the accuracy or completeness. Also, opinions and predictions contained herein reflect our opinion as of date of the analysis and are subject to change without notice. UOB Group may have positions in, and may effect transactions in, currencies and financial products mentioned herein. Prior to entering into any proposed transaction, without reliance upon UOB Group or its affiliates, the reader should determine, the economic risks and merits, as well as the legal, tax and accounting characterizations and consequences, of the transaction and that able to assume these risks. This document and its contents are proprietary information and products of UOB Group and may not be reproduced or otherwise.
URL: www.uobgroup.com/ research Email: EcoTreasury.Research@UOBgroup.com