Futures Forex Commodities

Tech Pressures Nasdaq In Volatile Trading (25May)

2012-05-25T09:38:00.000+08:00

- STI: -0.03% to 2779.5

- MSCI Far East ex-Japan: -0.27% to 442.6

- Euro Stoxx 50: +1.05% to 2156.5

- S&P500: +0.14% to 1320.7

US durable orders advanced +0.2%m-m in April (-3.7%m-m March), but core capital goods orders ex-defense ex-aircraft declined again, -1.9%m-m (-2.2%m-m March). While previous data points in housing get people all excited about the US recovery "gaining strength", we beg to differ. Housing is coming off a very low base so improvement is an easy thing to do. Income gains are insipid and slowing, which will limit consumption and housing, while the latest durable orders report confirms the investment cycle peaked long ago. We are at the tail end of the business cycle.

China’s SME manufacturing output is likely to continue to contract for the seventh consecutive month. The flash HSBC PMI index worsened to 48.7 in May (April 49.3). Specifically, the new orders as well as exports components continued to decline. On account of uncertainties in the global macro backdrop and sluggish external demand, we are expecting the Chinese economy to remain in a soft patch. We are forecasting a major fiscal response and liquidity loosening (2 more 50bp RRR cuts), rather than policy rate cuts, as although house prices and inflation are coming off, authorities will not want to risk such hard fought gains while in the midst of a politburo transition this 3q12.

In Vietnam, inflation moderated from 10.54% y-y in April to 8.34% in May, its slowest pace since August 2010 and the first single-digit rise in 18 months. We opined that as inflationary pressures ease, the central bank will have more room to cut policy rates to boost economic growth and meet this year's GDP target of 6%.

In Hong Kong, exports grew at a slower-than-expected pace of 5.6% y-y in April, reversing from a decline of 6.8% in the preceding month. We caution that the months ahead will be challenging for exports in view of sluggish demand in the advanced economies as well as lower Chinese demand.

Germany may have avoided a technical recession in 1Q12, growing 2.1% q-q saar after contracting 0.7% in 4q11, on the back of a rebound in private consumption (+1.7%) as well as exports (+7.1%). But ex-Germany, the Eurozone is in recession for all intents and purposes. Flash Eurozone PMI Composite Output Index at 45.9 (46.7 in April), a 35-month low. Flash Eurozone Services PMI Activity Index at 46.5 (46.9 in April), a 7-month low. Flash Eurozone Manufacturing PMI at 45.0 (45.9 in April), a 35-month low.

Markets across the board in Europe, the US, Asia are showing resilience off their support levels. Markets are oversold anyhow so odds for some kind of rebound is likely. On the European political front, speculation is rife that perhaps Merkel could buckle and give in to a howling chorus in Europe (and her own party) for joint euro-bonds. That would be positive for markets and harks back to a paper we put out last year that ultimately, what will hold this union of iron and clay together would be fiscal union and a common economic development plan that comes with it. Slowly but surely we seem to move to that inevitability with each crisis. In Greece, polls are mixed with one polls pointing to a Syriza majority, another to a neck to neck finish with New Democracy. Evening out the two suggests we could have a Syriza win, in which case the urgency of joint euro bonds becomes even greater.

On the bright side, our thesis that policy might give us another short-term rally (barring a disorderly Greek exit) seems to be coming to pass. China is posturing very heavily for a stimulus program, while a slowing US economy is raising the chorus for QE3.

(Our general guidance in our morning notes has been, as we weren't confident that econ/earnings data could outperform to drive markets, some combination of policy safety nets needs to occur to reverse consolidation/correction and push markets higher - QE3/Twist2, ECB intervention, further loosening by central banks to err on the side of growth as inflation recedes, a major China fiscal policy announcement. Longer term, we are still giving the heads up that post 6th November 12 USA presidential elections, markets could again be challenging going into 2013 - the US and EZ are under current law obliged to undertake tremendous fiscal tightening)

Wall Street Finishes Flat In Late Reversal (24May)

2012-05-24T10:20:00.000+08:00

- STI: -1.53% to 2780.4

- MSCI Far East ex-Japan: -1.73% to 443.8

- Euro Stoxx 50: -2.68% to 2134.1

- S&P500: +0.17% to 1318.9

In Singapore, inflation continued to accelerate to 5.4% y-y for April CPI, 5.2% previous. This was largely due to higher accommodation and private road transport costs. By contrast, MAS Core Inflation - which excludes these two components - inched down by 0.2pp to 2.7% in April, owing to lower food and services inflation. The divergence highlights the domestic drivers of inflation - our view is that headline inflation will continue to remain elevated in the coming months on the back of elevated accommodation costs as well as tight COE supply before possibly easing in 2H12. Though MAS had only recently tightened slightly its monetary policy in April, we do not rule out the possibility of further tightening at the next October MPS should growth/inflation surprise on the upside.

The Bank of Japan (BoJ) stood pat in its May policy meeting after boosting asset purchases by 10 trillion yen in April. Specifically, the BoJ is maintaining its policy rate at 0 - 0.1 percent and the size of its asset purchase program at 40 trillion yen. Japan’s exports also grew at a slower-than-expected pace of 7.9% y-y in April due to falling shipments to China. Should the global macro backdrop continue to deteriorate, we do not rule out further easing by BoJ (likely with an expansion of its asset purchase program).

Taiwan’s industrial production declined more-than-expected by 2.3 % y-y in April, after registering a drop of 3.4% in the preceding month, owing to weaker demand from key trading partners such as China and Europe.

In Malaysia, economic growth slowed to 4.7% y-y in 1Q12, compared to growth of 5.2% in the preceding quarter. Going forward, while weak external demand could pose headwinds to exports, domestic demand -boosted by wage hikes as well as accommodative monetary policy- would continue to lend support to growth. Inflation moderated from 2.1% y-y in March to 1.9% y-y in April. Our view is that inflation is likely to remain benign, but Bank Negara will continue to stand pat for now, unless external demand weakens dramatically.

UK retail sales volume declined by 2.3% m-m in April, the sharpest drop since Jan 2010. This decline is largely attributed to a significant plunge in fuel sales as well as clothing sales. Consumer spending is likely to remain soft in the months ahead as inflation continues to outpace nominal wage increases in an economy which is currently mired in a technical recession. Italy’s consumer confidence plunged for the second consecutive month to a record low of 86.5 in May. The weak confidence is likely a result of uncertainties over the EU sovereign debt crisis as well as Monti’s plans of spending cuts and tax increases.

Indices in Asia and Europe closed bearishly yesterday (the STI opened lower to close lower), resting on support levels mostly. Will they bounce or slice thru today? The S&P500's more positive closing, as intra-day losses were chewed up to finish higher, augurs well. But treat that with caution as the inter-market picture is not favourable: dollar continues to rally, commodities fell, and treasuries signal low growth ahead. Safe haven sovereigns rose (UK, German) while peripherals fell (Spain, Italy).

Wall Street Ends Flat After Late Volatility (23May)

2012-05-23T10:07:00.000+08:00

- STI: +1.20% to 2923.75

- MSCI Far East ex-Japan: +1.31% to 451.6

- Euro Stoxx 50: +1.99% to 2192.85

- S&P500: +0.05% to 1316.63

China continues to send mixed signals regarding its growth rate. Although the Conference Board Leading Economic Index for China increased by 0.8 % m-m in April, some underlying leading indicators point to a slowdown in the manufacturing and real estate sectors in the near term. At the same time the coincident economic index for China fell by 0.8% m-m, owing to a decline in electricity production and industrial output. Overall, the composite indicator advanced. On balance, our view is that while the Chinese economy is mired in a soft patch, there is a less than even chance that it will enter into a hard landing. We expect further policy moves on both the monetary and fiscal front to guard the downside.

In Hong Kong, the consumer price inflation (CPI) slowed from 4.9% y-y in March to 4.7% y-y in April as the pace of growth of private rentals and food prices slowed. In the near term, inflation is expected to moderate amid easing price pressures on the domestic and external front. For the whole of 2012, the government forecast CPI to rise 3.5%, lower than the 5.3% increase in the preceding year.

In the UK, inflation moderated from 3.5% y-y in March to 3.0% in April. Going forward, inflation is likely to continue to moderate owing to excess capacity in the economy. We are of the view that softer-than-expected inflation data -if sustained in the months ahead- is likely to increase the odds of further easing by the Bank of England (BoE) to support the economy that is already in a technical recession. However, we warn that further QE by BoE will be a negative for the sterling.

