dbs2011jan19

8/7/2019 dbs2011jan19

1/7

1

Daily Breakfast Spread, 19 Jan 2011

Daily Breakfast Spread

DBS Group Research 19 Jan 2011

Economics

Southeast Asia, India

MY: CPI inflation for Dec10 is on tap today and the headline price barometer isexpected to read 2.1% YoY, just a tad higher than the previous month (2.0%).Indeed, inflation has been more subdued in Malaysia than in many regionalcountries. Though Malaysia's domestic price stability program may play a part, muchcredit should be given to Bank Negara for taking decisive and pre-emptive action tohike the policy rate last year in order to curb inflation and prevent financialimbalances. The Overnight Policy Rate was lifted by 75bps last year and we continueto expect another 50bps for this year to balance between the risks on growth andinflation. That said, the appreciation in Ringgit has also part an important role inkeeping imported inflation at bay. The local currency was one of the bestperforming emerging Asia currencies last year. It appreciated by about 10.6%against the greenback in 2010.

TH: The sharp rise in exports in December should assuage concerns about the softpatch that Thailand entered last year that saw third quarter GDP growth come in allbut flat. Customs trade data out yesterday showed Thai exports grew by 6% (MoM,sa) in December. This brings the rise in exports in 4Q10 to 10% (QoQ, sa), more thanreversing the 4% decline in the previous quarter (Chart). The key driver in terms ofexports destination was exports to China and HK which grew by 9.5% (MoM, sa) inDecember and 16% (QoQ, sa) in 4Q10. Chinese trade data also show that Chinas

imports rose much more than exports in 4Q10 suggesting that final demand inChina is behind the rise in Thai exports to China (Chart). As such, while the soft-patch mid last year in Thailand can be traced back both to double-dip worries in theUS and slowdown worries in China, the recovery in exports so far appears to havelargely come from China. One implication is that strong US demand will offer anadditional support to export growth ahead (we estimate that US consumption grewby 4% (QoQ, saar) in 4Q and forecast growth of 2.8% in 2011). In terms of exportvolumes, December data is not out until end-month and data for Novembershowed an encouraging 6% (MoM, sa) rise in export volumes. At the least, the risein nominal exports in December suggests the earlier improvement in exportvolumes should have been preserved in December. All this augurs well for

US Fed expectations

Source: Bloomberg fed fundfutures

Notes: Given a FF target rate of0.25%, an implied FF rate of0.30 is interpreted roughly asthe market pricing in a 20%chance of a Fed hike to 0.50%from 0.25% (30 is 1/5th of thedistance to 50 from 25). DBSexpectations are presented indiscrete blocks of 25bps, i.e., theFed moves or it does not. Seealso Policy rate forecastsbelow.

Implied fed funds rate

Dec-10 Mar-11 Jun-11MarketCurrent 0.18 0.17 0.171wk ago 0.18 0.17 0.18

DBS 0.25 0.25 0.25

50

60

70

80

90

100

110

120

130

140

Jul-06 Jul-07 Jul-08 Jul-09 Jul-10

Exports to China & HKExports ex- CN, HK

TH: Exports by destination

Re-indexed Jul08=100, USD, sa

Latest:

70

90

110

130

150

170

190

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

CN: exports to US

CN: total exports

CN: total imports

CN: exports to US and total exports

USD, Index: 2007=100, SA

Latest:

8/7/2019 dbs2011jan19

2/7

2


manufacturing production which has been lackluster until November. Indeed, therisks to our and consensus 2011 forecast may well lie to the upside despite ourexpectation for rate normalization.

G3 US: The NAHB builders sentiment index failed to rise by even the 1 meager point

consensus had expected for December. That means the small drop in housing startsexpected by consensus (Dec, today) wont be far off the mark. Such is the state ofhousing where sideways movement has prevailed for the past 9-12 months and isexpected to continue for most of 2011. Inventories remain at 8.2 months worth ofcurrent sales (290k, saar, in Nov10) and 10Y bond yields are up by 100bps fromOct10 levels, both suggesting that new home construction is unlikely to acceleratein the near-term.

The good news, in some sense, is that housing construction now accounts for only2.2% of GDP (it accounted for more than 6% of GDP back in 2005) and soacceleration or deceleration doesnt make much of a difference to the overall GDParithmetic. In the event, broader economic recovery continues. Real consumption isnow growing at over 4% (QoQ, saar) and (real and nominal) retail sales growth isat a ten-year high. Domestic demand generally is growing at over 4% and, with thevolatility in the trade accounts subsiding, GDP growth overall should run at close to3% through the quarters of 2011. Little wonder equity markets have trended northin near straight line fashion since Aug10. At 1295, the SPX is now well and trulyback above pre-Lehman levels of Sep08 and seems interested only in continuingthe march.

Currencies

FX: EUR/USD has been trapped mostly between 1.3250 and 1.3450 since January 14.The currency pair remains a volatile currency. Mondays sell-off was more thanoffset by yesterdays buy back, similar to trading in the first two weeks of January.This reflects the struggle that euro bears face to hold on net short euro positions inhope of more deterioration in the Eurozone sovereign debt crisis.

