18 August – The Bernanke put_18_08_11_23_38

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Important disclosures can be found in the Disclosures AppendixAll rights reserved. Standard Chartered Bank 2011 research.standardchartered.com

ContentsThe Bernanke put 1

Investment outlook 3

Key events/data in the week ahead

Africa 4

Asia 5

Europe 12

Latin America 16

United States 19

Macro publications 11 - 17 Aug 21

Central bank outlook 22

Rates forecasts 23

Macro forecasts 24

Commodities forecasts 25FICC on-the-run 26-29

World Wide Wrap 32

Key data releases/events

SC Prior

Friday 19 August

TW Export orders, % y/y 13.2 9.18

Monday 22 August

TH Q2 GDP growth, q/q % -0.4 2.0

HK CPI, y/y % - Jul 8.6 5.6

Tuesday 23 August

SG CPI, y/y % - Jul 4.90 5.20

TW IP, y/y % - Jul 5.80 3.61

GE Mfg PMI 50.5 52

EA Composite PMI 49.5 51.1

UK CBI orders -16 -10

TU 1W repo rate decision 5.75 5.75

Wednesday 24 August

TH MPC meeting +0.25 +0.25

THNew economic policy toseek Parliament approval

GE IFO business climate 110.9 112.9

Thursday 25 August

JP CPI, y/y % - Jul 0.30 0.20

Friday 26 August

USBernanke speech atJackson Hole

SG IP y/y % - Jul 7.8 10.5

SZ KOF leading index 1.80 2.04

Key central bank policy calls

Now Next Chg

US 0.25 Q3-2013 +25

Euro area 1.50 Q3-2012 +25

China 6.56 Q3-2012 +25

India 8.00 Sep-11 +25

Korea 3.25 Aug-11 +25

Indonesia 6.75 Q1-2012 +50

Thailand 3.25 Aug-11 +25

South Africa 5.50 Q4-2011 +50

Brazil 12.50 31-Aug --

Source: Standard Chartered Research

Economics Weekly | 23:00 GMT 18 August 2011

18 August – The Bernanke put

US Fed Chair Bernanke’s Jackson Hole speech is key for sentiment

Thailand’s economic policy statement, BoT announcement, Q2 GDP in focus

We revise our ECB forecast to no hikes for the rest of 2011

Trade and industrial production data in Asia are important to watch

David Mann, +1 646 845 1279, [email protected]

Markets are scrambling to revise global growth expectations lower, driven by

disappointing news out of the US and Europe. Starting with Europe, unsettling

worries about funding problems in the financial sector, and persistent fears about

exposure to southern European bond markets are the key issues. Once the market

becomes concerned about the debt dynamics of the core markets in Europe, the

shelter offered by the temporary bailout mechanism (EFSF) may not be enough to

shore up confidence.

The weaker growth in the large euro-area economies in Q2 comes at a bad time.

German growth slowed to 0.1% q/q in Q2, the weakest performance since Q1-2009.

GDP in France ground to a complete halt in Q2. Nothing new was agreed between

German Chancellor Merkel and French President Sarkozy at their recent meeting in

Paris. The idea of a euro-bond was ruled out for now, on the grounds that it has no

democratic legitimacy, and is strongly opposed in Germany. They also are not going

ahead with an expansion of the euro-area bail-out fund beyond the planned EUR

440bn. This fund is not going to be enough to support the larger core markets in

Europe. The market disruptions and impact on already weak growth should hold the

ECB back from further tightening this year. Given the weak response by European

politicians – not a surprise given the upcoming election cycle – the ECB is likely to

continue its role as lender of last resort. Expect the ECB to further support for the

southern European bond markets, as well as providing unlimited liquidity to cash-

strapped banks.

Chart 1: US revisions now leave this recovery even further behind

100=GDP level just prior to recession; x axis units in quarters

Sources: Bloomberg, Standard Chartered Research

Q4-69

Q4-73

Q1-81

Q3-91

Q1-01

Q4-07

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Economics Weekly

GR11MY | 18 August 2011 2

More immediate US QE3 would require dire circumstances

In the US, with multiple hits to growth and confidence, the FOMC has effectively

eased further, almost committing to keeping rates ultra-low until at least Q2-2013.

The post-meeting statement shows a willingness to take more action if needed. Fornow, we do not expect to see more quantitative easing (QE) until early in 2012. CPI

inflation is still ticking higher, driven by the base effect. Market-based measures of

expected inflation are falling. However, they are not yet as low as in August 2010,

just before Fed Chairman Bernanke‟s Jackson Hole speech, which signalled QE2.

This time around, we believe there needs to be even more market disruption to

persuade Bernanke to signal imminent QE. In particular, it would probably require a

continual free-fall in the stock markets and a further sharp decline in market-based

measures of inflation expectations. The revisions to US GDP have pulled the rug

from under growth expectations. The GDP downturn and recovery has been by far

the weakest in post-WWII history (Chart 1). Right now, when the sharp falls in

consumer confidence and the regional business sector surveys are raising the

possibility of another recession, GDP has not even reached its pre-recession level.

Therefore, expect Bernanke to maintain a dovish tone at Jackson Hole,

acknowledging the recent weakness in the leading indicators. He should also point to

reasons for better performance in H2-2011 versus H1-2011. He will likely make clear

that the FOMC is ready to act if its dual mandate for employment and inflation is

under threat. Two of the more hawkish members of the FOMC have voiced concern

that the committee risks being accused of targeting the stock market. He may want to

avoid directly addressing this issue, given the fragile nature of confidence currently.

In Africa, we expect the South African Reserve Bank (SARB) to be unmoved by thelikely further rise in CPI inflation. We expect to see inflation rising through most of the

rest of 2011. However even with a breach of the 3-6% inflation target, the SARB is

likely to see this as transitory.

In Asia this week, watch for the various trade and industrial production data to show

how the disruptions to growth in Europe and the US are affecting the region. Do not

be alarmed by the spike in Hong Kong‟s July inflation. It is distorted by the different

month in which the public rental waivers fall in 2011 versus 2010. The underlying

picture is one of still-rising inflation, topping out near end-2011.

Chart 2: US sentiment surveys – Off a cliff Chart 3: US inflation expectations (%)

Source: Standard Chartered Research Source: Standard Chartered Research

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Philly Fed PMI (RHS)

Michigan Consumer Confidence

Jackson Hole

5Y inflationbreak-even

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Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11

Michigan Consumer long- runinflation expectation



Economics Weekly


Investment outlook

Putting Humpty Dumpty back together again

When Alice fell down the rabbit hole, she saw a beautiful view through a tiny doorwaythat she could only get to if she could shrink to a small enough size to fit. Bernanke‟s

annual pilgrimage to Jackson Hole conjures up a similar scene, in that there is a

beautiful future for the global economy, if only sufficient liquidity can be provided to

shrink the debt problems. We certainly believe that the odds of QE3 have increased

materially, as we describe in our US economics section, but the risk is that with QE2

failing to generate sufficient momentum to drive a self-sustaining recovery, QE3

could fade more rapidly. Furthermore, the Fed‟s liquidity injection seemed to increase

bank cash balances at the Fed, but did little to really stimulate significant economic

activity. With 10Y UST yields having traded below 2% for the first time ever, QE to

bring down interest rates to help debt servicing also now seems moot.

As goes the US, so goes Europe: after feasting on the “eat me” cake, Europe‟s debt

problems have also grown to the point where liquidity alone cannot provide a credible

bridge-financing facility. This past week‟s Sarkozy/Merkel meeting provided little

substance, but a promise without any credible commitment would have achieved

little. However, with funding pressures remaining centre-stage globally, European

banks are unlikely to get imminent relief. We noted last week that the basis swap

market had shown some signs of increased funding pressures, but by nowhere near

the same amount as even late last year. However, the past week has seen such

funding signals deteriorate and this remains the primary channel of global contagion,

suggesting that while central bank behaviour cannot solve the underlying debt

problems, it remains critical in stemming market-failure risks.

As we highlighted in our Macro Strategy Views publication (11 August 2011), while

the slowdown in developed markets can drive asset reallocations towards emerging

markets, the risk of a more serious slowdown in developed-market economic activity

heightens the risk of wealth destruction rather than asset reallocation. With the

slowdown phase increasing the size of assets allocated towards emerging markets,

the scale of a reversal could be significant and hence we retain a cautious bias. Note

that this week we also took profits on our long-standing short USD-CNY long-dated

NDF recommendation, as we see risks of a near-term consolidation. We remain

Overweight duration both outright and relative to FX.

Chart 1: 10Y UST hit a record low

%

Chart 2: Average 5Y CDS of USD LIBOR-contributing

banks has widened, indicating funding pressure (bps)

Sources: Bloomberg LP, Standard Chartered Research Sources: Bloomberg LP, Standard Chartered Research

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Will Oswald, +65 6596 8258

[email protected]

Pressure likely to remain on

European banks, with the funding

channel the primary global risk



Economics Weekly



Africa

South Africa’s inflation is likely to continue to rise

The SARB remains focused on growth; rates are likely to stay put

Africa week ahead

Economy Key data and event Period GMT Forecast Previous

Wednesday 24 August

South Africa CPI, % y/y (m/m) Jul 12:00 5.1 (0.7) 5.0 (0.4)

Thursday 25 August Jul 13:30 7.6 (1.5) 7.4 (4.4)

South Africa PPI, % y/y (m/m)

South Africa

Having reached 5% y/y in June, inflation is likely to continue to rise towards the endof 2011 (we expect a 5.1% figure for July). The South African Reserve Bank (SARB)

expects inflation to temporarily breach its 3-6% inflation target by Q4-2011

(compared with Q1-2012 in previous statements) and believes that inflation is not

broad-based, but linked to „cost-push‟ factors (i.e., linked to high food and oil prices).

Rising pressure on factory-gate prices (PPI reached 7.4% in June and should have

risen to 7.6% in July) will, at some stage, be passed on consumers.

The SARB kept rates on hold at its Monetary Policy Committee (MPC) meeting on 21

July. While recent rand (ZAR) weakness due to rising global risk aversion poses

some challenges in terms of inflation, growth has been weak and appears to be the

main concern at this stage (and further downside risks remain, especially given the

sovereign-debt crisis in Europe). Hence, in our view, the SARB is likely to keep

interest rates on hold until November, at least.

Chart 1: South Africa’s inflation is likely to continue to rise

% y/y

Source: STATSA

CPI

PPI

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Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11

Victor Lopes, +9714 508 [email protected]



Economics Weekly



Asia

Trade, IP to reflect Western demand, regional supply-chain disruption

Singapore’s CPI inflation likely peaked, a large y/y rise is likely in

Hong Kong for July

New Thai government’s economic policy statement may show

compromise on populist policies

Asia week ahead


Friday 19 August

Taiwan Export orders, % y/y Jul 09:00 13.2 9.18

Monday 22 AugustThailand Q2 GDP growth, % q/q Q2 03:30 -0.4 2.0

Hong Kong CPI - Composite Index, % y/y Jul 08:30 8.6 5.6

Taiwan Unemployment rate – SA % Jul 09:00 4.40 4.40

Tuesday 23 August

Singapore CPI, %, y/y Jul 05:00 4.9 5.2

Singapore CPI, %, m/m Jul 05:00 1.0 -0.2

Taiwan Industrial production, % y/y Jul 09:00 5.80 3.61

New Zealand Trade balance, NZD mn Jul 22:45 -254 230

New Zealand Exports, NZD bn Jul 22:45 3.78 3.97

New Zealand Imports, NZD bn Jul 22:45 4.04 3.74

Wednesday 24 August

Thailand Monetary policy meeting, % Aug 07:30 3.50 3.25

New Zealand Retail sales ex inflation, % q/q Q2 22:45 0.7 0.9

Thailand Economic policy submitted to parliament

Thursday 25 AugustPhilippines Total imports, % y/y Jun 01:00 10.5 1.6

Philippines Total monthly imports, USD mn Jun 01:00 4668.0 4888.3

Philippines Trade balance, USD mn Jun 01:00 -780 -780

Hong Kong Exports, % y/y Jul 08:30 10.1 9.2

Hong Kong Imports, % y/y Jul 08:30 12.5 11.5

Hong Kong Trade balance, HKD bn Jul 08:30 -40.8 -40.3

Japan Natl CPI, % y/y Jul 23:30 0.3 0.2

Japan Natl CPI ex fresh food, % y/y Jul 23:30 0.6 0.4

Japan Natl CPI ex food, energy, % y/y Jul 23:30 0.1 0.1

Friday 26 August

Singapore Industrial production, % y/y Jul 05:00 7.8 10.5

Taiwan Leading index, % m/m Jul 09:00 0.2 0.2

Hong KongWe expect headline CPI for July (to be announced on 22 August) to rise to 8.6% y/y

from 5.6%. Note, however, that this is heavily distorted by public rental waivers falling

on different months this year and last; removing such one-off base-effects results in a

much more reasonable number of 5.8% y/y for July, slightly above June‟s 5.6% y/y.