The rebound may have hit a speed bump as yesterday's price action was a little negative for the S&P500 (lost the gains to put in an big indecision candle) and the STI (closed below the closing before the major gap down, may go lower to fill the gap today). Other indices were more positive including Europe, China, the JCI and KLCI. But inter-markets the signals are mixed. The negatives for equities: dollar index seems to be gaining momentum higher while commodities lost more ground. The positives: treasuries retreated and Spanish/Italian bonds gained. The ASX has opened lower at time of writing, suggesting a negative day. Looking beyond today, we lean more to the rebound continuing as the key risk of an anti-bailout win in Greece is seeing conservatives starting to put aside differences to join forces in preparation to form a coalition majority if need be.

Wall Street Rebounds, But Investors Dump Facebook (22May)

2012-05-22T09:45:00.000+08:00

- STI: +0.40% to 2790.2

- MSCI Far East ex-Japan: +0.45% to 445.8

- Euro Stoxx 50: +0.26% to 2150.2

- S&P500: +1.60% to 1315.99

Thailand’s real GDP grew by 0.3 % y-y in Jan-Mar 2012, reversing from a decline of 8.9% in the preceding quarter. On a q-q sa basis, the economy rebounded from a contraction (-10.8%) in 4Q11 to register a strong expansion (11.0%) in 1Q12. Growth was largely driven by a recovery in household consumption as well as investment after last year’s disastrous floods. Nonetheless, risks to growth for export-dependent Thailand are skewed to the downside. Specifically, weaker-than-expected external demand as well as a delay in the recovery of manufacturing production could crimp growth. At this juncture, we opined that BoT is likely to continue to stand pat going forward, barring growth and inflation risk.

In Taiwan, export orders contracted for a second consecutive month in April by 3.52% y-y, owing to weaker demand for electronics as well as Chinese demand. This does not bode well for export-dependent Taiwan economy and limits the scope for any interest-rate hikes. Nonetheless, we are still of the view that the IT cycle (along with the healthy demand for gadgets such as smartphones as well as tablets) will continue to lend support to Taiwan’s exporters.

Japan's leading index continued to rise for the fourth consecutive month (to 96.4) in March, signaling cautious optimism of the economy in the months ahead.

In the Eurozone, the Conference Board leading economic index for French economic activity continued to increase for the second consecutive month (by 0.4% m-m) while overall Eurozone construction output rebounded by 12.4% m-o-m sa, buoyed by a surge in production from Germany (+30.7%) and France (+17.8%). By contrast, Spain and Portugal registered declines of 1.8% and 6.8% respectively.

Equity indices are rebounding from oversold conditions. Any rally from here would be short-lived on a Greek exit (we'll know on 17th June, polling day). And even if Greece remains, we are still faced with a slowing global economy - policy action would thus be required for any extended rally. On that front, we look forward to something from China, as Premier Wen stated that "We should continue to implement a proactive fiscal policy and a prudent monetary policy, while giving more priority to maintaining growth," and that "domestic demand should drive growth", such that measures to support farmers, small and medium-sized enterprises would continue as well as increasing social housing projects. In Europe, Germany is posturing more positively saying that all options would be explored to foster growth. As debt-financed demand is out of the question, it probably entails even more structural reform.

Market Is Oversold, But Major Signs Say "Sell" (21May)

2012-05-21T10:08:00.000+08:00

- STI: -1.54% to 2779.1

- MSCI Far East ex-Japan: -2.27% to 443.8

- Euro Stoxx 50: -0.1% to 2144.69

- S&P500: -0.74% to 1295.2

Out of 70 major cities of China, 43 saw a monthly decrease in price of new residential apartments in April, compared to 38 in March. 24 remained unchanged in April, compared to 16 in March. 3 saw a monthly increase, compared to 8 in March. House prices are therefore continuing to experience downward pressure on a wider scale and as the government earlier said that the reasonable level has not yet been achieved, we can expect no broad reversal of tightening measures yet. Along with slowing industrial output, exports, and investment, a cooling real estate market would continue weighing on GDP growth for a while. MNI Flash Business Sentiment Survey reported an index of 52.99 in May, lower than the figure 56.04 in April. Although risks of a hard landing certainly present themselves, it is still not our base case for the moment as income growth is still very strong, and as inflation has cooled we expect more loosening policies or stimulus by the government to boost the growth.

India’s April CPI growth leapt to 10.36% y-y, compared to the revised 9.38% y-y in March, consistent with the earlier reported April WPI of 7.23% y-y. This is a result of the government’s bold action to cut its repo rates and reverse repo by 50 bp to 8.0% and 7.0% respectively on 17 April, despite previously suffering inflation as high as 6.69%. The unexpected move to shore up a slowing economy has resulted in policy error for India which has endemic inflation pressures due to poor infrastructure. Although we expect loosening across many parts of Asia where inflation is softening, India is the exception, the April 17 cut is likely the last one this year.

Latest election polls in Greece point to pro-bailout parties erasing the lead by anti-bailout Syriza, with New Democracy now in the lead with 23.1% versus Syriza's 21%. If accurate of the actual elections, New Democracy could form a coalition government. Polls can be misleading but the result nonetheless may have stabilized the Stoxx 50 index which remain largely unchanged. The S&P500, and Asia, on the other hand had a torrid Friday and are very close to oversold conditions. Any rally from here would be short-lived on a Greek exit. And even if Greece remains, we are still faced with a slowing global economy and policy action would be required for any extended rally.

Nervous Investors Send S&P Lower for Fifth Day (18May)

2012-05-18T09:52:00.000+08:00

- STI: -0.30% to 2822.6

- MSCI Far East ex-Japan: +0.63% to 454.1

- Euro Stoxx 50: -1.31% to 2146.9

- S&P500: -1.51% to 1304.9

Singapore’s 1q12 real GDP expanded 10%q-q annualized rate (-2.5% 4q11), but the level of rebound remains low at 1.6%y-y (+3.6y-y 4q11). The rebound was largely attributable to manufacturing (19.8%q-q saar), with construction, wholesale-retail, finance, tourism at 32%, -2.3%, -3.4%, 11.9%. April non-oil export to US and EU saw significant drops of 12.2% y-y and 18.6% y-y respectively, compared to the moderate gains of 4.5% and 4.0% in March. April non-oil export to China rose by 5.4%, compared to the 0.9% drop in March. Overall, NODX continues to improve, rising 10%y-y 3mma followed by 6.1%. MTI remained with their forecast range of 1-3% growth this year, citing significant macro risks from Europe, demand risk from US and Europe offsetting rising Asian domestic demand.

New Zealand’s 1q12 producer price for output rose by 1.6% y-y, compared to the 3.4% y-y increase in 4q11. The producer price for input rose by 2.3% y-y, lower than the 4.2% y-y change in 1q12. The slowdown in growths of producer prices indicated weakening manufacturing activities due to the faltering export. A separate report showed that the consumer sentiment index fell slightly to 113.9 in May, compared to 114 in April. The central bank signaled earlier that it would leave the interest rate at the record low 2.5% for longer in order to bolster the weak export curbed by currency gain.

Japan’s 1q12 real GDP unexpectedly rose by 1.0% q-q sa, or 4.1% q-q saar, compared to 0.0% q-q growth in 4q11. From expenditure perspective, the domestic consumption rose by 0.9% q-q sa, compared to the 0.8% q-q sa growth in 4q11. Investment fell by 1.5% q-q sa, compared to the 3.2% q-q sa gain in 4q11. Export and import of goods and services rose by 2.9% q-q sa and 1.9% q-q sa respectively, compared to 4q11’s 3.7% q-q sa drop of export and 0.9% q-q sa gain of import. The reported growth in Japan is mainly boosted by reconstruction spending, and would unlikely to last. In regard to the recent gain in yen, the Japanese Economy Minister Motohisa Furukawa announced that the government would take decisive action against “excessive” currency moves.

The S&P500 sold off yesterday as unemployment insurance claims and the Philly Mfg index both came in below expectations. US treasuries are now yielding 1.7%, signalling growth doubts ahead for the US by investors. On the flip side Shanghai sparked a sporadic rally in Asia as China announced a mini-fiscal stimulus of ~US$4.2b in subsidies for "green"electrical appliances, and ~US$1b subsidies for vehicles >1600c. Good start but not big enough. Authorities are mulling further moves which is a positive signal for markets. Chart patterns are still rather bearish but we are entering a series of minor supports for most indices, though previous ones were taken out with relative ease.

(Our general guidance in our morning notes has been, as we weren't confident that econ/earnings data could outperform to drive markets, some combination of policy safety nets needs to occur to reverse consolidation/correction and push markets higher - QE3 revival, ECB intervention, further loosening by central banks to err on the side of growth as inflation recedes (India, Brazil, China, Australia already doing it), a China fiscal policy announcement. /// Longer term, we are still giving the heads up that post 6th November 12 USA presidential elections, markets could again be challenging going into 2013 - the US and EZ are under current law obliged to undertake tremendous fiscal tightening)

Europe Drags Down Wall Street A Fourth Day (17May)

2012-05-17T10:29:00.000+08:00

- STI: -1.58% to 2831.1

- MSCI Far East ex-Japan: -3.29% to 451.3

- Euro Stoxx 50: -0.15% to 2175.3

- S&P500: -0.44% to 1324.8

US industrial production exceeded expectations with a 1.1%m-m, 5.2%y-y gain. IP is still cruising for the year. Housing starts gained 2.6%m-m, 29.9%y-y as the market continues to recover. Good results but not yet enough to reverse our less than optimistic view of the US (1.9% GDP 2012f) on: limited income gains, new orders cycle having peaked long ago, and the uncertainties around the approaching US$500b fiscal cliff cum Jan2013.

Australia’s 1q12 wage index rose 0.9% q-q sa, compared to the 1.0% q-q increase in 4q12. On a y-y basis, the 1q12 wage growth rate remains at 3.6%, the same as 4q12. A separate release of the nation’s May consumer confidence index reported a minor growth of 0.8% m-m to 95.3. The central bank governor Glenn Stevens has cut the benchmark by half 50bp earlier this month as inflation slowed, after 25 bp reductions in last November and December. With consumer confidence stagnated at such low level, RBA may follow up with another 25 bp rate cut in June.

Asia ex-Japan is very close to relinquishing all gains in 2012, led by fierce selling in the HSCEI, HSI, KOSPI, TAIEX. ASEAN indices remain more resilient thanks to stronger domestic demand stories, even the STI has performed better than its NIE counterparts. Nonetheless, we remain in correction mode everywhere and support levels have generally been breached with ease. The STI's 2850 support line was stabbed clean thru after one test. As much as we have hated to be the bearer of bad news, the inter-market picture corroborates more strongly than ever our cautious economic outlook (slowing US, recession Europe, cool China): commodities look to be in a bear market with oil finally falling in line with the general commodity index, US treasuries yielding below 1.8%, and the US$ rising. The Dollar index though is at key resistance line so we might get a short term reprieve to the selling of equities (general inverse correlation).

(Our general guidance in our morning notes has been, as we weren't confident that econ/earnings data could outperform to drive markets, some combination of policy safety nets needs to occur to reverse consolidation/correction and push markets higher - QE3 revival, ECB intervention, further loosening by central banks to err on the side of growth as inflation recedes (India, Brazil, China, Australia already doing it), a China fiscal policy announcement. /// Longer term, we are still giving the heads up that post 6th November 12 USA presidential elections, markets could again be challenging going into 2013 - the US and EZ are under current law obliged to undertake tremendous fiscal tightening)

S&P 500 In Third Straight Drop, J.C. Penney Off Late (16May)

2012-05-16T10:34:00.000+08:00

- STI: +0.44% to 2876.7

- MSCI Far East ex-Japan: -0.06% to 466.6

- Euro Stoxx 50: -1.06% to 2178.7

- S&P500: -0.57% to 1330.7

The Eurozone narrowly avoided a recession as 1q12 GDP stagnated at 0% (-0.2% consensus), buoyed by Germany's export charged GDP clocking 0.5%q-q growth, 5x ahead of expectations. Contrast this with 0%q-q growth for France, Italy -0.8%q-q, and Spain -0.3%q-q. We expect the Eurozone to be in recession this year followed by renewed risk in 2013 as the New Fiscal Compact kicks in.

US retail sales expanded 0.1%m-m following 0.7% previous month expansion. We continue to focus on the income side to gauge sustainability of consumption, so far real incomes do not suggest a +2.2% recovery, our expectation is 1.9% this year.

China’s FDI fell for a sixth straight month in April, by 0.7% y-y, compared to a 6.1% drop in March, indicating worsened investment environment due to weak domestic expansion and the crisis in Europe. As reported earlier, the nation’s April Industrial output growth slowed to 9.3% y-y, worsened than the growth rate of 11.9% y-y in March, while inflation pressure eased from 3.6% in March to 3.4% in April. The dropping FDI and the slowdown in industrial output signaled the growth might not have reached the bottom yet. But given the eased inflation pressure, we expect greater room for monetary policy loosening.

Singapore’s March real retail sales rose by 7.2% y-y, lower compared to the 18.2% gain in Feb, but still outperforming the market expectation. The gain is supported by an expanding tourism and also an increase in car sales boosted by prices of car permits.

South Korea’s April Export price index rose by 2.0% y-y, compared to 0.0% in March. On m-m term, the export price increased by 0.6%, improving slightly from the 0.5% m-m increase in March. Import price index growth slowed down to 1.7% y-y, the lowest rate in over 8 months, compared to the 3.5% gain in March. On m-m basis, the import price fell by 1.0%, after a 1.7% m-m gain in March. The weak growth in export and import price growth reflect weak domestic and global demand.

Greece's President's attempt to form a technocratic government has failed, thus the nation goes to the polls on June 10th. As this general election is really a vote about whether to stay in the Euro or not, the electorate may reconsider their vote given that polls indicate that 80% want to remain in the Euro. Yet thinking about it, the real poll question should be: "Do you rank being in the Euro as more important than rejecting austerity?" If Greeks rank rejecting austerity higher than being in the Euro, the vote outcome may not be for the Euro so to speak, even if the vast majority want it. The event of an exit even if "managed", would be a sell first see later scenario for markets, as contagion risk is heightened with Spanish yields above 6% and Italian yields fast approaching.

At present, equity markets are still bearish. The STI, SETI and JCI managed some decent looking candlesticks yesterday off support levels, but chances of a follow thru are slim given the overall backdrop is uncertainty in Europe coupled with slowing economies globally. Asset price signals corroborate the economic outlook of weak growth lower inflation: commodities continue their bear trend with renewed vigor as crude oil is hammered, US treasuries are now trading below 1.8%, US dollar is rallying. Equity indices everywhere are biased to the downside, though most are close to support levels. Looking beyond this sell-off, by June or July we could also see some major policy actions as central banks mitigate the growth risks with policy loosening, as inflation is coming off fairly convincingly to allow for policy room.

(Our general guidance in our morning notes has been, as we weren't confident that econ/earnings data could outperform to drive markets, some combination of policy safety nets needs to occur (to reverse consolidation/correction) to push markets higher - QE3 revival, ECB intervention, further loosening by central banks to err on the side of growth as inflation recedes (India, Brazil, China, Australia already doing it), a China fiscal policy announcement. /// Longer term, we are still giving the heads up that post 6th November 12 USA presidential elections, markets could again be challenging going into 2013 - the US and EZ are under current law obliged to undertake tremendous fiscal tightening)

S&P 500 Down For 4th Day of Five, Groupon Up Late (15May)

2012-05-15T10:07:00.000+08:00

- STI: -0.67% to 2864.1

- MSCI Far East ex-Japan: -0.93% to 466.9

- Euro Stoxx 50: - 2.33% to 2201.95

- S&P500: -1.11% to 1338.4

New Zealand’s 1Q12 retail sales fell by the most in 3 years. Real retail sales fell by 1.5% q-q, compared to the 1.8% gain in 4q11. This fall is due to a surge in 2H11 fueled by tourism tied to the Rugby World Cup. The weak consumer spending was also associated with the disappointing 6.7% unemployment rate, and underscored central bank Governor Alan Bollard’s decision to keep the official cash rate at 2.5 percent since March 2011, and may also motivate a further cut.

Japan’s April export price index fell for a sixth time in 7 months, by 2.8% y-y, compared to the 0.1% gain in March. Export prices for chemicals and electronics dropped the most, by 4.5% and 6.1% respectively. April import price index increased by 1.6%, marking the slowest increase in over 7 months. The drops of export and import prices reflected the weak global demand due to European debt crisis and China’s slower expansion.

India’s April inflation measured by WPI growth rose to 7.23%, after the government’s bold action to cut its repo rates and reverse repo by 50 bp to 8.0% and 7.0% respectively on 17 April, despite previously suffering inflation as high as 6.69%. Our bet that the April 17 cut was the last rate cut the government seems to be more certain. The sub price index for food articles rose by 10.49% y-y in April, compared to the 9.94% increase in March. The sub index for non-food manufactured products rose by 4.77% y-y, compared to the 4.68% growth in March.

Unfortunately, the latest effort to form a ruling government in Greece came to an impasse as the Democratic Left's condition that it join Pasok and New Democracy to form a coalition, only if anti-bailout party Syriza joined as well, was rejected by Syriza. European markets now join the US and Asia in a tailspin on the fear of the unknown if Greece were to exit the EZ. Latest talk now is that the Greek President will attempt to form a technocratic government to govern. Contagion risk is heightened with Spanish yields above 6% and Italian yields fast approaching.