While still-rising food and housing components remain the key drivers, we are also

likely to get confirmation that inflation pressures have become more broad-based as

the year has progressed, especially for prices of services. We expect headline CPI to

continue its seasonal uptrend from August onwards until it peaks sometime towards

year-end.

In July we expect Hong Kong registered increases of 10.1% y/y and 12.5% y/y in

exports and imports, respectively. The trade deficit should have widened marginally

to HKD 40.8bn from HKD 40.3bn prior. Given the still-evident post-earthquake impact

from Japan, the euro-area debt crisis and US economic slowdown, Hong Kong‟s

trade performance has been steady at best throughout Q2 and on a net basis has

Kelvin Lau, +852 3983 [email protected]

Kelvin Lau, +852 3983 8565

[email protected]



Economics Weekly


been a drag on GDP growth. However, given resilient demand in China and other

Asian economies, despite problems in the West, we expect Hong Kong‟s trade sector

to be supported by regional trade relationships and pick up momentum again in H2-

2011, when the Western economic situation steadies and regional supply-chaindisruptions start to fade after the summer.

Chart 1: Hong Kong’s trade performance

2010 to present, y/y %

Sources: CEIC, Standard Chartered Research

Japan

We expect Japan‟s headline CPI inflation in July to have increased by 0.3% y/y(0.2% y/y prior), partly due to last year‟s low base effect; still -high oil prices also

contributed. High oil prices may also have pushed up core inflation (excluding fresh

food) by 0.6% y/y, compared with 0.4% in June. However, July‟s y/y core inflation

(excluding fresh food and energy) should have remained at 0.1%, as seasonal sales

should have offset gains in transportation prices. It is worth noting that starting from

August, the base year of the CPI series will be changed to 2010, from 2005

previously. As a result, inflation is likely to be revised downwards, according to official

analysis. The risks of deflation, together with the continuous appreciation of the

Exports

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Chart 2: Japan’s CPI inflation

2010 to present, y/y %


Headline

Core(excl fresh food)

Core (excl fresh foodand energy)

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Betty Rui Wang, +852 3983 8564

[email protected]



Economics Weekly


Japanese yen (JPY) may prompt the Bank of Japan to ease further in the future to

help the post-earthquake economy weather the temporary disruption caused by the

global economic slowdown.

New Zealand

We expect New Zealand‟s exports and imports for July to have increased by 6.5%

y/y and 8.0% y/y, respectively, both of which are likely to lead to a trade deficit for the

first time this year, partly due to seasonal patterns. Exports are likely to have

continued growing tepidly as exports to the EU and US may have eased given their

slowing economies, while prices of diary-related products have remained at high

levels (although the momentum has moderated slightly). Imports of petroleum and

related products are likely to have increased as commodity prices rebounded in July

after the correction at the end of June. In addition, crude oil and transport imports, if

any, in July, are likely to distort the imports trend as their large USD amount and their

irregularity always increase the fluctuation of the series.

We expect Q2 retail sales volumes to have increased by 0.7% q/q versus Q1.

Although a resilient job market and gradually recovering tourism bode well for the

retail sector, electronic card transactions – an indicator of retail sales – dropped

slightly in Q2. Inflationary pressure persisted, as headline CPI inflation registered

1.0% q/q growth Q2, which would have dampened retail sales in real terms.

Chart 3: New Zealand’s trade performance

2010 to present, NZD mn


Philippines

We expect the Philippines June imports to have risen by 10.5% y/y, versus a sharp

slowdown in May. The decent growth rate is partly due to last year‟s favourable base

effect. Elevated commodity prices compared with last year‟s are another factor

feeding into imports. Nonetheless, imports of electronic products are likely to have

been affected by the delayed impact of Japan‟s earthquake, which was reflected inpreviously released exports data. In addition, the economic soft patch in the US (the

Philippines‟ largest source of imports) increases uncertainty about the external

Trade balance(RHS)

ImportsExports

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[email protected]


[email protected]



Economics Weekly


trading environment. As such, we expect its trade performance to only gradually

improve once the global economy stabilises in H2-2011.

Chart 4: Philippines’ exports and imports are likely to deteriorate short-term2010 to present, USD mn, y/y, %


Singapore

On 23 August, the Department of Statistics will release the CPI numbers for July. We

forecast a headline print of 4.9% y/y, or 1% m/m, versus 5.2% y/y and -0.2% m/m in

June. U-save rebates in July should have offset the strong rise in housing costs,

although the rise in rental costs amid contract renewals and the increase in electricity

tariff rates for Q3 (up 6.6% versus Q2) are expected to push y/y housing-cost growth

into double digits. We expect transport costs to have fallen back to single-digit growth

(on a y/y basis) in July, after the rebound to 10.4% y/y in June on the back of a low

base. Given more stable global commodity prices and rising base effects, we expect

inflation to have peaked in June/July and we should see headline prints ease through

the remainder of the year.

Trade surplus (RHS)

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Chart 5: Singapore’s industrial production to ease along with weak exports

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IP

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Jan-04 Oct-04 Jul-05 Apr-06 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11

Edward Lee, +65 6596 8252

[email protected]



Economics Weekly


On Friday 26 August, the Economic Development Board will announce July‟s industrial

production numbers. After the rise to 10.5% y/y in June on the back of the rebound in

pharmaceuticals production (+41.5% y/y), we expect industrial production to register

more moderate growth of 7.8% y/y in July. This is lower than June and is in line withJuly‟s poor non-oil domestic export growth. However, the volatile pharmaceuticals

component will continue to play a big part in this print. Ex bio, we expect industrial

production also to have remained weak, at 3.6% y/y. Semiconductor production has

been poor in light of the weak global demand. The US semiconductor book-to-bill ratio

has remained below 1 for nine consecutive months. Petrochemicals‟ negative export

growth in July also bodes ill for production in the chemicals sector. A poor print will

underline the weakening growth outlook and is in line with the government‟s downgrade

of its growth forecast. In addition, if inflation has peaked in June/July, the central bank

could become less hawkish in October, in line with other regional central banks.

TaiwanTaiwan is scheduled to release July‟s unemployment rate on 22 August, industrial

production on 23 August and the leading indicators index on 26 August. In addition to

the release of export shipments and inflation figures earlier this month, they should

provide insight on how the domestic economy has generally performed into Q3-2011.

We believe industrial production is likely to have picked up to 5.8% y/y in July from

3.61% y/y in June 2011, chiefly on the back of a strong rebound in export shipments.

It is also likely to have picked up in m/m terms, as local producers should have

increased output to meet rising orders as the disruption to the island‟s supply chain,

(especially tech) due to the Japan earthquake abates. The situation should improve

further once Japan is able to resume normal electricity supply for industrial use afterthe peak summer season.

The improving industrial output data – along with the rebound in overseas orders and

the semiconductor book-to-bill ratio – is also likely to provide support to the island‟s

leading indicators index, which we expect to have expanded for the 30th consecutive

month. Of significance is that this has also been accompanied by relatively buoyant

consumer confidence, which rose to a record high in July, despite the widening debt

crisis in Europe and the US sovereign downgrade.

Chart 6: Improving consumer confidence in Taiwan should continue to support

retail sales in H2


Consumer confidence index

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Tony Phoo, +886 2 6603 2640

[email protected]

Vincent Tsui, +852 3983 8563

[email protected]



Economics Weekly

GR11MY | 18 August 2011 10

The stronger consumer confidence, as well as rebounding exports and industrial

production output, should support the local job market. However, the unemployment

rate could have remained at 4.4% in July because the expected rise in new hiring,

especially in the manufacturing sector, is likely to have been offset by new graduates joining the potential labour pool.

Although recent data shows that domestic economic activity remained robust into the

summer season, the latest financial market turmoil has raised fears of downside risk

to overseas demand. However, the latest data is still likely to enable central bank

policy makers to maintain their current modest tightening stance, unless a clear risk

of reversion to the double-dip scenario becomes apparent. This is after taking into

consideration that the recent relatively ample liquidity and low interest rates have

caused concern about fuelling potential asset-price inflation.

ThailandIt is going to be a busy week for Thailand, given that Thai Q2-2011 GDP will be

released on Monday 22 August, followed by the Bank of Thailand‟s (BoT‟s) policy

rate decision on Wednesday. On the same day, the new government led by Prime

Minister Yingluck Shinawatra is scheduled to deliver its economic policy statement to

parliament.

For Q2 GDP, we look for slower economic growth of 2.5% y/y, decelerating slightly

from 3.0% y/y in Q1-2011. Thanks to stronger farm income and the expansion of

private credit, private consumption should have kept growing and supported

economic growth momentum in Q2. On a seasonally adjusted basis, however, we

expect the Thai economy to have contracted by 0.4% q/q, compared with a 2.0% q/qexpansion in Q1. The slowdown in automobile production and exports caused by the

earthquake in Japan are the likely causes of the slower growth.

Next, all eyes will be on the new government‟s economic policy statement. We

highlighted in the Morning Call, 16 August 2011, ‘Thailand – Compromise on

policy; we take profit on 1Y bond rate’, our view that the government would

compromise on populist policies. While the Mortgage Paddy Rice scheme at THB

15,000/tonne may be implemented in November, the national minimum wage

Chart 7: Thai growth is likely to have decelerated in Q2 due to Japan’s disaster

GDP growth (% q/q SA)

Sources: NESDB, Standard Chartered Research

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Usara Wilaipich, +66 2724 8878

[email protected]



Economics Weekly

GR11MY | 18 August 2011 11

increase to THB 300 per day may take longer, as the impact on production costs

needs to be minimised. Potential measures to achieve this include a reduction in

corporate tax to 23% from 30% and a suspension of fuel levies. Such moves, if

implemented, would allow for an immediate reduction in local retail fuel prices,helping to curb transport and production costs for manufacturers. These

developments would reinforce our long-held view that inflation fears in Thailand are

overdone. We believe that the fuel levy suspension would have a large enough

impact to bring down production costs and inflation. Hence, we maintain our call that

the BoT will deliver a final 25bps policy rate hike on 24 August, taking it to 3.5%,

before pausing. The consensus view is for the BoT to hike to 3.75-4.0%. However,

given the external environment, we see a risk that the BoT may pause even earlier,

keeping rates on hold at 3.25%.



Economics Weekly

GR11MY | 18 August 2011 12


Europe

We revise our ECB forecast to no hikes for the rest of 2011

Euro-area surveys to shed light on H2 activity, after weak Q2-2011

UK consumer confidence to stay low, bad news for Q3 consumption

Turkish central bank likely to hold fire this time, after surprise cut

Swiss exports set to dip as record-high CHF erodes competitiveness

Europe week ahead


Tuesday 23 August

Switzerland Exports, % m/m Jul 06:00 -3.5 5.2

France Manufacturing PMI – flash estimate Aug 07:00 49.5 50.5

France Service-sector PMI – flash estimate Aug 07:00 52.2 54.2

Germany Manufacturing PMI – flash estimate Aug 07:30 50.5 52.0

Germany Service-sector PMI – flash estimate Aug 07:30 50.9 52.9

Euro area Composite PMI – flash estimate Aug 08:00 49.5 51.1

Euro area Manufacturing PMI – flash estimate Aug 08:00 49.0 50.4

Euro area Service-sector PMI – flash estimate Aug 08:00 50.3 51.6

UK BBA mortgage data, „000 Jul 08:30 31.0 31.8

Germany ZEW survey – current situation Aug 09:00 87.5 90.6

Germany ZEW survey – economic sentiment Aug 09:00 -19.5 -15.1

UK CBI total orders index Aug 10:00 -16 -10

Turkey TCMB - 1W repo rate decision, % 11:00 5.75 5.75

Euro area Eurostat consumer conf. – flash Aug 14:00 -12.2 -11.2

Wednesday 24 August

Germany IFO survey – business climate Aug 08:00 110.9 112.9

Germany IFO survey – current assessment Aug 08:00 119.4 121.4

Germany IFO survey – expectations Aug 08:00 103.0 105.0

Euro area New orders, % m/m Jul 08:00 -2.8 3.6

Belgium Business confidence index Aug 13:00 -5.5 -2.5

UK Nationwide consumer confidence Jul 23:01 44 51

Thursday 25 August

Germany GFK consumer confidence survey Sep 06:00 5.1 5.4

UK CBI reported sales index Aug 10:00 -15 -5

Turkey Capacity utilisation, % Aug 11:30 74.7 75.3

Friday 26 August

Turkey Trade balance, USD bn Jul 07:00 -9.5 -10.2

Euro area M3 money supply growth, % y/y Jul 09:00 2.3 2.1

UK Q2 GDP, % q/q – 2nd

release Q2 08:30 0.2 0.2

Switzerland KOF leading index Aug 09:30 1.80 2.04

Euro area

Developments in peripheral Europe are likely to remain in focus. The European

Central Bank (ECB) will be in the spotlight when it announces its weekly sovereign

bond purchases. When re-starting its bond-buying programme on 4 August, it bought

a record EUR 22bn – mostly Italian and Spanish debt – helping yields to retrace their

July increases. Since 16 August the Italian 10Y bond has closed below the 5%

psychological threshold.