Asset price signals corroborate the economic outlook of weak growth lower inflation: commodities continue their bear trend with renewed vigor as oil is hammered, US treasuries are now trading at 1.76%, US dollar is rallying. Equity indices everywhere are biased to the downside, though most are close to support levels. Looking beyond this sell-off, by June or July we could also see some major policy actions as central banks mitigate the growth risks with policy loosening, as inflation is coming off fairly convincingly to allow for policy room.

(Our general guidance in our morning notes, as we weren't confident that econ/earnings data could outperform to drive markets, some combination of policy safety nets needs to occur (to reverse consolidation/correction) to push markets higher - QE3 revival, ECB intervention, further loosening by central banks to err on the side of growth as inflation recedes (India, Brazil, China, Australia already doing it), a China fiscal policy announcement. Longer term, we are still giving the heads up that post 6th November 12 USA presidential elections, markets could again be challenging going into 2013 - the US and EZ are under current law obliged to undertake tremendous fiscal tightening)

Stocks Face Choppy Seas of Bank Woes, Uncertainty (14May)

2012-05-14T10:28:00.000+08:00

- STI: -0.70% to 2883.4

- MSCI Far East ex-Japan: -1.20% to 471.3

- Euro Stoxx 50: +0.32% to 2254.5

- S&P500: -0.34% to 1353.4

China’s latest output data continues to signal a fairly broad slowdown and declining inflation. April inflation eased to 3.4% y-y, compared to 3.6% y-y in March. Food price slowed to 7% y-y. April PPI fell by 0.7% y-y, compared to the 0.3% drop in March. April new yuan loan was 681.8 bn, lower than the market estimated 780 bn, after a surge in March to 1010.0 bn. Industrial output growth slowed to 9.3%, lower than market estimated 12.2%, after a growth of 11.9% in March. Fixed Asset Investment increased by 20.2% y-y, compared to the 20.9% growth in March.

April retail sales rose by 14.1% from a year earlier, slower than the 15.2% gain in March. Among all sub-categories, the sale for petroleum slowed the most to 15.9%, compared to 23.7% in March. As slowdown was apparent in all fronts, the government announced a reserve requirement cut by 50 bp, to 20%, on 18 May onwards. This measure would release additional liquidity of around 40 bn rmb to the market. With the uncertainty of Europe debt crisis haunting over the nation's export, this cut would not be the end and we expect more policy loosening in the future.

Hong Kong’s 1q12 real GDP rose by only 0.4% y-y, marking the slowest pace since global financial crisis, compared to the 3.0% y-y growth in rq11 as the uncertainty in Europe undermined export demand and confidence. Growth in household spending slowed down for a fourth quarter at 5.6% y-y, compared to the 6.6% growth rate in 4q11. Government spending increased 2.5% y-y, compared to the 2.2% y-y growth in 4q11. Investment growth accelerated to 12.2% y-y, improving from 9.8% y-y growth in 4q11. Goods export and goods import dropped by 5.7% y-y and 2.7% y-y respectively, compared to 2.0% and 3.9% gain in 4q11. Service export and service import rose by 3.6% y-y and 2.5% y-y respectively, slower than the 5.3% and 2.8% growth in 4q11.

With the exception of Europe, markets in the US and Asia still have an immediate bias to the downside, with even our Overweight markets Thailand and Indonesia having short term bearish divergences - most are however entering support regions/levels, so expect a reaction soon. The STI has a major support line at 2800.

Yes you read right, funnily enough, despite all the talk over a managed Greek exit, European equity markets - the Stoxx 50 - has actually put in bullish divergence. Germany has already dared Greece to leave, evidently officials are confident that exposure to Greece has been reduced such that the Euro will survive. Secondly, Greece may yet form a unity government if New Democracy and Pasok get an ally in the Democratic Left. If they fail, a second election will amount to a referendum on Greece staying in or out of the Euro - an overwhelming 80% polled to stay and want parties to compromise so that Greece can stay. Chances GE2 will produce a favourable outcome are high then. Either of the latter 2 outcomes would be positive for markets, an exit would raise too many questions.

Looking beyond this sell-off, by June or July we could also see some major policy actions as central banks mitigate the growth risks with policy loosening, as inflation is coming off fairly convincingly to allow for policy room.

(Our general guidance in our morning notes, as we weren't confident that econ/earnings data could outperform to drive markets, some combination of policy safety nets needs to occur (to reverse consolidation/correction) to push markets higher - QE3 revival, ECB intervention, further loosening by central banks to err on the side of growth as inflation recedes (India, Brazil, China, Australia already doing it), a China fiscal policy announcement. /// Longer term, we are still giving the heads up that post 6th November 12 USA presidential elections, markets could again be challenging going into 2013 - the US and EZ are under current law obliged to undertake tremendous fiscal tightening)

Surprising JPMorgan Loss Hits Stock Market Late (11May)

2012-05-11T09:39:00.000+08:00

- STI: +0.09% to 2903.6

- MSCI Far East ex-Japan: -0.27% to 477

- Euro Stoxx 50: +0.98% to 2247.4

- S&P500: +0.25% to 1357.99

China’s April Export rose by only 4.9% y-y, trailing the market estimate of 8.5%, after the 8.9% gain in March. April import growth was only 0.3% y-y, far below the market estimated 10.9%, after an increase of 5.3% y-y in March. The growth in total amount of export and import marked the lowest since 2009. Net crude oil import fell to four month low, also indicating weak industrial activities. These unexpected results would likely push the Chinese government cut the reserve requirement rate sooner than we expected previously. We are looking to the nation’s macro data that will be released later today (11 May) to draw further conclusions.

Malaysia’s March industrial production increased by only 0.6% y-y, compared to the 8.2% gain in Feb. Manufacturing sector production rose by 2.0% y-y in March, compared to the 10.4% increase in Feb. The mining sector production shrank by 4.1% y-y, after the 1.9% gain in Feb. Growth of electricity sector slowed to 4.9%, compared to the 11.3% growth in Feb. A separate report on manufacturing sales showed a slower growth of 3.1% y-y, compared to the 12.1% growth in Feb. The slowdown in industrial production and the weak export reported earlier may lead to more loosening policies by the government.

Slight reaction off minor support lines in the S&P500 (1350), the STI (2900). Bias in NE Asia, ASEAN, is still to the downside as markets weigh a US slowdown, EZ recession, and renewed uncertainty over the fate of Greece.

Will Greece exit the Euro? Sure its possible, but not our bet. As no party seems to be able to form a coalition to govern, it is quite likely that Greece will have to have another General Election. The initial vote outcome was largely a reaction against austerity, but if austerity is a pre-condition to receiving its bailout money and thus staying within the Euro, they may vote differently second time round. Polls show 80% of Greeks want to stay within the Euro, even if they don't like austerity.

In the meantime markets will hang onto every political development out of there, couple this with a slowing global economy, expect volatility to the downside. On the bright side, by June or July we could see some major policy actions as central banks mitigate the growth risks. In the scenario of Greece leaving the Euro (worst case), we currently believe it will not be a catastrophe as European banks have already largely exited Greek exposure. The ECB could also intervene if Spanish and Italian yields rise.

(Our general guidance in our morning notes, as we weren't confident that econ/earnings data could outperform to drive markets, some combination of policy safety nets needs to occur (to reverse consolidation/correction) to push markets higher - QE3 revival, ECB intervention, further loosening by central banks to err on the side of growth as inflation recedes (India, Brazil, China, Australia already doing it), a China fiscal policy announcement. /// Longer term, we are still giving the heads up that post 6th November 12 USA presidential elections, markets could again be challenging going into 2013 - the US and EZ are under current law obliged to undertake tremendous fiscal tightening)

S&P 500 Flirts With Two-Month Low Before Rebound (10May)

2012-05-10T10:28:00.000+08:00

- STI: -1.06% to 2900.9

- MSCI Far East ex-Japan: -1.34% to 478.3

- Euro Stoxx 50: -0.47% to 2225.6

- S&P500: -0.67% to 1354.6

China announced to lower the market oil price, just as we expected yesterday. The gasoline price was lowered by 330 yuan per ton, while the diesel price was lowered by 310 yuan per ton. This would to further ease the already falling CPI, which in turn, would enhance the government’s scope in future monetary easing.

Japan’s March leading index rose to 96.6, compared to 96 in Feb, while March coincidence index advanced to 96.5 from 95.2 in Feb. Lagging index also reported an improvement to 86.7 in March, compared to 86.2 in April. Though all these figures were below 100, which indicated contraction, improvements in the numbers suggest slowdown in contraction. We expect further improvement from stimulus as the nation’s central bank announced previously that it is committed to continue powerful monetary easing until achieving 1% inflation rate to counter deflation of more than a decade.

Malaysia’s March exports unexpected fell 0.1%y-y as shipment for Electrical/Electronic product fell by 6.0% y-y, compared to 7.8% gain in Feb. Overall 1q12 exports rose 4.4%y-y. By trading partners, March export to Singapore rose by only 1.4% y-y compared 24.4% in Feb. Export to China saw a second drop in 3 months, by 11% y-y, compared to 18.2% gain in Feb. And export growth to USA also slumped to 2.3% y-y compared to the 14.5% growth in Feb. Although Malaysia's story is largely a domestic demand and govt pump priming story, exports are a risk. Bank Negara has the room the cut rates to guard the downside as inflation is very low.

US slowdown, EZ recession, renewed uncertainty over the fate of Greece, continue to damage markets the world over. From our take, it is quite likely that Greece will have to have another General Election. The initial vote outcome is largely a reaction against austerity, but if austerity is a pre-condition to receiving its bailout money and thus staying within the Euro, they may vote differently second time round. Polls show 80% of Greeks want to stay within the Euro, even if they don't like austerity. Our base case? GE2 in Greece and a more Euro friendly outcome.

In the meantime markets will be wracked with uncertainty, coupled with a slowing US economy. Silver lining is that we think China could actually be bottoming out, while central banks (in Asia inflation coming off, QE3 in USA) have some room to loosen. By June or July we could see markets regain footing on policy and push higher again. In the scenario of Greece leaving the Euro (worst case), we currently believe it will not be a catastrophe as European banks have already largely exited Greek exposure. The ECB could also intervene if Spanish and Italian yields rise.

Longer term, we are still giving the heads up that post 6th November 12 USA presidential elections, markets could again be challenging going into 2013 - the US and EZ are under current law obliged to undertake tremendous fiscal tightening.

(We have been guiding in our morning notes, that as we weren't confident that econ/earnings data could outperform to drive markets, some combination of policy safety nets needs to occur (to reverse consolidation/correction) to push markets higher - QE3 revival, ECB intervention, further loosening by central banks to err on the side of growth as inflation recedes (India, Brazil, China, Australia already doing it), a China fiscal policy announcement.)

Wall Street Falls On Europe, But Late Buying Trims Losses (09May)

2012-05-09T10:07:00.000+08:00

- STI: +0.24% to 2931.98

- MSCI Far East ex-Japan: +0.12% to 484.8

- Euro Stoxx 50: -2.06% to 2236.1

- S&P500: -0.43% to 1363.7

Given the declining price of international crude oil, now threatening to crack below the 52 week MA, amid global growth concerns and the euro zone debt crisis, there is a rising probability that Central Banks in Asia (with few exceptions Singapore & Indonesia) would soon have more room for loosening, especially as growth downside risks are becoming more apparent. Our NE Asia economist reckons that China may reduce gasoline prices soon, easing inflation, therefore giving the PBoC more scope for further loosening.

South Korea’s April producer price index rose by 2.4% y-y, marking the slowest pace in 26 months, after a 2.8% increase in March. This result is aligned with the report earlier that April inflation moderated to a 21-month low at 2.5%y-y, compared to 2.6% in March. The easing in inflation would give the central bank more scope to maintain its low current interest rates and even possibility of a further cut if output falls in the future.

The S&P500 closed lower to continue its bearish run on growth concerns - US 10yr treasuries are signalling very low growth ahead, now trading at 1.84%, below the inflation rate, giving negative real returns. As we have been warning, the US and EZ are going to have a tough 2012 (US low income growth, EZ recession) and 2013 (fiscal withdrawals both). The EZ still faces a complex political outcome especially in Greece where it seems no party has won enough clout to form a government, which raises the immediate question of stalled structural reform.

Risks to global growth have always been there as we have warned in our reports, but the market has been slow to price in. In Asia, we expect markets here to be more resilient in than in the west, although the immediate bias is still to the downside, we do not expect a freefall as policy makers are gaining ammunition to ease policy due to falling inflation.

S&P Ends Almost Flat; Investors Shrug Off Europe (08May)

2012-05-08T09:57:00.000+08:00

- STI: -2.19% to 2924.95

- MSCI Far East ex-Japan: -2.32% to 484.2

- Euro Stoxx 50: +1.55% to 2283.1

- S&P500: +0.04% to 1369.6

German factory orders rose more than forecast in March, +2.2%m-m sa (consensus +0.5%), as demand from outside the EZ more than compensated. The level of activity still remains low, -1.3%y-y.

Taiwan’s April Export fell by 6.4% y-y, marking a third drop in 4 months, after a drop of 3.2% y-y in March. Import rose by 3.6% y-y, compared to 5.8% drop in March. The export price index also fell by 0.41% y-y, following 0.84% drop in March. Shipments to China fell by 9.3% y-y, due to China’s slowing expansion, while export to US slipped 16.3% y-y. A separate report showed inflation accelerated for a second straight month in April to 1.44% y-y, compared to 1.25% y-y in March. The rise in inflation reduces the government's scope to ease. Earlier, the government has lowered the GDP growth estimate to 3.38% from previous 3.85%, as the slowdown of expansion in China and uncertainty in Europe dimmed its export outlook.

Indonesia’s 1Q 2012 GDP achieved a growth of 6.3% y-y, continuing the growth rate of over 6% for a six straight quarter. From the expenditure perspective, private consumption rose by 4.9% y-y, government consumption rose by 5.9% y-y, investment rose by 9.9% y-y, export and import rose by 7.8% y-y and 8.2% y-y respectively. Indonesia's domestic demand story continues robustly and mitigates export risk. Earlier market concerns that growth risks could not be mitigated by loosening policy due to higher than expected inflation at 4.5% y-y, may now be put to rest. Our baseline of a single rate hike to anchor inflation expectations is now more probable, given reduced growth concerns.

European markets stabilized somewhat as commentators rationalised that perhaps Hollande would push for growth solutions in Europe, and not ask for a renegotiation of the New Fiscal Compact. At the same time, the inability in Greece to form a new government could in a month result in a second round of elections. In the US, we expect below par growth to re-ignite talk of QE3 in the coming months, or a continuation of Operation Twist. In Asia, markets are looking a tad bearish, but we are expecting policy to loosen as inflation becomes less of a concern given growth risks. In short, although the immediate bias has shifted back to consolidation/correction we are expecting policy support to appear to materialise.

Markets Could Stumble After France, Greece Votes (07May)

2012-05-07T10:21:00.000+08:00

- STI: -0.34% to 2990.6

- MSCI Far East ex-Japan: -0.51% to 495.7

- Euro Stoxx 50: -1.69% to 2248.3

- S&P500: -1.61% to 1369.1

US non-farm payrolls at 115k jobs gained (156k in March) was below the Bloomberg consensus of 160k, though within our expectations of between 100k -150k and in line with our belief that the US economy is slowing down, not picking up as commonly believed (1.9% 2012 growth our forecast). Main drag this year would probably still be real disposable incomes growing below 1% annual rate as slow job growth conspires with stagnant average weekly hours and earnings. The unemployment rate fell from 8.2% to 8.1% as the "not in labor force" category swelled by over half a millions - not because the level of employed increase (it fell).

Over in Europe, Hollande's victory over Sarkozy in France, and Greece's main parties coming up one seat short of a government highlights Europe's pushback against austerity. European politics will be interesting to say the least what will happen to bond yields in the future, and consequently equities.

Massive red candle in the S&P500 confirms the weak price action and now confirms reversal of previous positive momentum. As Asia did some anticipated selling on Thursday and Friday last week, today's damage could be less. While a weak US economy is not a foregone conclusion that Asia would resume its downtrend it certainly raises the odds now. Markets could still look ahead to policy moves to support, especially with inflation coming off. Among Asian indices we expect ASEAN to perform relatively better due to domestic demand drivers.

We have been guiding in our morning notes, that as we weren't confident that econ/earnings data could outperform to drive markets, some combination of policy safety nets needs to occur (to reverse consolidation/correction) to push markets higher - QE3 revival, ECB intervention, further loosening by central banks to err on the side of growth as inflation recedes (India, Brazil, China, Australia already doing it), a China fiscal policy announcement.

Housing, Profits Lift Wall Street, Amazon Up Late (27Apr)

2012-04-27T10:30:00.000+08:00

- STI: +0.06% to 2981.5

- MSCI Far East ex-Japan: +0.55% to 489.5

- Euro Stoxx 50: -0.01% to 2322.7

- S&P500: +0.67% to 1399.98

US pending home sales of 4.1%m-m (1% consensus) continue the trend of a healing housing market. Unemployment insurance however maintained at 388k vs 389k the week before, and was much higher than consensus expectations of 375k. The result suggests that April payrolls will not be much better than the 120k reported in March. Bloomberg Consumer Confidence index also weakened to -35.8 from -31.4.