Demand for US dollar (USD) funding is rising, as indicated by the 3M basis swap,

which has remained below -70 in the past few days – but still far from the extreme

levels of -145 in the post-Lehman days. In this context, investors will scrutinise ECBdaily data to gauge whether the 17 August allotment of USD 500mn to one

unidentified bank – the first USD allotment since 22 February – was a one-off.

Sarah Hewin, +44 20 7885 6251

[email protected]

Thomas Costerg, +44 20 7885 8615

[email protected]



Economics Weekly

GR11MY | 18 August 2011 13

Austerity is likely to remain a key theme, as governments prepare for additional

measures to keep to their deficit-reduction targets after the sharper-than-expected

slowdown in activity, while market pressure remains elevated. In Spain, an

extraordinary cabinet meeting has been called for 19 August, to seek ways to saveEUR 20bn before year-end (a follow-up meeting will take place on 26 August),

probably the last window of opportunity before the November general elections. The

French government will also meet to find additional resources, as it tries to reassure

markets that it remains on track for a 3% deficit-to-GDP ratio by 2013. Meanwhile,

EU and IMF officials will pay a routine visit to Greece, key to ensuring the

disbursement of the next bailout tranche, worth EUR 8bn.

Investors will pay equal, if not greater, attention to the business surveys, for insight

into H2 activity, following weak euro-area Q2 GDP growth (0.2% q/q), especially

dampened by Germany (0.1% q/q) and France (flat q/q). The German IFO surveys

will be of particular interest. We think surveys will indicate that businesses havebecome more wary about approaching headwinds: the IFO expectation survey could

drop to 103.0, from 105.0. The German manufacturing PMI survey is likely to fall, but

should stay above the 50 mark – separating contraction from expansion, while we

think that the euro-area and French manufacturing gauges could dip below 50.

We think that recession can be avoided as inflation falls, helped by lower commodity

prices, and as Japan‟s supply-chain disruptions come to an end. But we are

lowering our growth forecasts for 2011-13 on the back of the additional fiscal

tightening and weaker global outlook (see macroeconomic forecasts, page 24). In

this environment we expect the ECB to pause on further policy tightening, at

least until H2-2012 (see interest-rate forecasts, page 23).

Switzerland

As the Swiss National Bank (SNB) tries to curb Swiss franc (CHF) appreciation (on

17 August, it injected further liquidity into the banking system, hammering yields

across the curve) and the government tries to limit the consequences on the

economy (it recently announced a CHF 2bn plan to help the worst-affected tourism

and export-oriented industries) investors‟ attention is likely to tur n to activity

indicators to gauge whether the Swiss economy is entering the danger zone.

Chart 1: Euro area to outperform the UK this year, but this will reverse in 2012

GDP growth, y/y % (based on our updated forecasts)


-6

-5

-4

-3

-2

-1

0

1

2

3

2008 2009 2010 2011F 2012F 2013F

UK

Euro area

Switzerland



Economics Weekly

GR11MY | 18 August 2011 14

We think that that the August KOF leading index will be sharply affected by the

persistent CHF appreciation, dropping to 1.80 from 2.04. July exports will also

probably feel the pinch of currency appreciation – we expect -3.5% m/m, from a 5.2%

gain in June. Meanwhile, investors are likely continue to speculate on whether a pegto the euro (EUR) will be introduced, in particular should the euro-area news flow

continue to deteriorate, boosting safe-haven flows.

We are downgrading our GDP growth forecasts for 2011, 2012 and 2013 to 1.9%,

1.8% and 2.4%, respectively, owing to the sharp appreciation of the CHF against its

trading partners, affecting net exports, and also owing to our downward revision of

euro-area GDP growth for 2011-13. We are also decreasing our CPI inflation forecast

this year to 0.6%, from 0.9%, as the CHF strength offsets inflationary pressures.

UK

The Office for National Statistics will release the second GDP growth estimate forQ2, which we think will confirm a preliminary deceleration to 0.2%. The report will

shed more light on growth drivers. But attention is likely to focus on forward-looking

data to gauge Q3 activity, in particular the Nationwide consumer confidence index,

and the CBI total orders index, which we think will both decline as headwinds mount,

both on the consumer side and the business side, as austerity measures continue to

affect the domestic economy, coming on top of a slowdown in global activity. The CBI

reported sales index will shed more light on August retail sales, after the July reading

indicated a still-weak trend (flat on a 3M/3M basis), and could possibly indicate the

impact of the recent social unrest.

TurkeyAfter a surprise cut to the 1W repo rate at an exceptional central bank meeting earlier

this month, investors will monitor the regular central bank meeting scheduled for 23

August. We think the central bank (TCMB) will stay on hold this time (we see a 30%

probability of another cut) as its attention is increasingly turning to the weak level of

the Turkish lira (TRY) – which has continued to depreciate after the exceptional cut –

and risks to financing the large current account deficit. On 15 August, governor Basci

said that the TRY was “undervalued by between 5% and 10%” against the EUR and

USD basket.

Chart 2: EUR-USD – The relationship with interest-rate

differentials seems broken

Chart 3: ECB purchases have helped to stabilise bond

yields (spreads to 10Y Bunds, %)

Sources: Bloomberg, Standard Chartered Research Sources: Datastream, Standard Chartered Research

2Y Bund -UST (bp)

EUR-USD rate(RHS)

1.25

1.30

1.35

1.40

1.45

1.50

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11

France

Italy

Spain

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11



Economics Weekly

GR11MY | 18 August 2011 15

We think that the central bank will remained torn between the need to stabilise the

currency, especially given sizeable inflationary risks should TRY depreciation

continue, and concerns about the global economy, especially the risk that further

euro-area debt issues could affect the export-oriented manufacturing sector. In all,we think that the TCMB will keep the 1W repo on hold at 5.75% throughout 2011,

although risks of a rate cut exist should global indicators continue to deteriorate. The

most likely moves would be cuts to the reserve requirement ratios, in particular on FX

deposits – which would help support the TRY – as credit growth concerns take a

back seat.

We are downgrading our GDP growth forecast for 2012 to 4.7%, from 5.5%, based

on our downgrade of euro-area growth for 2011-13, and on the current Turkish policy

mix. We keep our 2011 GDP growth forecast unchanged at 5.8%, waiting for the Q2

GDP reading before any revision.

Chart 4: The August 1W repo rate cut further weakened

confidence in the TRY (TRY vs. EUR/USD basket)

Chart 5: Worried investors flock to Switzerland, but now

favour gold over the CHF (gold in CHF)

Sources: Bloomberg, Standard Chartered Research Sources: Datastream, Standard Chartered Research

1.40

1.50

1.60

1.70

1.80

1.90

2.00

2.10

2.20

May-06 Feb-07 Nov-07 Aug-08 May-09 Feb-10 Nov-10 Aug-11

TRY basket

Gold (oz) inCHF

900

1,000

1,100

1,200

1,300

1,400

1,500

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11



Economics Weekly

GR11MY | 18 August 2011 16

Latin America

Cristina Kirchner triumphs in Argentina presidential primary

Expectations are for Brazil central bank to stay on hold

Mexico also to keep benchmark rate unchanged

Latam week ahead


Friday 19 August

Brazil CPI IPCA-15, % m/m Aug 12:00 0.19 0.1

Mexico GDP, nsa. 2003=100, % y/y Q2 13:00 3.6 4.6

Colombia Overnight lending rate, % 19 Aug 4.5 4.5

Monday 22 August

Brazil Central bank weekly economist survey -- 11:30

Thursday 25 August

Mexico GDP nominal, % y/y Q2 13:00 - 9.6

Friday 26 August

Mexico Overnight rate 26 Aug 14:00 4.5 4.5

Argentina

In the 14 August primary ahead of the October presidential election, President

Cristina Kirchner won by a huge margin. This result makes Kirchner the

overwhelming favourite for re-election. Polls leading up to the weekend vote forecast

Cristina getting around 40% of the vote; in fact, she received 50%, with none of her

opponents coming remotely close. Noteworthy was that Kirchner also won in the City

of Buenos Aires, where her favoured candidate was beaten by a large margin by

Mauricio Macri in the recent mayoral race. She won in all districts/provinces with the

exception of San Luis, even triumphing in the provinces of Cordoba and Santa Fe,

where recent gubernatorial elections yielded unfavourable results for her.

As of this writing, second place is still up for grabs between Eduardo Duhalde and

Ricardo Alfonsin, but neither put together an impressive showing, with just 12% of the

votes each. Polls prior to the vote had suggested that one of the two top opponents

would garner around 20%, so their showings were disappointing. The local press is

especially critical of the opposition for failure to unite behind particular candidates,

with friendly fire contributing to the weak result. The opposition will have to reconsider

its political strategies now to have any shot at defeating Kirchner in October;

meanwhile, the result proves that the recent local votes that went against her were

determined by local dynamics. We note that voter participation in the primary was

very high, surpassing the 72% showing at the 2007 presidential election.Furthermore, the primary for governor of Buenos Aires province went overwhelmingly

in favour of Daniel Scioli, a Kirchner ally, (47%) over Francisco De Narvaez (17%).

De Narvaez had led the victory over Nestor Kirchner in the 2009 legislative elections

in BA province, so this big margin is noteworthy.

The market has long been pricing in a victory for Kirchner in October, and hence

market reaction after the vote was muted. But it appears that Argentina is in line for

four more years of Kirchneromics, and we think that the economic policy mix will hit a

major speed bump in the near future. On the FX side, we have been recommending

long Argentine peso (ARS) positions through October versus short ARS positions six

months out; our assumption when recommending this trade was that Kirchner would

be re-elected, capital flight would continue to occur at a worrying pace, and that

reserves would continue to be used for the foreseeable future to pay down debt. The

14 August result confirms our viewpoint.

Bret Rosen, +1 212 667 0386

[email protected]



Economics Weekly

GR11MY | 18 August 2011 17

Brazil

This week‟s FOCUS survey showed that the consensus view for the year-end SELIC

rate is 12.50%, suggesting that the market expects the central bank to stay on hold.

Meanwhile, the local DI curve continues to price in a reduction in the benchmark ratebetween now and year-end. Given the recent market turbulence in developed

markets, and weak performance recently in industrial production, markets have

shifted their view rapidly regarding the course of monetary policy in Brazil.

Nonetheless, inflation expectations for 2012 remain above the target of 4.5%, as

services inflation should be stubbornly high, and the minimum wage is likely to adjust

upwards by 13-14% next year.

Recent comments from President Dilma Rousseff have suggested that the

government will not pull on the fiscal lever, should a slowdown turn especially harsh.

This suggests that the monetary policy transmission mechanism may be more likely

to be utilised at some point in the upcoming months, should GDP take a sharp movedownwards due to slipping commodities prices and external conditions. She and

other senior officials have commented in recent days that although Brazil is not

immune from the global market situation, the country‟s fundamentals have

strengthened substantially in recent years; in comparison with 2008, Brazil is better

positioned to face a recession in the developed world or financial-market volatility.

Central bank reserves stand at USD 352bn as of 15 August, compared to USD

205bn at the time of the Lehman bankruptcy. Additionally, the banking system is well

capitalised, and the current account deficit is being easily financed by record levels of

foreign direct investment.

On the political front, according to a poll by CNT/Sensus, the president‟s personalapproval rating stands at 70%, but the percentage of respondents that gave her

government a positive evaluation is at just 49%. The discrepancy is likely due to the

various scandals that have hit her administration, with several cabinet ministers

already having resigned in her first year of office.

Mexico

Mexico has retapped its 100-year bond, selling USD 1bn of its 2110 maturing issue.

The issue was nearly two times oversubscribed, and was priced to yield 5.96%. The

sovereign took advantage of the rally in US Treasuries to secure a window of

opportunity for longer term financing. The ability to tap markets for such a long-

duration issue amid global financial turbulence is yet another sign of the growingmaturity of EM sovereigns, including Mexico.

The next monetary policy meeting takes place on 26 August, with the central bank

almost certainly due to keep the tasa de fondeo on hold, at 4.50%. The central bank

recently lowered its forecast for 2011 GDP growth to a range of 3.8-4.8%, down from

prior expectations of 4.0-5.0%. The 2012 forecast was also reduced to 3.5-4.5% from

3.8-4.8%. The changes were a reflection of a worsening economic backdrop in the

US and lowered expectations for 2011-12 growth in the US. Job growth numbers

were also reduced to 575,000-675,000 from 600,000-700,000 for the full year. During

his statements on 10 August, central bank head Agustin Carstens also mentioned

that no central bank intervention on the foreign exchange rate was imminent, despitemajor Mexican peso (MXN) volatility.