South Korea’s 1q12 GDP advanced by its one-year fastest pace at 0.9% q-q, compared to 0.3% in 4q11, meeting the market estimate. The boost of growth was a result of the increase in government spending and investment in semiconductor industry. The sub-index for manufacturing sector grew by an annualized rate of 9.0% q-q, after a drop last quarter by 1.1%. Though the data shows improvement, downside risk is still there due to the slowdown in China and austerity in Europe.

Singapore’s industrial production exhibits continued stabilization as it expanded 2.7%m-m sa, its 4th month of sequential expansion. The level of rebound remains subdued as it was the second on-year decline in three months, -3.4%y-y nsa in March, following 11.8% y-y growth in Feb. Among all subcategories, biomedical sector shrank for the first time in a period of more than seven months, by 3.3% y-y nsa, compared to y-y gains of over 20% in previous month. Electronics sector dropped by 15.9% y-y nsa, furthering the drop of 6.2% in Feb. Chemicals fell by 4.7% y-y nsa, compared to 2.7% drop in Feb. As pointed out in our macro reports, as inflation accelerated to 5.2% y-y in March from Feb’s 4.6%, we expect MAS to maintain its tight policy to anchor inflation expectations.

Thailand’s March export surprisingly dropped by 6.5% y-y, compared to 0.9% rise in Feb, marking the fourth drop in five months. Among all sub categories, agriculture export fell by 21.3% y-y, compared to 4.8% rise in Feb and industry export fell for a fifth straight month since Nov 2011, by 7.4% y-y. The contraction in export is a result of expansion slowdown in China and the weak demand from Europe. Also, the nation has not recovered to its full capacity after the flood crisis last year. Imports in March rose by 25.6% y-y, compared to 8.3% in Feb. The trade balance in March ended up with US$ -4.6 bn.

We alerted yesterday, and have been highlighting that some policy shifting to a looser stance has indeed been occurring - India, Brazil, China, possibly Australia. Western markets also reacted positively to the Bernanke's statement that quantitative measures "remain very much on the table". Asian markets also reacted positively, but less so, the STI's reaction was marginal. Downward momentum is waning though in Asia which augurs well for a momentum shift higher, we still need some follow thru to confirm.

We have been guiding in our morning notes and formal reports, that as we weren't confident that econ/earnings data could outperform to drive markets, some combination of policy safety nets needs to occur (to reverse consolidation/correction) and push markets higher - QE3 revival, ECB intervention, a round of loosening by central banks to err on the side of growth (India, Brazil, China already doing it, Australia next?), a China fiscal policy announcement.

Wall Street Pops On Apple's Results, Fed's Reassurance (26Apr)

2012-04-26T09:50:00.000+08:00

- STI: +0.18% to 2979.8

- MSCI Far East ex-Japan: +0.16% to 486.8

- Euro Stoxx 50: +1.7% to 2322.9

- S&P500: +1.36% to 1390.7

US durable goods orders declined more than expected, -4.2%m-m. Stripping out transport, core orders still declined 1.1%. Core capital goods (non-defense, ex-aircraft) declined 0.8%. The latest data suggest that investment is still slowing down in the US. What would normally be a market dampening report was offset by Bernanke saying at a press conference that additional bond-buying was still "very much on the table".

Japan’s April small business confidence index fell to 47.6 from 48.7 in March, reflecting weak growth in business activities. The nation’s central bank announced previously that it is committed to continue powerful monetary easing until achieving 1% inflation rate to counter deflation of more than a decade.

South Korea’s April consumer confidence index advanced to 105 from March’s 101, indicating improvement in consumers’ general prospect. Even though the general prospect improved, there was still no substantial improvement in consumer’s prospect for current or expected domestic economy.

Taiwan’s March M2 money supply rose by 5.05% y-y, compared to 4.92% in Feb and the M1B money supply rose by 3.47% y-y, compared to Feb’s 2.84%. Taiwan’s March industrial production index released earlier fell by 3.42% from a year ago, due to the falling demand from its major trading partners, China and Europe.

We have been guiding in our morning notes and formal reports, that econ/earnings data needs to outperform to drive markets, as we weren't confident of this, odds favoured some more consolidation/correction, after which some combination of policy safety nets could occur to push markets higher - QE3 revival, ECB intervention, a round of loosening by central banks to err on the side of growth (India, Brazil, China already doing it, Australia next?), a China fiscal policy announcement.

ALERT: Some policy shifting to a looser stance has indeed been occurring - India, Brazil, China. Fed policy yesterday was left unchanged, but what was significant to the market was the press conference, where Bernanke responded that the Fed was "prepared to take additional balance sheet adjustments" (i.e. bond buying) and that "those tools remain very much on the table." Is the combination of policy safety nets now enough for financial markets to begin pushing higher? Possible reversal higher looks at hand for western equity indexes as signal line cross overs are imminent (transport index has already crossed), one or two days follow thru required to confirm. Over here in the east, we need a good couple days to see such a momentum shift as well.

Dow, S&P Rise On Earnings, Apple Jumps Late (25Apr)

2012-04-25T09:24:00.000+08:00

- STI: +0.41% to 2974.4

- MSCI Far East ex-Japan: +0.05% to 486

- Euro Stoxx 50: +1.75% to 2284.1

- S&P500: +0.37% to 1372

China’s leading and coincident indices in March reported a growth of 0.8% m-m and 0.6% m-m respectively, slowing down compared to 1.0% and 4.0% in Feb. This result, together with the contraction in manufacturing reflected by HSBC Flash China Manufacturing PMI, signals continued cooling of the nation’s expansion, therefore may motivate the government to further policy easing.

Australia’s 1q12 CPI growth rate unexpectedly fell to 1.5% y-y sa, compared to 3.1% in last quarter. On the q-q basis, CPI growth rate fell to negative at -0.2% q-q sa, compared to 0.2% in last quarter. The core CPI measured by trimmed mean gauge advanced 0.3% from previous quarter, which is the slowest pace since 1998. Given this result, it is very likely that a further round of interest rate cuts is on its way, as the Reserve Bank Governor Glenn Stevens signaled previously that further interest rate cuts would be considered if growth is weak and inflation slows.

Hong Kong’s March export and import fell unexpectedly by 6.8% y-y and 4.7% y-y respectively, compared to the respective 14% and 20.8% gain in March, due to the deceleration in exports to many major Asian markets, amid the sluggish recovery in US and the continued increasing concern in European Crisis.

US new home sales sold at a 328,000 annual rate, down from an upwardly revised 353,000 pace in February that was the highest in two years, but higher than the median estimate of 319,000. US housing continues to make a gradual recovery, which traditionally is taken as a sign of sustained recovery. While this has been occurring, the lack of real disposable income gains is also worrying. Come mid-year when operation twist ends, an extension of the programme is an option to spur the housing market further.

Asian output data is stable but subdued, low growth is slowing inflation which could lead to a round of policy easing across the board, Australia possibly being the next in line. As we have guided in our morning notes and formal reports, econ/earnings data needs to outperform to drive markets, as we weren't confident of this, odds favour some more consolidation/correction, after which some combination of the following policy safety nets could occur to push markets higher - QE3 revival, ECB intervention, a round of loosening by central banks to err on the side of growth (India, Brazil, China already doing it), a China fiscal policy announcement.

US Stocks Slide On Economic Tremors From Europe (24Apr)

2012-04-24T09:44:00.000+08:00

Stocks fall on European debt worries, disappointing US earnings

- STI: -1.1% to 2962.4

- MSCI Far East ex-Japan: -0.93% to 485.7

- Euro Stoxx 50: -2.87% to 2244.8

- S&P500: -0.84% to 1366.9

As we have guided many times, 2013's new fiscal compact is failed by every EZ nation in one way or another, entailing large scale austerity this year and next as govts struggle to comply. Under the weight of austerity, the people of Europe have begun political push-back. Dutch prime minister and his cabinet have resigned after political deadlock over austerity plans designed to bring the govt finances in line with 2013's new fiscal compact. At the same time Sarkozy of France lost the first round of the Presidential campaign, his opponent Hollande has campaigned on a platform of anti-austerity, anti-finance, promising growth instead. Markets were rattled as both are core-nations of the EZ with relatively better public finances - if the core rejects austerity what hope has the periphery?

Yesterday was also a bad day for growth indicators as, Europe slips further into recession as both mfg and services PMI contracted at a faster pace, the composite index experiencing its 3rd month of contraction. Germany was at standstill while the rest of the large EZ countries contracted.

In China, the HSBC Flash China Manufacturing PMI for April was reported to be 49.1, improved from 48.3 in March, but still below 50, indicating that the nation’s manufacturing might contract for a 6th month in April. The improvement was a result of the nation’s earlier easing measures, but output growth was still low amid weak global demand. The contraction would likely motivate the government to further the easing by reserve rate requirement cut.

Singapore’s inflation accelerated to 5.2% y-y in March, compared to 4.6% in Feb. Among all categories, CPI growth for housing fell slightly to 9.1% y-y, compared to Feb’s 9.5%, CPI growth for transport accelerated the most, from Feb’s 4.4% y-y to 8.6% y-y in March, and CPI for all less accommodation grew by 4.1% y-y, compared to 3.2% in Feb. On m-m basis, CPI increased by 0.8%, compared to -0.3% in March. The high inflation pressure reflected by this result implies that it is likely MAS would maintain the existing strong currency for the near future. CPI forecast for the whole year was adjusted to between 3.5% and 4.5% from between 2.5% and 3.5% by MAS.

Australia’s PPI unexpectedly fell for the first time in more than two years in 1q2012, by 0.3% from last quarter. On y-y term, the quarterly PPI growth rate fell to 1.4% y-y, compared to 2.9% in March. Reserve Bank Governor Glenn Stevens signaled previously that further interest-rate cuts would be considered, hinging on if the weaker-than-forecast growth slows consumer inflation, data on which will be released later today (24 Apr).

Taiwan’s March industrial production index fell by 3.42% from a year ago, compared to the 8.35% gain in Feb. This is the fourth contraction in a period of five months. We see growth rates dropping to negative in almost all categories, compared to last month. This outcome resulted from the growth slowdown in China, who is Taiwan’s biggest trading partner, and concerns about Europe’s debt crisis. Employment statistics reported an unemployment of 4.14% sa in March, a minor decrease from 4.15% in last month.

The EZ as a financial risk aside, scanning the economic data reveals global growth slowing, and this is having the effect of softening inflation pressures. Singapore's case of higher than expected inflation is the exception with pressures coming from administrative reasons (wages, COE) instead. Commodity markets, especially industrials and agricultures, have been looking bearish as well, crude still resilient but not rising either. In line with slowing growth, equity markets are correcting. The silver lining is that we could hit a point where there's a wave of loosening by central banks around the world, sparking a reverse of the correction. Except for the JCI (Indonesia), SET (Thailand), our two overweight countries, everything else continues to look bearish in the overall chart.

As we have guided in our morning notes and formal reports, econ/earnings data needed to outperform to drive markets, as we weren't confident of this, we thought odds favour some more consolidation/correction, after which some combination of the following policy safety nets could occur to push markets higher - QE3 revival, ECB intervention, a trend by central banks to loosen to err on the side of growth (India, Brazil, China already doing it), a China fiscal policy announcement. This is still our stance.

Earnings, Fed To Prove Skeptics Wrong (23Apr)

2012-04-23T09:29:00.000+08:00

- STI: -0.46% to 2994.5

- MSCI Far East ex-Japan: -0.64% to 490.3

- Euro Stoxx 50: +1.16% to 2311.3

- S&P500: +0.12% to 1378.5

China’s April MNI flash business sentiment survey reported a slight increase to 55.40 from last month’s 54.81, implying a mild growth and improvement in the nation’s business activity. This is along with the announcement of a PBOC speaker saying that the central bank would take measures to inject more liquidity into the market “at right time”.

Australia’s 1q12 export price index unexpectedly dropped by 7% q-q, more than the market estimated 3% drop, after the 1.5% drop in 4q11. Import price index dropped 1.2% q-q, compared to 2.5% gain last quarter. On a y-y basis, the export price index growth rate fell to 1.0% from 14.3% in last quarter and import price index growth rate fell to 2.1% from 4.7% in last quarter. The data reflects weak domestic and global demand amid the concern about European debt crisis.

Malaysia’s CPI growth rate dropped slightly to 2.1% y-y in March from 2.2% of last month, matching market estimate, while the m-m rate stayed the same as it was in Feb at 0.0%. This low inflation rate would allow Malaysia central bank to maintain the current low interest rates.

Taiwan’s export orders fell by 1.58% y-y in March, the third fall in four months since Nov 2011. Among all categories, footwear export fell the most by 16.22% y-y, export for Animal & Veg products fell by 11.96%, and electrical machinery export fell by 9.40%. By trading partners, orders from China fell by 2.5% y-y, demand from Europe slipped by 9.3%, while purchases from US rose by 6.4%. Consensus forecasts for the economy have generally been lowered between 3 - 3.6%, below the govt's expectation of 3.85% (4.04% 2011) and the cabinet's goal of 4.3%.

The S&P500 sold into strength on Friday, wiping out a +10pt lead to close 1.6pts up, technology and banks weighed, as concerns about the economy have thus far overshadowed another "beat expectations" earnings season. Bond traders are pessimistic with yields below 2%, as opposed to the more enthusiastic equity traders focused on earnings. Data is Asia is stable but not taking off, inflation is easing as growth is subdued, central banks may have some room to stimulate if inflation keeps slowing. Asian markets are generally trending sideways with a downward bias, but ASEAN outperforms. The STI is getting a little lift from ASEAN, being a little more resilient than the other NIE markets.

As we have guided in our formal reports, we need econ/earnings data at this point to outperform to drive markets, as we aren't confident of this, we think odds favour little more consolidation/correction, after which some combination of the following policy safety nets could occur to push markets higher - QE3 revival, ECB intervention, a trend by central banks to loosen to err on the side of growth (India, Brazil, China already doing it), a China fiscal policy announcement.

Wall Street Falls On Day After Big Gains As IBM, Intel Drag (19Apr)

2012-04-19T09:56:00.000+08:00

- STI: +0.47% to 3000.6

- MSCI Far East ex-Japan: +0.88% to 491.7

- Euro Stoxx 50: -1.66% to 2327.8

- S&P500: -0.41% to 1385.1

China’s March property price data of 70 major cities showed that 37 saw a y-y decrease in new residential apartment sales price, led by Wenzhou with 9%y-y decline. This is compared to 27 cities in Feb and 14 in Jan. Of the 28 cities that showed an increase, none more than 2.1%y-y. On m-m basis, 46 of 70 cities saw a decrease in new residential apartment sale price, while 8 saw an increase, but all by less than 0.2%. Price declines, though welcome from a social point of view, are in the context of a GDP slowdown on all fronts, are an added risk to the growing mix which includes consumption, investment, and exports all slowing as well. Thus policy tightening might not stay as long as the public think, as we have noticed that a government speaker encouraged consumers to consider start buying “when price is appropriate and acceptable” during an interview. Meanwhile, some leading real estate developers such as Wanke have started entering the depressed land market again to take advantage of lower land prices.

Australia announced its Feb Westpac index advanced 0.2%m-m. Australia Reserve Bank Governor Glenn Stevens signaled that interest rate cuts would be considered again, hinging on the nation’s growth strength and inflation risk.

New Zealand's April consumer confidence index from ANZ-Roy Morgan rose to 3-month-high 114 from 110.2 in March, adding to signs of improving domestic demand and economic recovery.

Charts don't say a whole lot at this point. On the whole, in the back of our minds, we still lean more toward continued correction before heading higher. As we have guided in our formal reports, we need econ/earnings data at this point to outperform to drive markets, as we aren't confident of this, we think odds favour the near term downside, after which some combination of the following policy safety nets could occur - QE3 revival, ECB intervention, central banks loosen (inflation abates on slower growth, India already did it), China policy announcement. This medium term outlook, however, must occur before 4q12, as 2013 would see huge challenges again in the form of large scale fiscal withdrawals in the west.

US Stocks Jump After Strong Profits; Spain Soothes (18Apr)

2012-04-18T10:06:00.000+08:00

Dow rises sharply as strong earnings boost stocks; Spain reassures investors with debt auction

- STI: -0.18% to 2986.6

- MSCI Far East ex-Japan: -0.69% to 487.4

- Euro Stoxx 50: +2.86% to 2367

- S&P500: +1.55% to 1390.8

In China, FDI dropped for a fifth straight month in March at 6.1% y-y, compared to 0.9% drop in Feb, highlighting the country’s declining attractiveness for foreign businesses amid fears that weak global demand would further depress profitability. 1q12 FDI from EU slumped 31.2% y-y to $1.4 bn, while investment from US rose 10.1% y-y to $893 mn. Meanwhile, the nation’s Outbound investment surged 94.5% y-y, since some Chinese companies are investing overseas as rising wages and other costs depress their profit margin.