July inflation printed at 0.48% m/m, according to the INEGI statistics agency. This

lifted the y/y figure to 3.55% versus 3.28% as reported in June. Core inflation was



Economics Weekly

GR11MY | 18 August 2011 18

just 0.22% m/m, however, and stands at 3.19% y/y. What stood out in the inflation

report was the volatility in the prices of fruits and vegetables, which rose 6% m/m

(certain vegetables rose 20-40% m/m). Prices of fruits and vegetables have been the

most volatile component in the inflation index over the last few months, but otherwiseinflation figures are very well behaved. Producer prices rose 0.74% m/m and 3.88%

y/y for July.

Peru

The popularity of President Humala has bounced back to 55% support according to a

recent Ipsos Apoyo poll. This compared with 41% in the previous July poll, which was

taken prior to his inauguration and amid public outcry over a trip taken by Humala‟s

brother, Alexis, to Russia after the election. Alexis Humala presented himself as an

emissary of the government even though the president-elect had not authorised an

official visit. Humala was able to regain popularity after naming his cabinet: 56% of

those surveyed were supportive of Humala‟s nominees, while just 22% disproved.

Meanwhile, June GDP displayed its lowest y/y growth rate in 17 months, with the y/y

number registering 5.33%. Construction and mining were weak after months of

strong performance. Construction actually contracted by 2.75% y/y, while

mining/hydrocarbons slipped 6.17%. July economic activity was likely also weak, with

electricity usage growing more slowly than expected. The economic numbers for mid-

2011 are not surprising given that this period coincided with the presidential election.

The central bank still forecasts 6.5% growth for 2011. We look for the central bank to

stay on hold for the near term, given the global economic backdrop and Peru‟s recent

GDP growth dip.



Economics Weekly

GR11MY | 18 August 2011 19


United States

Bernanke’s Jackson Hole speech will dominate a quiet week

Downward revisions to GDP remain worrying

Durable goods boosted by aircraft orders

US week ahead


Tuesday 23 August

United States New home sales Jul 14:00 302,000 312,000

Wednesday 24 August

United States Durable goods orders, % m/m Jul 12:30 2.7 -1.9

United States Durable ex transportation, % m/m Jul 12:30 -0.5 0.4

Thursday 25 AugustUnited States Initial jobless claims 19 Aug 12:30 395,000 408,000

Friday 26 August

United States Q2 GDP, % q/q Q2 S 12:30 1.0 1.3

United States Personal consumption, % q/q Q2 S 12:30 0.0 0.1

United States Core PCE, % q/q Q2 S 12:30 2.1 2.1

United States U. of Michigan confidence Aug F 12:30 57.5 54.9

United States Bernanke to speak at Jackson Hole 14:00

With Bernanke's return to Jackson Hole, the US faces similar conditions as this time

last year: weak growth combined with poor investor and consumer sentiment. The main

difference is that inflationary pressures are not at a post-WWII record low, sparking

fears of deflation, as they were last year. In fact, after bottoming at 0.6% y/y in October

2010, core inflation rose steadily to 1.6% y/y in June. Now, with energy prices startingto show y/y declines, we expect the rate of pass-through to decline steadily through the

rest of 2011. This anticipation of weak underlying core price pressure is in line with the

Fed‟s own forecasts, and central to its expectation that it will be keeping rates on hold

until mid-2013. Rather than explicitly indicating that further quantitative easing (QE) will

be required, the Fed chairman is likely to be unambiguous in his criteria for further QE.

These would be underlying weak growth, slowing inflation – heading below the level

consistent with the FOMC‟s mandate – and declining or weak inflation expectations.

With temporary factors, such as the end of the investment tax credit and the boost to

personal income from the recent decline in energy prices, we expect H2 growth to

average 2.9%. However, we expect that H1-2012 will average a meagre 1.8%. This

growth will remain too weak to meet the Fed‟s mandate of full employment and is likely

to force further action.

We expect the final release of the August University of Michigan Consumer Sentiment

Index to show some improvement from the collapse seen in the preliminary release.

The 7.8-point drop to 54.9 was the steepest since last July, and puts consumer

sentiment at the lowest point since 1980. Oil prices are down 8.2% m/m so far in

August, although this is yet to fully feed into gasoline prices, which are down 3.3% m/m

so far this month. Rising gasoline prices act as a tax on real consumer expenditure; the

reverse is also true, but elevated gasoline prices still weigh on consumers‟ real income.

We expect confidence to remain comparatively low; any improvement from present

levels will only come as lower energy prices feed into gasoline prices or when we see

definite progress in the labour market. The Michigan expectations component will be

the most important one to watch. Last month this fell to its lowest since July 1979, 3.5

points below the low in June 2008, offering little hope for an immediate rebound in

consumer spending.

David Semmens, +1 212 667 [email protected]

Sophii Weng, +1 212 667 0472

[email protected]

David Mann, +1 646 845 1279

[email protected]



Economics Weekly

GR11MY | 18 August 2011 20

The second estimate of Q2 GDP growth is likely to be revised further downwards,

with slightly weaker consumption data, trade and inventories weighing on an already

disappointing release. We expect a meagre 1.0% q/q SAAR rise, following on from

the terrible downward revision of Q1 growth to 0.4%. Personal spending probablyslowed to 0.0% q/q after 0.1% in the initial release, the weakest quarter since Q2-

2009. Net exports were especially volatile, particularly with the slowdown in

Japanese manufacturing reducing US imports from Japan aggressively. Despite the

worrying outlook, the investment tax credit allowed business spending to continue to

support growth. Notwithstanding the effect of the Japanese supply-chain issues,

inventories and net exports were notably less volatile than in 2010. However, data

released in the last month point to their being less supportive of growth.

July‟s durable goods orders (DGOs) likely rose 2.7% m/m, after a 1.9% m/m decrease

in June. DGOs, excluding transportation, likely decreased 0.5% m/m (0.4% prior). It is

worth noting that Boeing‟s July order levels were the strongest so far this year, with 115orders. Throughout 2011, we expect business spending to be buoyed by the tax credit

enacted in December 2010, which allows for full expensing of business capital

investment. We continue to see ill effects from the Japanese earthquake in the auto

sector, but expect the core number to gather momentum. The regional PMIs are

painting a dour picture and we continue to wait for a clear signal that the recent

slowdown is past.

July‟s new home sales (NHS) should edge down to 302,000 from 312,000 previously,

as mortgage application rates remain very weak, declining 1.4% m/m in July. Sales

have declined a modest 1.6% over the last two months. Following the April 2010

expiration of the homebuyer‟s tax credit, new home sales have been trapped in the

278,000-331,000 range. Even though physical inventory continues to decline –

164,000 homes are currently for sale, down from 572,000 at the peak of the housing

boom in July 2006 – the month‟s worth of inventory, at 6.3, is still marginally above

the historical average of 6.2. However, there is significant overhang in the shadow

inventory market that continues to depress prices. There is little appetite for

expansion among homebuyers, as shown by the dismal National Association of

Home Builders‟ sentiment index.

Chart 1: Existing home sales boosted by forced sales Chart 2: Expectations about the future near all-time low

Sources: Bloomberg, Standard Chartered Research Sources: Bloomberg, Standard Chartered Research

3.03.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

0200

400

600

800

1,000

1,200

1,400

1,600

Jan-01 Jul-02 Jan-04 Jul-05 Jan-07 Jul-08 Jan-10 Jul-11

Existing home sales(mn, RHS)

New home sales(000s, LHS)40

60

80

100

120

Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08

Michigan Consumer Current Sentiment

Michigan Consumer Future Expectations



Economics Weekly

GR11MY | 18 August 2011 21

Recent macro publications from 11 – 17 August 2011

On the Ground reportsOn the Ground – Sri Lanka – Moving up the value curve via telcos, 17 August

Samantha Amerasinghe

https://research.standardchartered.com/researchdocuments/Pages/ResearchArticle.aspx?&R=78802

The telecom industry contributes almost 2% directly to national output; revenue exceeds USD 1bn

Investment in the telecom sector is projected to more than double to about LKR 40bn in 2020

The sector is a major impetus for social integration of rural communities in the north and east

On the Ground, China – What to do as the world falls apart, again, 16 August

Stephen Green

https://research.standardchartered.com/ResearchDocuments/Pages/ResearchArticle.aspx?R=78790

China faces either slow global growth or another G2 financial crisis – not a happy outlook

The domestic economy has its vulnerabilities, but Beijing has the means to respond if needed

We outline how monetary, fiscal and FX policy can best respond to these challenges

On the Ground, Global – Interest rates to stay low in US, HK and Singapore, 16 August

David Mann | David Semmens | Edward Lee Wee Kok | Kelvin Lau


Interbank rates in the US, HK and Singapore to stay low until early 2013, led by loose US monetary policy

Ample liquidity environment implies that HKD interbank rates could rise more slowly than USD rates

Singapore and HK authorities need to maintain macro-prudential measures to pre-empt inflation risk

On the Ground, Singapore – Interest rates to stay negative near-term, 12 August

Edward Lee Wee Kok | Thomas Harr


SOR falls into negative territory for the first time; we emphasise that the zero bound does not hold here

We analyse how low SOR can go without intervention

We believe that a 6M SOR fixing of -1.5% could be the lower bound for now

On the Ground, G3 – US rates post-FOMC and revised G3 forecasts, 12 August

Renuka Fernandez


The suggestion of further QE in the recent FOMC statement has affected the 10Y UST more than the 30Y – resulting inUST 10Y/30Y steepening

The promise of low FFTR levels should result in greater stability in the sub-2Y sector

In line with our lower UST yield forecasts, we revise lower our 10Y Bund and 10Y gilt yield forecasts



Economics Weekly

GR11MY | 18 August 2011 22

Summary tables

Central bank outlook

Current 1Y change Next Forecast next change Last change

Benchmark rate (%) (bps) Meeting Date SC forecast Date Action

Majors

US Fed Funds Target Rate 0.25 0 20-Sep-11 Q3-2013 +25bps 15-Dec-08 -75bps

Euro area Refi Rate 1.50 50 8-Sep-11 Q3-2012 +25bps 7-Jul-11 +25bps

UK Bank Rate 0.50 0 8-Sep-11 Q1-2013 +25bps 5-Mar-09 -50bps

Japan O/N Call Rate 0.0 - 0.1 0 7-Sep-11 Q3-2013 +10bps 19-Dec-08 -20bps

Canada O/N Lending Rate 1.00 +75 7-Sep-11 Q3-2012 +25bps 9-Sep-10 +25bps

Australia Cash Rate 4.75 +100 6-Sep-11 Q4-2011 +25bps 2-Nov-10 +25bps

New Zealand Cash Rate 2.50 0 15-Sep-11 Q4-2011 +25bps 10-Mar-11 -50bps

Switzerland 3 month Libor Target 0.0 0 Sep-11 Q3-2012 +25bps 3-Aug-11 -25bps

Asia

China One-Year Lending Rate 6.56 +25 N/A Q3-2012 +25bps 6-Jul-11 +25bps

Hong Kong Base Rate 0.50 0 20-Sep-11 Q3 2013 +25bps 16-Dec-08 -100bps

Taiwan Discount Rate 1.88 +50 Sep-11 Sep-11 +12.5bps 30-Jun-10 +12.5bps

Korea Base Rate 3.25 +100 Sep-11 Feb-12 +25bps 10-Jun-11 +25bps

Philippines Reverse Repo Rate 4.50 +50 8-Sep-11 Q4-2011 +25bps 5-May-11 +25bps

Malaysia O/N Policy Rate 3.00 +75 8-Sep-11 Nov-11 +25bps 5-May-11 +25bps

Indonesia BI Rate 6.75 +25 8-Sep-11 Q1-2012 +50bps 4-Feb-11 +25bpsThailand 1D Repo 3.25 200 24-Aug-11 24-Aug-11 +25bps 13-Jul-10 +25bps

India Repo Rate 8.00 325 16-Sep-11 16-Sep-11 +25bps 26-Jul-11 +50bps

Pakistan Discount Rate 13.50 100 30-Sep-11 30-Sep-11 -50bps 30-Jul-11 -50bps

Sri Lanka Repo Rate 7.00 0 19-Aug-11 Q3-2012 +25bps 11-Jan-11 -25bps

Vietnam Refi Rate 14.00 600 N/A Q2-2012 -100bps 1-May-11 +100bps

Other Emerging Markets

South Africa Repo Rate 5.50 -150 22-Sep-11 Q4-2011 +50bps 19-Nov-10 -50bps

Kenya Central Bank Rate 6.25 25 1-Sep-11 Sep-11 +25bps 31-May-11 +25bps

Nigeria Monetary Policy Rate 8.75 275 20-Sep-11 Nov-11 +25bps 26-Jul-11 +75bps

Ghana Prime Rate 13.00 -250 Sep-11 Q1-2012 +100bps 6-Jul-11 -50bps

Botswana Bank Rate 9.50 -50 Aug-11 Q4-2011 +50bps 15-Dec-10 -50bps

Brazil Selic Rate 12.50 175 31-Aug-11 On hold -- 20-Jul-11 +25bps

Chile Overnight Rate 5.25 375 15-Sep-11 Q4-2011 +25bps 14-Jun-11 +25bps

Colombia Min. Reverse Repo Rate 4.25 125 19-Aug-11 Q4-2011 +25bps 17-Jun-11 +25bps