India cut its repo and reverse repo to 8.0% and 7.0% respectively in a surprise move, despite the WPI growth rate 6.69% y-y released a day earlier indicated a less than expected inflation slowing. The surprise rate cuts, at the risk of higher inflation, showed that downside risks to growth are a concern, they did however guide that there was little room for further cuts.

Singapore experienced an unexpected drop in March NODX due to y-y declines from Emerging Markets and China. Non-oil domestic export fell 4.3% y-y, compared with the previous estimated 7.1% gain by analysts. Among all products, export growth rate of electronics slumped to 2.8% y-y from 23.3% in Feb and export growth rate of petrochemicals fell further to -13.0% y-y from -5.5% in Feb. On a %y-y 3mma basis, NODX has softened a bit from its initial rebound.

IMF's slightly more upbeat 2012 global growth forecast, 3.5% from 3.3%, and US growth forecast of 2.1% from 1.8% bolstered western markets. In addition, US corporate earnings seem low enough for expectations to be beat. Spanish bond auction went better and yields have dipped below 6%. The confluence of these 3 have led to a decent candlestick reversal for the S&P500 which erases 2 days worth of declines. Positive spillover is expected today in Asia (ASX rallying). On the corporate from for the STI, SGX has met our expectations and management guided positive for the year. Could the correction be over? Possibly. As we have guided, we are looking for (1) Policy safety nets - QE3 revival, ECB intervention, abating of inflation (allowing central banks room to stimulate), China policy announcement, or (2) econ/earnings data outperforms.

Dow Gains On Retail Sales But Apple Bites Nasdaq (17Apr)

2012-04-17T10:29:00.000+08:00

- STI: +0.14% to 2992.1

- MSCI Far East ex-Japan: -0.63% to 490.7

- Euro Stoxx 50: +0.42% to 2301.2

- S&P500: -0.05% to 1369.6

US retail sales expanded 0.8%m-m in March following a 1% gain in Feb, excluding autos, gas and building materials, the gain was 0.4% from 0.5% the month before. Not a bad print, but considering the S&P500 sold into strength signals the market wanting out-performance to go higher. It could also be looking ahead at sustainability considering real disposable incomes are growing below trend (0.9% annual rate) at a declining rate.

In Asia, the case for monetary loosening in the face of weak global prospects got a blow when India reported that inflation (wholesale price index) quickened in March to 0.88%m-m compared with 0.13%m-m gain in Feb, thus y-y slowing was only marginal at 6.89%y-y from 6.95%, higher than the market estimate of 6.65%. Fuel and primary articles were the main culprits. Even though Reserve Bank of India has signaled readiness to lower borrowing cost for the first time since 2009, the less than expected slowing in inflation is likely to limit the room for interest rate cuts.

In South Korea, Export and Import Prices continue to fall for a second month in %y-y terms to 0.0% and 3.5% respectively in March from 2.1% and 5.2% in Feb, indicating weak domestic and global demand. But on a %m-m basis we do see some improvement in term of that Export and Import Prices rising to 0.5% and 1.7% respectively from the Feb figures of -0.6% and 0.5%.

Asia sold off yesterday except for the STI and Thailand. Although the STI's relative resilience is admirable, general markets are still in the near term downtrend and the fact that the S&P500 sold into "not bad" econ data is also not the best sign. Spanish bonds sold further yesterday as yields crossed 6% yesterday, while US treasuries and German bunds gained in a sign of incremental flight to safety. What are we looking for, for a trend reversal to the positive? Policy safety nets - QE3 revival, ECB intervention, surprise abating of inflation (allowing central banks room to stimulate), China policy announcement. Failing policy, econ/earnings data needs to outperform.

Wall Street Wk Ahead: Stocks To Track Earnings With Eye On Europe (16Apr)

2012-04-16T10:12:00.000+08:00

- STI: +0.33% to 2987.8

- MSCI Far East ex-Japan: +1.46% to 493.9

- Euro Stoxx 50: -2.58% to 2291.5

- S&P500: -1.25% to 1370.3

Based on advance estimates, Singapore is likely to have averted a technical recession in 1Q12, consistent with our expectations. On a q-q saa basis, the economy expanded by 9.9% in 1Q12, rebounding from the contraction of 2.5% in 4Q11, owing to a pick-up in electronics manufacturing as well as residential construction activities. On a y-y basis, Singapore’s real GDP grew at a modest pace of 1.6% y-y in 1Q12, compared to 3.6% in the preceding quarter. With inflationary pressures expected to be persist, MAS announced in its April it will continue with the policy of a modest and gradual appreciation of the S$NEER. Specifically, (i) the slope will be increased slightly, (ii) there will be no change to the level at which the band is centered and (iii) a narrower policy band will be restored. Furthermore, the 2012 forecast for core inflation and headline inflation has been raised by 1pp to 2.5-3% and 3.5-4.5%.

This is within our expectations. To recap, we had expected MAS to maintain its current policy of a modest and gradual appreciation of the S$NEER and cautioned the possibility of a pre-emptive tightening to anchor inflation expectations against the backdrop of a tight labour market as well as elevated energy prices. At this juncture, we are still of the view that a tight monetary policy stance, against the backdrop of sluggish global macroeconomic environment, is unlikely to be conducive for growth as well as the STI.

In China, growth moderated from 8.9% y-y in 4Q11 to 8.1% in 1Q12. The slowdown is evident at all fronts: industrial production (11.6% ytd), fixed asset investment (20.9%) and retail sales (14.8%). Looking ahead, we expect a gradual recovery of the Chinese economy on account of (i) surge in new yuan loans and (ii) rebound of industrial production in March. Although a hard landing is not our base case scenario, we are of the view that downside risks to growth warrant counter-cyclical monetary policy (RRR cuts, credit easing) as well as fiscal loosening (tax cuts).

Could the correction be over? As we have been saying, from a technical point of view the near term downtrend is still on. Friday's close in western markets confirm that. Likely negative spillover into Asia today. Spain is becoming a real macro risk, as bond yields push 6%. We are 100bp away from panic. Specifically, Spain is caught in the classic negative feedback loop of austerity induced recession begets more austerity and further recession. The solution? Structural reform for growth, but that takes time. Again, like Greece, will markets give Spain that time? Likely the ECB will have to come up with a circuit breaker again.

Beyond this, it is still possible for markets to regain footing and go higher in the short/medium term if policy safety nets revive (QE3, ECB, CB loosen if inflation abates on weak growth, China fiscal), or, econ data positively surprises. More likely somewhere in the former as main economies remain weak.

Wall Street Rallies As Global Fears Ebb, Google Up Late (13Apr)

2012-04-13T09:54:00.000+08:00

- STI: +1.08% to 2978.1

- MSCI Far East ex-Japan: +0.49% to 486.7

- Euro Stoxx 50: +0.46% to 2352.2

- S&P500: +1.38% to 1387.6

In China, new yuan loans surged to 1.01 trillion yuan (the largest monthly extension of credit since Jan 2011) while broad money supply (M2) accelerated by 13.4% y-y (compared to 13.0% in the preceding month) in March, largely a result of cuts in bank’s reserve requirement ratio as well as measures to ensure lending to small-medium enterprises. Ahead of China’s official GDP figures, the World Bank marginally downgraded its forecast for China's by 0.2pp to 8.2% 2012 growth (same as our forecast). Our view continues to be that even though a hard landing is not our base case, risks certainly have grown dramatically, which warrants more loosening on both the monetary and fiscal front.

Bank Indonesia stood pat, in line with our expectation of this meeting (3rd Apr MN), maintaining its benchmark rate at a record low 5.75% for the second consecutive month, after cutting rates by 100 basis points in the preceding six months. While Parliament blocked the government's plan to hike fuel prices by more than 30%, fuel prices will still be hiked if the average price of crude soars 15% above US$105 a barrel. Thus, inflation expectations are likely to remain elevated amid uncertainties over the fuel subsidy policy. Although the BI Deputy Governor said he did not envision a hike this year, he nonetheless had a hawkish tone about inflation expectation, so we think there might still be a single hike this year (not rate raising cycle) to anchor inflation expectations.

US unemployment insurance claims unexpectedly spiked, adding to March's weak non-farm payrolls, another data point to what might be a weaker labour market going forward.

Markets have enjoyed a couple days of strength as central bank officials dish out dovish statements. Couple of days back, an ECB board member revived the idea of bond purchases, and yesterday 2 Fed officials endorsed current policy of low rates, and that the ending of Operation Twist did not amount to tightening. Could the correction be over? From a technical point of view the near term downtrend is actually still on. Beyond the immediate, it is still possible for markets to grind higher in the short/medium term if economic/earnings data surprises on the upside, the operative word would be 'surprise', as policy safety nets have been removed (for now) and Spain has emerged as a macro risk. As far as near term upside catalysts go, China could still do a fiscal policy announcement to spark a rally.