Mexico TdF Rate 4.50 0 26-Aug-11 Q4-2012 +25bps 17-Jul-09 -25bps

Peru Reference Rate 4.25 225 8-Sep-11 on hold -- 9-Jun-11 +25bps

Turkey One-week repo 5.75 -125 23-Aug-11 Q3-2012 +50bps 4-Aug-11 -50bps

UAE Overnight Repo Rate 1.00 -50 N/A N/A +25bps 19-Dec-08 -25bps

Saudi Arabia Reverse Repo Rate 0.25 -50 N/A N/A +25bps 16-Jun-09 -25bps

Bold, underlined: Change in forecast since last Economics Weekly Source: Standard Chartered Research



Economics Weekly

GR11MY | 18 August 2011 23

Rates forecasts

Forecasts in BLUE (RED) indicate upward (downward) revision

Current Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12

% % % % % % %United States Policy rate 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25

3M LIBOR 0.29 0.25 0.25 0.25 0.25 0.25 0.25

10Y bond yield 2.17 2.50 2.60 2.50 2.60 2.70 2.80

Euro area Policy rate 1.50 1.50 1.50 1.50 1.50 1.75 2.00

3M LIBOR 1.48 1.50 1.50 1.50 1.75 2.00 2.25

10Y bond yield 2.10 2.55 2.65 2.60 2.70 2.75 2.85

United Kingdom Policy rate 0.50 0.50 0.50 0.50 0.50 0.50 0.50

3M LIBOR 0.85 0.83 0.85 0.85 0.90 0.95 1.00

10Y bond yield 2.50 2.55 2.65 2.75 2.80 2.90 3.00

Australia Policy rate 4.75 4.75 5.00 5.00 5.25 5.50 5.50

3M money 4.91 5.00 5.15 5.25 5.45 5.55 5.60

10Y bond yield 5.46 5.65 5.85 6.05 6.10 6.25 6.30

China Policy rate 6.56 6.56 6.56 6.56 6.56 6.56 6.817D repo rate 4.65 3.00 2.50 2.50 2.50 2.50 2.50

10Y bond yield 3.95 3.80 3.60 3.80 4.00 3.90 3.70

Hong Kong 3M HIBOR 0.26 0.25 0.25 0.25 0.25 0.25 0.25

10Y bond yield 1.81 2.15 2.25 2.15 2.25 2.40 2.50

India Policy rate 8 8.25 8.50 8.50 8.50 8.25 8.00

Money market rate 8.31 8.50 8.25 8.00 8.00 8.25 8.00

10Y bond yield 8.29 8.5 8.25 8.25 8.25 8.00 7.75

Indonesia Policy rate 6.75 6.75 6.75 7.25 7.25 7.25 7.25

JIBOR 3M 6.74 7.00 7.00 7.70 7.60 7.50 7.50

10Y bond yield 6.93 7.00 7.00 7.25 7.25 7.00 6.75

Malaysia Policy rate 3.00 3.00 3.25 3.25 3.50 3.50 3.50

3M KLIBOR 3.29 3.25 3.45 3.40 3.65 3.70 3.70

10Y bond yield 3.67 3.8 3.9 3.9 4.1 4.1 4.1Philippines Policy rate 4.50 4.50 5.00 5.00 5.50 5.50 6.00

3M PDST-F 2.56 3.30 3.80 4.20 4.50 4.80 5.20

10Y bond yield 5.94 6.70 7.00 7.00 7.25 7.35 7.45

Singapore 3M SGD SIBOR 0.44 0.35 0.35 0.35 0.35 0.35 0.35

10Y bond yield 1.76 1.85 1.85 1.75 1.8 1.9 2.0

South Korea Policy rate 3.25 3.25 3.25 3.50 3.75 4.00 4.00

Money market rate 3.59 3.60 3.60 3.80 4.05 4.30 4.30

10Y bond yield 3.92 4.50 4.50 4.60 4.80 4.80 4.80

Taiwan Policy rate 1.88 2.00 2.13 2.25 2.38 2.50 2.63

3M TAIBOR 0.89 0.94 1.00 1.06 1.12 1.18 1.24

10Y bond yield 1.39 1.70 2.00 2.10 2.30 2.40 2.30

Thailand Policy rate 3.25 3.50 3.50 3.50 3.50 3.50 3.50

BIBOR 3M 3.53 3.60 3.65 3.65 3.70 3.75 3.8010Y bond yield 3.51 4.00 4.10 4.20 4.30 4.30 4.30

Vietnam Policy rate (Refi rate) 14.00 14.00 14.00 14.00 13.00 11.00 10.00

Overnight VNIBOR 12.43 13.00 13.00 13.00 12.00 10.00 10.00

2Y bond yield 12.30 12.00 12.00 12.00 11.00 11.00 11.00

Ghana Policy rate 12.50 12.50 12.50 13.50 14.00 14.00 14,50

91-day T-bill rate 9.33 10.80 11.00 11.70 12.30 12.70 12.90

3Y bond yield 12.50 12.80 13.20 13.40 13.50 13.20 12.80

Kenya Policy rate 6.25 6.50 7.00 7.00 7.25 7.50 7.50

91-day T-bill rate 9.15 9.20 9.40 10.30 10.20 9.60 8.70

10Y bond yield 13.00 15.00 15.50 15.00 14.50 14.00 14.20

Nigeria Policy rate 8.75 8.75 9.00 9.25 9.50 9.50 10.00

91-day T-bill rate 7.43 10.00 10.20 10.40 10.60 11.00 10.90

10Y bond yield 11.38 11.50 11.00 10.70 10.30 10.10 9.80

South Africa Policy rate 5.50 5.50 6.00 6.50 7.00 7.00 7.50

91-day T-bill rate 5.61 5.72 6.12 6.66 7.05 7.24 7.54

10Y bond yield 7.88 8.40 8.20 8.00 7.70 7.80 8.00




Economics Weekly

GR11MY | 18 August 2011 24

Macro forecasts


Country Real GDP growth (%) Inflation (yearly average %) Current account (% of GDP) FX

2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12

Majors

US^ 2.8 1.8 2.2 2.5 1.3 1.5 1.7 1.8 -3.5 -3.6 -3.8 -4.0 N.A. N.A. N.A. N.A. N.A. N.A.

Euro area 1.7 1.8 1.5 2.3 1.6 2.6 1.9 1.9 -0.7 -0.4 -0.2 -0.4 1.42 1.45 1.45 1.42 1.38 1.42

Japan 3.9 0.1 3.6 2.0 -0.8 -0.2 0.2 0.7 3.2 2.2 2.5 2.3 77.00 76.00 80.00 85.00 88.00 88.00

UK 1.3 1.1 1.9 2.3 3.3 4.3 2.2 1.9 -2.4 -1.8 -1.4 -1.8 1.60 1.65 1.66 1.65 1.64 1.69

Canada 3.1 2.6 2.5 2.3 1.8 2.4 2.5 2.1 -2.4 -2.2 -2.0 -1.8 0.96 0.92 0.93 0.94 0.95 0.96

Switzerland 2.6 1.9 1.8 2.4 0.7 0.6 1.0 1.1 12.5 11.0 10.5 10.8 0.77 0.77 0.81 0.85 0.83 0.81

Australia 2.8 2.7 3.8 3.8 2.8 3.4 3.9 4.1 -3.7 -3.6 -3.2 -2.8 1.08 1.13 1.09 1.06 1.05 1.05

New Zealand 1.5 1.9 2.7 3.0 2.3 4.3 2.4 2.9 -3.5 -4.0 -5.0 -5.0 0.86 0.93 0.94 0.89 0.88 0.86

Asia

Bangladesh* 5.5 6.0 6.6 6.5 7.3 6.8 6.3 6.0 3.7 0.8 0.3 0.5 74.50 74.80 74.80 74.50 74.30 72.80

China 10.3 9.3 10.0 9.8 3.3 5.1 4.8 5.4 5.5 3.6 3.4 3.4 6.39 6.31 6.24 6.18 6.12 6.06

Hong Kong 6.8 6.0 5.0 5.5 2.4 5.2 4.0 3.5 6.2 7.0 7.5 8.0 7.785 7.780 7.775 7.770 7.775 7.780

India* 8.5 7.7 8.3 8.5 9.6 8.4 6.0 6.0 -2.6 -2.8 -2.5 -2.3 44.00 43.50 43.00 43.00 42.50 42.00Indonesia 6.1 6.5 7.0 7.1 5.1 5.9 6.9 5.8 0.8 0.5 0.1 0.1 8,500 8,300 8,200 8,300 8,100 7,900

Malaysia 7.2 5.1 6.0 5.0 1.7 3.4 2.5 2.5 12.0 17.0 15.5 16.5 2.93 2.88 2.83 2.90 2.85 2.75

Pakistan* 4.1 2.4 4.0 4.8 11.7 13.9 14.0 12.0 -2.0 0.3 -0.5 -1.2 86.80 87.50 89.00 89.00 90.00 91.00

Philippines 7.2 5.7 6.0 6.0 3.8 4.7 5.4 5.8 6.5 6.1 5.5 4.2 42.00 41.00 40.00 41.00 40.00 38.50

Singapore 14.5 5.5 6.0 5.0 2.8 4.2 2.5 2.5 22.2 15.0 16.7 15.5 1.19 1.17 1.15 1.18 1.16 1.13

South Korea 6.2 3.9 4.8 4.6 2.9 4.0 3.2 3.0 2.8 2.0 1.5 1.0 1,045 1,020 995 975 975 970

Sri Lanka 8.0 7.8 7.5 8.0 5.9 7.4 7.7 8.0 -1.4 -2.8 -2.5 -2.0 109.0 108.4 107.0 106.8 106.0 105.8

Taiwan 10.5 5.6 6.0 4.6 1.0 2.2 2.2 1.5 9.6 8.4 7.5 6.5 28.60 28.00 27.70 27.50 27.40 27.00

Thailand 7.8 4.4 5.8 6.0 3.3 3.7 3.8 4.2 3.0 1.3 0.4 -0.8 29.50 29.00 28.50 29.00 28.50 28.00

Vietnam 6.8 6.3 7.0 6.5 9.2 18.7 8.5 8.0 -8.5 -10.5 -8.5 -7.5 20,600 20,600 21,400 21,400 22,000 22,000

Africa

Angola 2.5 4.0 6.5 6.5 13.3 11.0 10.5 9.0 2.0 1.5 3.0 4.0 93.10 93.00 92.50 92.50 92.00 91.50

Botswana 7.2 4.9 4.8 5.2 6.9 8.2 6.7 6.5 -0.5 -1.5 3.5 3.3 6.73 6.69 6.69 6.77 6.875 6.98

Cameroon 2.6 4.5 5.5 5.5 3.0 3.5 2.5 2.5 1.6 1.3 1.4 1.2 462.00 452.00 452.00 462.00 475.00 462.00

Côte d'lvoire 2.4 -7.0 5.0 6.0 1.4 2.5 2.5 2.5 6.8 2.5 1.0 -0.5 462.00 452.00 452.00 462.00 475.00 462.00

The Gambia 5.0 5.5 6.0 6.0 4.0 5.0 5.0 5.0 -11.1 -10.8 -10.3 -10.0 28.00 28.50 29.00 29.50 30.00 30.50

Ghana 6.5 12.3 8.0 6.8 10.9 10.2 12.7 11.3 -7.2 -6.8 -5.2 -4.0 1.54 1.53 1.52 1.48 1.47 1.45

Kenya 5.2 5.8 6.3 6.8 3.8 12.8 8.5 4.8 -7.9 -9.3 -7.9 -6.0 91.00 88.00 86.00 84.00 82.00 80.50

Nigeria 6.6 8.5 7.8 7.2 13.8 12.5 8.4 9.2 6.4 14.6 13.3 11.1 151 147 146 145 144 142

Sierra Leone 5.0 6.0 6.0 6.0 16.5 9.0 8.5 8.5 -9.3 -9.5 -9.0 -8.7 4,320 4,350 4,370 4,390 4,450 4,440

South Africa 2.8 3.6 3.8 4.2 4.3 5.3 5.8 5.2 -3.2 -4.2 -4.9 -4.8 7.00 6.90 6.90 7.05 7.15 7.40

Tanzania 6.5 6.7 7.5 7.3 6.9 9.3 7.7 5.0 -8.6 -9.5 -10.6 -10.0 1,570 1,585 1,600 1,630 1,640 1,620

Uganda 6.4 6.8 7.5 7.0 5.2 14.1 7.3 4.5 -9.9 -10.6 -9.2 -6.8 2,680 2,600 2,570 2,480 2,500 2,420

Zambia 7.1 6.2 6.4 6.9 8.9 10.5 7.8 7.7 3.8 5.9 3.3 3.4 4,850 4,700 4,600 4,500 4,300 4,100

Middle East and North Africa

Algeria 3.3 4.0 4.5 5.0 5.0 5.0 4.0 3.5 1.9 15.0 12.0 10.0 72.75 72.45 72.45 72.75 73.10 72.75

Bahrain 4.1 3.0 4.5 5.0 2.5 1.0 3.5 4.0 5.0 10.0 12.0 13.0 0.38 0.38 0.38 0.38 0.40 0.40

Egypt* 5.1 1.4 2.0 3.5 11.3 12.5 10.2 10.0 -2.0 -1.6 -1.9 -2.1 6.10 6.26 6.30 6.15 6.13 6.11

Jordan 2.3 3.5 4.0 4.4 5.0 4.6 4.2 4.5 -5.0 -5.5 -5.1 -4.6 0.71 0.71 0.71 0.71 0.71 0.71Kuwait* 3.0 3.5 4.0 4.5 4.0 5.0 4.5 4.0 30.0 27.0 28.0 27.0 0.28 0.29 0.29 0.28 0.28 0.28

Lebanon 7.5 3.0 5.0 1.5 5.0 6.0 5.4 5.5 -16.0 -15.0 -14.5 -14.0 1,500 1,500 1,500 1,500 1,500 1,500

Morocco 3.1 3.5 4.7 5.0 1.0 2.7 2.5 3.0 -8.0 -7.0 -6.0 -5.0 7.88 7.93 7.93 7.88 7.82 7.88

Oman 4.0 4.5 4.7 4.6 3.2 4.0 4.0 4.5 6.5 10.0 9.0 8.0 0.39 0.39 0.39 0.39 0.39 0.39

Qatar 12.5 18.7 6.3 5.2 -5.0 2.0 3.5 3.5 16.0 32.0 30.0 30.0 3.64 3.64 3.64 3.64 3.64 3.64

Saudi Arabia 3.8 6.6 4.0 4.5 5.5 7.0 5.8 5.2 8.5 18.0 12.0 8.0 3.75 3.75 3.75 3.75 3.75 3.75

Tunisia 3.7 -0.5 4.5 4.5 4.8 4.0 4.0 3.5 -2.3 -8.0 -5.0 -1.0 1.36 1.37 1.37 1.36 1.35 1.36

Turkey 8.2 5.8 4.7 6.0 8.6 6.7 6.0 6.0 -6.5 -8.5 -5.9 -5.0 1.80 1.75 1.70 1.72 1.70 1.63

UAE 1.5 4.0 4.5 4.5 0.9 3.0 2.5 2.8 8.0 9.0 9.0 8.0 3.67 3.67 3.67 3.67 3.37 3.67

Latin America

Argentina 9.2 7.0 3.5 4.0 10.5 9.2 11.0 12.0 0.8 -0.1 -0.3 -0.6 4.20 4.38 4.48 4.60 4.68 4.75

Brazil 7.5 4.1 4.0 4.9 5.0 6.3 5.3 4.5 -2.3 -2.8 -3.0 -3.6 1.55 1.50 1.55 1.60 1.55 1.48

Chile 5.2 6.0 4.5 5.0 1.4 3.6 4.0 4.0 1.0 0.4 0.1 0.8 450 440 450 460 450 445

Colombia 4.1 4.9 4.8 4.4 2.2 3.1 4.0 3.5 -2.5 -2.6 -2.0 -2.5 1,800 1,730 1,750 1,790 1,730 1,700

Mexico 5.5 4.0 3.8 5.0 4.2 3.9 4.1 4.2 -1.3 -1.5 -2.5 -2.6 11.80 11.40 11.25 11.50 11.20 10.90

Peru 8.8 6.5 4.5 4.7 1.7 2.5 3.1 3.0 -1.5 -1.0 -1.7 -1.5 2.73 2.70 2.70 2.75 2.70 2.67

* Fiscal year starts in April in India and Kuwait, July in Bangladesh, Pakistan, and Egypt Source: Standard Chartered Research

^ Inflation: Core PCE deflator used for US



Economics Weekly

GR11MY | 18 August 2011 25

Commodities forecasts


*weekly quote **monthly average ***10 tonne contract ₁no forward price comparison available ₂cost and freight at China’s Tianjin port, 62% iron content, Indian origin.


Market

closem/m

Change

YTDy/y Q2 - 11 Q 3 - 11

vs

FwdQ4 - 11

vs

FwdQ1 - 12

vs

FwdQ2 - 12

vs

FwdQ3 - 12

vs

FwdQ4 - 12

vs

Fwd2010 2011

vs

Fwd2012

vs

Fwd

17-Aug-11 % % % A F % F % F % F % F % F % A F % F %

Crude oil (near future, USD/b)

NYMEX WTI 88 -9.2 -4.6 +15.5 102 98 7.6% 95 7.3% 97 8.3% 102 12.5% 116 26.8% 117 27.0% 80 97 10.4% 108 1 8.7%

ICE Brent 111 -4.8 +16.6 +44.5 117 115 2.4% 110 0.0% 112 2.3% 114 4.6% 126 16.2% 127 17.9% 80 112 1.6% 120 1 0.2%

Dubai spot₁ 106 -4.4 +19.2 +44.1 111 110 - 105 - 107 - 109 - 121 - 122 - 78 107 - 115 -

Refined oil products cracks and spreads

Singapore naphtha (USD/b)

₁

-2 -37.5 -126.6 -65.3 -2.2 3 - 2 - 1 - 1 - 1 - 1 - 1.2 1 - 1 -

Singapore jet kerosene (USD/b)

₁

20 +1.3 +28.4 -139.2 20.4 21 - 22 - 21 - 23 - 25 - 28 - 12.1 20.9 - 26 -

Singapore gasoil (USD/b)

₁

18 -4.8 +18.9 -208.0 19.4 21 - 22 - 20 - 22 - 23 - 24 - 11.4 20 - 23 -

Singapore regrade (USD/b)

₁

2 +159.5 +418.9 -261.1 0.9 1 - 1 - 2 - 3 - 3 - 3 - 0.6 1 - 3 -

Singapore fuel oil 180 (USD/b)

₁

-4 -38.4 -56.1 -237.6 -8.7 -5.0 - -4.5 - -6.0 - -5.0 - -5 - -5 - -5.7 -7 - -5 -

Coal (USD/t)

API4 120 +1.9 -8.4 +38.8 121 115 -2.6% 123 1.8% 125 2.3% 128 4.6% 128 4.2% 128 3.5% 92 120 -0.1% 127 3.6%

API2 126 +2.3 -4.3 +39.3 125 120 -3.8% 125 -0.5% 127 0.1% 128 0.8% 128 0.6% 128 - 0.1% 92 123 -2.2% 128 0.3%

globalCOAL NEWC*

₁

121 +1.3 -5.9 +23.0 121 122 - 131 - 134 - 137 - 137 - 137 - 99 125 - 136 -

Base metals (LME 3m, USD/t)

Aluminium 2,395 -4.0 -3.0 +11.5 2,627 2,700 10.9% 2,550 6.2% 2,500 3.0% 2,367 -3.4% 2,367 -4.2% 2,367 -5.0% 2,202 2,602 8.7% 2,400 -2.5%

Copper 8,965 -7.3 -6.6 +21.4 9,185 9,500 3.3% 10,000 11.5% 10,500 16.9% 9,833 9.4% 9,833 9.4% 9,833 9.6% 7,570 9,578 6.9% 10,000 11.3%

Lead 2,366 -12.6 -7.2 +11.1 2,532 2,600 4.9% 2,700 14.1% 2,700 13.5% 2,633 10.2% 2,633 9.6% 2,633 9.2% 2,173 2,602 9.8% 2,650 10.6%

Nickel 21,950 -9.1 -11.3 +0.0 24,339 26,000 14.9% 24,000 9.3% 24,000 9.2% 22,667 3.1% 22,667 3.3% 22,667 3.5% 21,910 25,308 15.3% 23,000 4.8%

Tin 24,005 -11.7 -10.8 +12.7 28,849 30,000 19.0% 32,000 33.3% 34,000 41.3% 28,667 18.9% 28,667 18.7% 28,667 18.6% 20,448 30,179 25.8% 30,000 24.4%

Zinc 2,215 -6.8 -9.7 +4.3 2,273 2,400 5.8% 2,450 10.4% 2,450 9.2% 2,383 5.3% 2,383 4.5% 2,383 3.7% 2,188 2,384 7.7% 2,400 5.6%

Iron ore (USD/t)

Iron ore₂ 172 -2.3 - +21.1 176 170 - 182 - 187 - 182 - 171 - 184 - 147 177 - 181 -

Steel** (CRU assessment, USD/t)

HRC, US

₁

834 -6.4 - +13.5 896 837 - 860 - 870 - 880 - 870 - 880 - 665 868 - 875 -

HRC, Europe

₁

820 -0.5 - +15.5 844 810 - 820 - 830 - 840 - 840 - 840 - 685 823 - 838 -

HRC, Japan

₁

935 +0.9 - +14.4 924 945 - 960 - 960 - 960 - 960 - 960 - 788 922 - 960 -

HRC, China

₁

760 -1.1 - +20.8 757 745 - 760 - 780 - 780 - 780 - 780 - 633 748 - 780 -

Precious metals (spot, USD/oz)

Gold (spot ) 1,791 + 11.7 + 26.2 + 45.9 1,509 1,575 -7.8% 1 ,600 -10.7% 1,650 -8.1% 1,675 -6.9% 1,725 -4.3% 1,750 -3.0% 1,227 1,518 -15.3% 1,700 -5.6%

Palladium (spot) 775 -2.3 -3.1 +58.6 760 800 2.7% 840 7.9% 860 10.4% 913 17.2% 913 17.2% 913 - 529 798 2.8% 900 1 5.5%

Plat inum (spot) 1,842 + 3.8 + 3.9 + 19.8 1,785 1,850 3.2% 1,950 5.8% 2,000 8.4% 2,050 1 0.9% 2,050 1 0.7% 2,100 1 3.4% 1,613 1,845 0.1% 2,050 10.9%

Silver (spot) 40 -0.5 +30.5 +119.7 38.5 38 -3.2% 39 -3.4% 40 -0.9% 40 -0.9% 40 -0.8% 40 -0.7% 2 0.2 37 -8.7% 40 -0.8%

Softs (near future)

NYBOT cocoa, USD/t 3,017 -4.8 -0.6 +6.3 3,043 3,300 8.9% 3,500 14.9% 3,600 16.6% 3,467 11.7% 3,467 11.1% 3,467 10.6% 2,945 3,286 8.3% 3,500 12.5%

LIFFE coffee, USD/t *** 2,350 -4.8 +12.9 +34.7 2,461 2,250 -1.0% 2,000 -16.1% 1,950 -18.9% 2,250 -7.7% 1,767 -27.6% 1,767 -27.0% 1,553 2,246 -5.2% 1,934 -20.3%

NYBO T c offee, USc /lb 263 +4.2 +9.4 +50.0 271 275 7.5% 250 -6.4% 220 - 18.2% 207 -23.0% 207 -22.3% 207 - 21.5% 164 263 - 0.9% 2 10 -21.2%

NYBOT sugar, USc/lb 29 +1.8 -8.2 +52.2 24.5 24 -17.7% 26 -9.4% 26 -7.9% 28 5.6% 28 10.9% 28 13.4% 22.3 26 -9.8% 28 5.1%

Fibres

NYBOT cotton No.2, Usc/lb 108 +9.8 -25.7 +23.1 168 110 1.0% 115 7.4% 115 10.5% 122 19.9% 122 20.6% 122 24.9% 94 143 33.0% 120 18.8%

Grains & oilseeds (nr future)

CBOT c orn (maiz e) , USc/bus hel 712 + 1.8 + 12.7 + 69.4 732 700 -0.3% 750 3.0% 775 4.8% 735 -1.2% 700 0.6% 725 11.2% 428 713 -1.2% 734 3.7%

CBOT Soybeans , USc/bus hel 1,357 -2.6 -3.2 +30.3 1,361 1,350 -0.6% 1,380 0.5% 1,375 -0.5% 1,308 -5.5% 1,308 -3.9% 1,308 -2.2% 1,049 1,368 0.0% 1,325 -3.0%

CBOT wheat, USc/bushel 728 +4.4 -9.4 +9.7 747.3 715 1 .7% 700 -7.6% 715 -10.8% 642 -20.0% 630 -23.3% 642 -23.7% 581.5 737 1 .3% 657 -19.9%

CBOT rice, USD/cwt 17 +1.5 +22.0 +58.8 1 4.2 15 -10.5% 14 -20.6% 13 -28.0% 12 -34.6% 11 -37.5% 12 - 12.5 14 -17.6% 12 -33.4%

Thai B rice 100%, USD/tonne*

₁

582 +3.4 +6.2 +21.5 509 520 - 515 - 500 - 485 - 475 - 480 - 518 520 - 485 -

Edible oils (3m future)

Palm oil (MDV,MYR/t) 3,153 +1.8 -17.5 +15.0 3,289 3,400 9.1% 3,400 12.1% 3,500 16.3% 3,600 19.7% 3,833 27.5% 3,833 27.1% 2,721 3,431 12.0% 3,692 22.6%

Soyoil (CBOT, USc/lb) 56 -3.0 -4.4 +35.1 58 57 2.2% 58 3.1% 60 5.6% 61 6.9% 61 6.7% 61 6.4% 43 58 2.9% 61 6.4%

Energy

Metals

Agricultural products



Economics Weekly

GR11MY | 18 August 2011 26

FICC on-the-run – Rates

10Y bond 3-6M 6M+ Fundamentals Current trades

Majors

United States 2.18 ↑ ↓ H2-2011 growth to pick up following soft patch in H1 Neutral duration

EU* 2.28 ↑ ↓ Brighter growth outlook, but upside inflation risks -

Asia ex-JapanAsia ex-Japan

China 3.95 ↓ ↑ Inflation and GDP growth to moderate in H2 Receive 5Y NDIRS

Hong Kong 1.81 ↑ ↓ Corporate hedging and pick-up in US growth in H2 -

India 8.29 ↑ ↔ Inflation and higher policy rates to maintain bearish mood -

Indonesia 6.93 ↓ ↔ Overweight duration amid moderating inflation,comfortable fiscal position and positive FX outlook

Long 20Y bond

Malaysia 3.67 ↔ ↔ Foreign inflows, positive FX outlook and expectations forglobal rates to stay low to mitigate upside pressure from

inflation

-

Pakistan 13.47 ↔ ↑ Concerns over higher bond supply to offsetsoftening monetary policy

-

Philippines 5.94 ↓ ↔ A pick-up in inflows as BSP appears less hawkishand more tolerant towards FX appreciation Long 20Y bond

Singapore 1.76 ↔ ↓ Strong demand for SGD assets to help keep SGS yieldslow

-

South Korea 3.92 ↔ ↔ Foreign inflows are offsetting rate hikes from BoK -

Taiwan 1.39 ↓ ↔ Moderating inflation and growth -

Thailand 3.51 ↑ ↔ BoT remains hawkish, while THBFIX has normalised -

Vietnam 12.55 ↔ ↔ Moderating inflation, but limited scope for rally as policy

rate remains high

-

Sub-Saharan Africa

Ghana** 12.50 ↑ ↔ Inflation to pick up on slow fiscal improvement

and volatile currency

-

Kenya 13.00 ↑ ↔ High inflation and lack of tightening monetary policy -

Nigeria 11.38 ↓ ↔ More stable currency and improving supply outlook Long 5Y FGN bond

South Africa 7.88 ↔ ↓ Foreign inflows to resume after near-term jitters -

Zambia 15.40 ↓ ↔ Steep curve, strong currency to curb inflation

expectations

Long 5Y bond

* German government bond yields; ** 3Y benchmark Source: Standard Chartered Research



Economics Weekly

GR11MY | 18 August 2011 27

FICC on-the-run – Credit

Sector 3-6M Rationale Picks Pans

Asia

Sovereigns

High-grade ↔ Only select names offer value at current levels MALAYS 16 -

High-yield ↓ Quote tight for their ratings, that said, we prefer Indonesiato the Philippines

INDON 14SINDON 19

PHILIP 21VIETNM 20

Quasi-sovereigns

High-grade ↔ Strong Korean names in the 5Y sector offer some value KORELE 15KOHNPW 15KOFCOR 16

EIBKOR 3.75% 16

PETMK 22

High-yield ↑ We prefer some HY quasi-sovereigns given reasonablespread differentials over the sovereign

PLNIJ 20 PERTIJ 41

Financials

Senior ↔ Select bonds offer value, though spread tightening will becapped by fresh supply

SCBTB 16 HANABK 15WOORIB 15

Tier 2 ↓ Less room for compression versus senior OCBC 19 ICBC 20FUBON 20

Tier 1 ↔ Offers good yield, but in a weaker market it has thepotential to suffer more

UOBSP 49 ICICI 7.25% 49

High-grade corporates

AA and above corporates ↓ Recent widening in spreads offerselect opportunities

STECHS 19HKMTGC 14

-

Single-A corporates ↔ Some room for spread compressionin select names

HUWHY 19POHANG 21CNPCCH 16

LIFUNG 20

-

BBB corporates ↑ BBB corporates offer good risk-reward sincea number of names are quoting slightly wide

for their fundamentals

BEIENT 41SINOCH 40NOBLSP 20

HYNMTR 16AXIATA 20

High-yield corporates

China corporates ↔ The Chinese HY property sector has been the mostvolatile, driven by factors such as external events,

domestic policy changes and negative news headlines. Within the sector, we continue to like the stronger names

and remain selective on the smaller players.

Following the recent market correction, Chinese HYindustrial names are trading at wider levels. We like

names focused on domestic demand and think some willbenefit from possible selective monetary loosening in H2.

COGARD 17LNGFOR 16

YLLG 18CHOGRP 15FUFENG 16WINSWY 16

PWRLNG 15TEXTEX 16MIEHOL 16

Indonesian corporates ↔ While positive industry prospects and scarcity of supplywill continue to support bonds from the sector, we

consider most to be fairly valued.

BERAUC 15STAREN 15

-

Middle East

Sovereigns ↑ Sovereigns from the region are cheap for their ratings.Explicitly government-guaranteed bonds offer value.

QATAR 15ADWA 20DUGB 20

ADGB 14ADGB 19

Quasi-sovereigns ↑ Spread to sovereign is attractive for selected names.Longer-dated bonds offer value given the steep 5Y/-10Ycurves among Qatari and Abu Dhabi quasi-sovereigns.

MUBAUH 21DPWDU 17

DEWAAE 16

Financials ↔ On a ratings-adjusted basis, they offer value relative toAsian financials. Fundamentals are improving, particularlyin the GCC (although they are still weaker than for Asian

banks).

QNBK 15NBADUH 14

COMQAT 14ADCB 14




Economics Weekly

GR11MY | 18 August 2011 28

FICC on-the-run – FX

Spot 3M 3-12M Fundamentals Current trades

Asia ex-Japan

CNY 6.39 ↑ ↑ CNY gains to curb inflation as risk appetite and fundamentals stabilise

HKD 7.80 ↔ ↓ No peg change seen; outlook overshadowed by China tightening

KRW 1,074 ↑ ↑ External balances, valuation, inflows to support KRW strength

TWD 28.97 ↔ ↑ TWD supported by cross-strait relations, C/A surplus, but gains limitedSell USD-TWD

3M NDF

IDR 8,553 ↑ ↑ IDR remains supported by external surplus, FX policy, inflows

MYR 2.98 ↔ ↑ MYR supported by monetary tightening, C/A surplus, but gains limited

PHP 42.50 ↑ ↑ External balances and FX policy to turn more favourable for PHP

SGD 1.21 ↑ ↑ Strong FX policy stance, growth, external surplus to support SGD

THB 29.88 ↑ ↑ Lower oil prices and removal of political uncertainty are positive forTHB

Sell USD-THBand EUR-THB

3M Fwd

VND 20,805 ↔ ↔ BoP dynamics, inflation to push USD-VND gradually higher

INR 45.69 ↑ ↑ Yield differentials and external balances to support INR in H2-2011Sell USD-INR 3M

NDF

PKR 86.85 ↔ ↔ Test of PKR strength once IMF programme ends; remittances strong

Sub-Saharan Africa

KES 92.74 ↔ ↔ Inflation risks may cause Central Bank of Kenya to tighten further

NGN 154 ↔ ↔ Bond regulation changes to boost foreign inflows

BWP 6.74 ↔ ↓ Weaker growth, inflation and fiscal adjustment to weigh in 2011

ZAR 7.13 ↔ ↓ Short-term rating lowered to Neutral on bond outflows, inflation

Latin America

ARS 4.17 ↔ ↔ ARS to depreciate steadily ahead of October, accelerate after election

BRL 1.59 ↑ ↑ BRL supported by inflows; rebound in implied yields offers good carry

CLP 467 ↔ ↑ Vulnerable to copper-price weakness, and FX policy is more dovish

COP 1,766 ↔ ↔ Healthy FDI, but COP vulnerable to shift in risk appetite

MXN 12.29 ↔ ↑ Weak US growth and benign risk environment are corrective for MXN

PEN 2.74 ↔ ↔ Economic fundamentals are offset by post-election uncertainty

Majors

EUR 1.44 ↔ ↓ Sovereign debt concerns continue to weigh as growth momentum fades

JPY 76.59 ↔ ↓ Risk aversion keeps JPY strong s/t, but will weaken as growth improves

AUD 1.05 ↔ ↑ Slowing growth, dovish RBA to weigh s/t; growth rebound is positive m/t

NZD 0.83 ↑ ↑ Reconstruction efforts and rate spreads are supportive going forward

CHF 0.79 ↔ ↓ CHF risk/reward deteriorates on possible SNB action

GBP 1.65 ↔ ↓ Neutral for now, but fiscal tightening to reduce rate expectations for H2

CAD 0.98 ↑ ↔ Growth recovery, US improvement and terms of trade support CAD




Economics Weekly

GR11MY | 18 August 2011 29

FICC on-the-run – Commodities

Exchange 3-6M Fundamentals

Energy

Oil

WTI NYMEX ↑ We are neutral in the very short term given strategic stock releases in the

US, but believe that improved demand in the US will begin to narrow the

differential between WTI and other global benchmarks in H2-2011.

Coal

globalCOAL NEWC* ↑ Power-plant stockpiling across Asia and the risk of a shortfall in hydropower

output in China will keep Newcastle coal prices supported.

Agriculture

Softs

Cocoa (USD/t) NYBOT ↑ Q2-2011 grind in both the US and Europe improved noticeably. Gains will be

capped by an improvement in global output in 2011/12.

Coffee (USc/lb) NYBOT ↓ The market has slumped following improved stockpiles in importing countries

and better weather in Brazil. Bearish pressure remains.

Sugar (USc/lb) NYBOT ↓ Prices have rallied due to lower-than-expected cane output in top producer

Brazil. Near-term market correction is due.

Fibres (USc/lb)

Cotton NYBOT ↑ We now look for prices to inch higher, as the sharp decline in the market will

trigger significant commercial interest.

Grains & oilseeds (USc/bu)

Corn CBOT ↑ Adverse weather conditions in the US have affected yields and will constrain

output.

Soybeans CBOT

↔ Lower-than-expected US plantings have been price-supportive, but slower

demand from China has limited the upside.

Wheat CBOT ↔ While dry US weather is affecting wheat yields, global exportable surpluses

have risen in the Black Sea region and South Asia.

Metals

Base metals (USD/tonne)

Aluminium LME ↔ Strong demand growth, high cost base and tightly held LME stocks will keep

the market well supported, despite long-term fundamental problems.

Copper LME ↔ We are neutral. Underlying fundamentals are good and demand in China is

improving, but global economy is slowing.

Lead LME ↔ Battery plant closures in China are weighing on prices.

Nickel LME ↓ The fundamental outlook is weak, and supply in China has accelerateddramatically.

Tin LME ↓ Strong speculative interest has helped boost prices, but the global economic

slowdown will weigh on the market.

Zinc LME ↓ Recent price rally has been overdone. Price is vulnerable as risk appetite

fades.

Precious metals

Gold Spot ↓ The price has jumped higher in recent weeks and should consolidate in the

months ahead, despite strong interest from central banks.

Palladium Spot ↔ The automotive sector is recovering but investors are selling, limiting the

upside.

Platinum Spot ↔ A recovery in the automotive sector is combining with worries about South

African supply.

Silver Spot ↓ Still looks expensive relative to gold, and the market is likely to struggle

during periods of USD strength.




Economics Weekly

GR11MY | 18 August 2011 30

Disclosures Appendix

Recommendations structure

Standard Chartered terminology Impact Definition

Issuer – Credit outlook

Positive ImproveWe expect the fundamental credit profile of theissuer to <Impact> over the next 12 months

Stable Remain stable

Negative Deteriorate

Apart from trade ideas described below, Standard Chartered Research no longer offers specific bond and CDS recommendations.

Any previously-offered recommendations on instruments are withdrawn forthwith and should not be relied upon.

Standard Chartered Research offers trade ideas with outright Buy or Sell recommendations on bonds as well as pair trade recommendations

among bonds and/or CDS. In Trading Recommendations/Ideas/Notes, the time horizon is dependent on prevailing market conditions and may

or may not include price targets.

Credit trend distribution (as at 17 August 2011)Coverage total (IB%)

Positive 15 (6.7%)

Stable 179 (21.2%)

Negative 25 (16.0%)

Total (IB%) 219 (19.6%)

Credit trend history (past 12 months)

Company Date Credit outlook

- - -

Please see the individual company reports for other credit trend history

PLEASE NOTE THAT THIS DOCUMENT IS NOT TO BE DISTRIBUTED INTO KOREA.

Regulatory Disclosure:

Subject companies: Abu Dhabi Commercial Bank PJSC, Axiata Group Berhad, Beijing Enterprises Holdings Ltd., China National Petroleum Corp., ChinaOriental Group Co. Ltd., Commercial Bank of Qatar, Country Garden Holdings Co. Ltd., DP World Ltd., Dubai Electricity & Water Authority, Emirate ofAbu Dhabi, Emirate of Dubai, Export Import Bank of Korea, Federation of Malaysia, Fubon Bank Hong Kong Ltd., Fufeng Group Ltd., Hana Bank, HongKong Mortgage Corp., Hutchison Whampoa Ltd., Hyundai Motor Co., ICICI Bank Ltd., Industrial & Commercial Bank of China, Korea Electric Power Corp.,Korea Finance Corp., Korea Hydro and Nuclear Power Co. Ltd., Li and Fung Ltd., Longfor Properties Co. Ltd., MIE Holdings Corp., MubadalaDevelopment Co., National Bank of Abu Dhabi PJSC, Noble Group, Oversea-Chinese Banking Corp., Ltd., Petroliam Nasional Bhd., POSCO, PowerlongReal Estate Holdings Ltd., PT Berau Coal Energy Tbk., PT Pertamina, PT Perusahaan Listrik Negara, Qatar National Bank, Republic of Indonesia,Republic of the Philippines, Siam Commercial Bank PCL, Singapore Technologies Engineering Ltd., Sinochem Hong Kong (Group) Co. Ltd., SocialistRepublic of Vietnam, Star Energy Geothermal (Wayang Windu) Ltd., State of Qatar, Texhong Textile Group Ltd., United Overseas Bank Ltd., Waha CapitalPJSC, Winsway Coking Coal Holding Ltd., Woori Bank, Yanlord Land Group

SCB and/or its affiliates have received compensation for the provision of investment banking or financial advisory services within the past one year: BeijingEnterprises Holdings Ltd., Dubai Electricity & Water Authority, Emirate of Abu Dhabi, Export Import Bank of Korea, Hana Bank, Longfor Properties Co.Ltd., Mubadala Development Co., Noble Group Ltd., Siam Commercial Bank PCL, Sinochem Hong Kong (Group) Co. Ltd.

SCB makes a market in securities issued by this company: Hutchison Whampoa Ltd.

SCB was a lead manager of a public offering for this company within the past 12 months, for which it received fees: Longfor Properties Co. Ltd.

Hyundai Motor Co. – SCSK is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,529,890 units of KRA741117188 callwarrants as of 18 of AugustSCSK is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,451,390 units of KRA741123145 call warrants as of 18 of AugustSCSK is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,521,000 units of KRA741127153 call warrants as of 18 of AugustSCSK is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,513,630 units of KRA741147151 call warrants as of 18 of AugustSCSK is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,529,580 units of KRA741164149 call warrants as of 18 of August

Korea Electric Power Corp – SCSK is a liquidity provider SCSK is a liquidity provider for the equity-linked warrants of this company and beneficially owned3,523,300 units of KRA741115174 call warrants as of 18 of August

SCSK is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,322,870 units of KRA741133169 call warrants as of 18 of AugustSCSK is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,510,550 units of KRA741134167 call warrants as of 18 of August

POSCO – SCSK is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,478,400 units of KRA741130165 call warrants as of 18of August SCSK is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,529,890 units of KRA741131163 call warrants as of 18 of AugustSCSK is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,490,000 units of KRA741132161 call warrants as of 18 of August



Economics Weekly

GR11MY | 18 August 2011 31

Analyst Certification Disclosure:

The research analyst or analysts responsible for the content of this research report certify that: (1) the views expressed and attributed to the research analyst or

analysts in the research report accurately reflect their personal opinion(s) about the subject securities and issuers and/or other subject matter as appropriate; and,

(2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this research report. On a

general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts.

Global Disclaimer:

Standard Chartered Bank and or its affiliates ("SCB”) makes no representation or warranty of any kind, express, implied or statutory regarding this document or any

information contained or referred to on the document.

The information in this document is provided for information purposes only. It does not constitute any offer, recommendation or solicitation to any person to enter into

any transaction or adopt any hedging, trading or investment strategy, nor does it constitute any prediction of likely future movements in rates or prices, or represent

that any such future movements will not exceed those shown in any illustration. Users of this document should seek advice regarding the appropriateness of

investing in any securities, financial instruments or investment strategies referred to on this document and should understand that statements regarding future

prospects may not be realised. Opinions, projections and estimates are subject to change without notice.

The value and income of any of the securities or financial instruments mentioned in this document can fall as well as rise and an investor may get back less than

invested. Foreign-currency denominated securities and financial instruments are subject to fluctuation in exchange rates that could have a positive or adverse effect

on the value, price or income of such securities and financial instruments. Past performance is not indicative of comparable future results and no representation or

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SCB is not a legal or tax adviser, and is not purporting to provide legal or tax advice. Independent legal and/or tax advice should be sought for any queries relating to

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Document approved by

John Calverley

Head of Macroeconomic Research

Data available as of

22:00 GMT 18 August 2011

Document is released at

23:00 GMT 18 August 2011



Economics Weekly

World Wide Wrap

Focus issues for next 3 months One year ahead outlook

Attention will focus on the extent of the economic slowdown,

particularly in the US and China, and inflation trends in emergingmarkets (EM). This may affect the timing and degree of central banktightening in EM and Europe. Markets will also follow developmentsin the European sovereign-debt crisis and the Middle East, whichhave the potential to derail the economic upswing.

We expect growth to pick up again later in 2012 as the oil shock

fades, disruptions from Japan‟s earthquake recede, and Chinarelaxes policy slightly. The euro area has embarked on monetarytightening, but the US is likely to stick to its low-rate policy until Q3-2013, continuing to put upward pressure on Asian currencies andasset prices. Asian central banks will likely shift to a neutral stance.

Inflation worries are giving way to concerns over the faltering globaleconomic recovery. There is a good chance that China will movequietly to loosen monetary policy by end-September, taking the formof a less restrictive loan quota and increased budgetary spending. IfBeijing wanted to make headlines and boost confidence, a cut in theRRR would be a relatively cost-free move.

We forecast 9.3% GDP growth in 2011. Growth has continued toslow, but is likely to pick up in Q4-2011 after the government movesto an accommodative stance. The demand side is firmlyunderpinned by new investments under the 12th Five-Year Plan andscheduled construction of 10mn social housing units in 2011. Weexpect no more interest rate hikes from China this year.

Demonstrating its resolve to fight inflation, the RBI raised the reporate aggressively by 50bps to 8.0%. The accompanying hawkishstatement indicates that monetary tightening has yet to becompleted. We expect another 50bps increase in the repo rate in thenext three months, as inflation hovers around 9% and moderation ingrowth become broad-based.

We expect India‟s FY12 growth to slow to 7.7% on high inflation,tighter rates and ongoing governance risk. Firm commodity priceshave raised fiscal-health concerns as the subsidy burden increases

– we expect a fiscal deficit-to-GDP ratio of 5.4% versus thegovernment‟s budgeted 4.6% of GDP. The market will watch for anyfurther slippage. Any move to advance the reform process will be

also watched.

Policy makers‟ focus returns to easing growth momentum withconfidence on DM growth waning. A correction in global oil priceswill also help to reduce some inflationary concerns. Local consumerconfidence is also moderating and this should allow central banks totake a less hawkish approach on monetary policy.

Weak growth in the West and rapid lending growth locally presentcentral banks with a dilemma in terms of their monetary policystance. Local conditions will determine whether tightening willresume in 2012. Strong fundamentals are likely to attract capitalinflows and central banks can either allow currency appreciation, orconsider capital flow management.

We expect steady growth in H2: industrial production should beboosted by the high-tech sector and consumption supported bylower inflation. Headline inflation should decline significantly inSeptember thanks to base effects from fresh food, which, along withthe lingering impact of global market turmoil, should mean a pausein the BoK‟s rate-hiking cycle.

We expect steady economic growth around trend, with a betterbalance between exports and domestic demand. Inflation shouldreturn to around 3% as food and energy prices stabilise. The BoKshould end its rate-hiking cycle at 4.0% in mid-2012. The housingmarket is likely to show a modest recovery, boosting constructionand credit growth.

Political risk throughout the region will likely remain elevated asunrest in Syria and Libya threatens to spread. Food-price inflation inthe region is also likely to experience upward pressure given higherinternational commodity prices and the region‟s position as a major importer of food.

Oil-producing countries should see a pick-up this year on higher oilprices and improving credit conditions. They will continue to focuson diversification, and growth will be driven by investment ininfrastructure. Non-oil-producing countries will benefit from theimproved outlook for global trade as well as higher remittance flows.

The aftermath of Nigerian elections remains a key theme, withcabinet appointments being scrutinised for evidence that reforms willtop the post-election agenda. FX trends are also likely to dominatein H2: both the UGX and KES recently reached all-time lows versusthe USD, but declining food- and oil-related pressures globally mayhelp prospects for a turnaround.

The extent of the deceleration in food and fuel-led inflation in Africawill be key. However, in many cases, positive trends will be offset bycurrency volatility, suggesting that the inflation threat to growthremains sizeable. Nigeria has announced a new mid-point for itscurrency band, and Kenya is tightening more aggressively. Weexpect other African central banks to follow.

Central banks should generally stay on hold for the near term due tothe global market turbulence and expectations for slower developed-world growth in 2012. Brazil inflation remains at the top end of thetolerance band however. Argentina holds presidential elections inOctober with President Kirchner the favourite to be re-elected.Mexico‟s central bank should stay on hold, in line with the Fed.

The region is better positioned to confront a global economicslowdown than in 2008. FX reserves positions are robust, andbanking systems are well capitalised. However, most countriesremain too dependent on commodity prices and hence growth isvulnerable to a slowdown in Asia and the US. Brazil continues tostruggle with a strong BRL, and more measures could beimplemented to offset appreciation pressures.

The 0.8% annualised rise in H1 GDP was an extreme disappointment.

The labour market needs to show significant improvement to bringunemployment meaningfully lower. The recent weakness in activity datais worrisome, but we do not think that the US will see another recession.Inflationary pressures should subside in H2-2011, driven by weakdemand and base effects. The housing market is still in critical condition,with prices weak and purchase activity minimal.

Firms should still increase hiring as business capital investmentrises. We expect H2 to be much stronger than H1, as the underlyingstory is still positive once the shocks to the economy fade. Housingprices are likely to see further declines, however. There is stillsignificant slack in the economy and this should see inflationarypressures slow as the consumer continues to recovery slowly.

The focus is on three areas: (1) confidence and activity data,particularly signs of prolonged weak growth in the UK and slowing incore Europe; (2) the timing of rate hikes, focusing on commentsfrom central bankers and the level of inflation; and (3) the euro-areaperiphery crisis, including debt auctions, Greece‟s progress incutting its deficit, contagion risks and periphery/German politics.

The euro-area and UK economies face headwinds to growth in theform of still-high commodity prices and fiscal tightening. The euroarea looks likely to outperform this year, but we expect growth toslow in 2012 owing to austerity measures, underperforming the UK.We expect the ECB to hold rates until Q3-2012. The BoE looks setto remain on hold throughout 2011 and 2012.

Despite recent signs of a revival in manufacturing activity and arebound in business and consumer confidence, electricity supplyshortages and power rationing during the peak summer demandperiod will slow the pace of recovery. Lingering external

uncertainties will also delay businesses‟ capital expenditure plans.

The reconstruction boom following the earthquake should tighten thelabour market and support GDP growth in H2-2011; we expect a V-shaped recovery. Recovering export demand from the US andinfrastructure investment in China under the 12

thFive-Year Plan are

also positive for the manufacturing sector.

I t t di l b f d i th Di l A di S St d d Ch t d R h

Global

Greater China

SouthAsia

South EastAsia

South Korea

MENA

Sub-SaharanAfrica

Latin America

United States

Europe

Japan

18 August – The Bernanke put_18_08_11_23_38

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