Like in June 2010, after the Greek debt crisis found closure, these positions arethreatened on two fronts. First, Euribor has stopped sliding and is starting to riseagain. The euros slide since last November was not only attributed to improving USdata renewing US rate hike expectations, but also to falling Euribor. Unfortunately,US jobs data did not support the case to start aggressively discounting US ratehikes. Worse, inflation in Eurozone pushed above the ECBs target. Second, China

and Japan have stepped forward to support Eurozone bonds. China has been morevocal of late about needing to diversify its foreign reserves away from the dollar

0

200

400

600

800

1000

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11

0

5

10

15

20

25

30

35

4045

US housing starts

x1000/mth, saar

housing starts

(LHS)

no growth

in either

series

NAHB (RHS)

NAHB index

8/7/2019 dbs2011jan19

3/7

3


into euro, yen and selected emerging market currencies. This need has becomemore urgent because of the need to allow yuan appreciation amidst risinginflation.

Apart from these two factors, we also noted that the US dollars reserve status cameinto question after the US started the first round of quantitative easing in March

2009. Although QE2 started in November 2010, the same issue has surfaced recentlyamidst political headwinds over the large US fiscal deficits and federal debt. Backthen, the US Secretary of State Hillary Clinton broke tradition and visited Asia firstinstead of Europe. Today, US President Obama is throwing a state dinner for ChinaPresident Hu Jintao. The need to maintain foreign support for US debt triggeredthe dollar sell-off from March into November 2009. In this regard, euro bears mayonce again find themselves caught wrong-footed, with euro rising on speculatorscutting their net short positions, like in June-August 2010.

Looking Back US mkts: US stocks rose overnight on optimism in the manufacturing sector. The

Dow Jones Industrial Average rose 0.43% to 11837.93 and the Nasdaq closed 0.38%higher at 2765.85. Treasury yields were flat at 0.59% in the 2Y sector and rose 3bpsto 3.36% in the 10Y sector.

8/7/2019 dbs2011jan19

4/7

4


Economic calendar

Central bank policy calendar

PolicyDate Country Rate Current Consensus DBS ActualThis weekNo policy meeting this week

Next week25-Jan JP o/n call rate 0.10% 0.10%25-Jan IN o/n repo 6.25% 6.50%27-Jan US FDTR 0.25% 0.25%27-Jan MY OPR 2.75% 2.75%

Last week12-Jan TH 1 day repo 2.00% 2.25% 2.25% 2.25%13-Jan KR 7 day repo 2.50% 2.50% 2.75% 2.75%13-Jan EZ 7-day refi rate 1.00% 1.00% 1.00% 1.00%

Event Consensus Actual Previous

Jan 17 (Mon)SG: NODX (Dec) 11.1% y/y 9.4% y/y 9.9% y/yPH: remittances (Nov) 10.5% y/y 9.3% y/y

Jan 18 (Tue)US: home builders Index (Jan) 17 sa 16 sa 16 saHK: unemployment rate (Dec) 4.0% 4.0% 4.1%JP: ind. prod. (Nov) 5.8% y/y 5.8% y/yTH: trade balance (Dec) USD800m USD1295m USD408m-- exports 16.3% y/y 18.8% y/y 28.5% y/y-- imports 10.3% y/y 11.5% y/y 35.3% y/yHK: CPI (Dec) 4.0% y/y 4.0% y/y 4.1% y/y

Jan 19 (Wed)

US: housing starts (Dec) 550k saar 555k saarUS: bldg permits (Dec) 554k saar 544k saarMY: CPI (Dec) 2.2% y/y 2.0% y/y

Jan 20 (Thur)US: initial jobless claims (Jan 15) 422k sa 445k saUS: existing homes sales (Dec) 4.87m saar 4.68m saarTW: export orders (Dec) 12.30% y/y 14.34% y/yCH: CPI (Dec) 4.6% y/y 5.1% y/yCH: real GDP (4Q) 9.4% y/y 9.6% y/yCH: retail sales (Dec) 18.7% y/y 18.7% y/yCH: fixed asset investment (Dec) 25.0% y/y 24.9% y/y

Jan 21 (Fri)no key data

8/7/2019 dbs2011jan19

5/7

5


GDP & inflation forecasts

Policy & exchange rate forecasts

Market prices

GDP growth, % YoY CPI inflation, % YoY

2007 2008 2009 2010f 2011f 2007 2008 2009 2010f 2011f

US 1.9 0.0 -2.6 2.8 2.8 2.9 3.8 -0.3 1.6 1.8

Japan 2.4 -1.2 -5.1 2.7 1.6 0.1 1.4 -1.4 -0.4 0.5Eurozone 2.9 0.3 -4.0 1.7 1.5 2.1 3.3 0.3 1.6 1.5

Indonesia 6.3 6.0 4.5 6.0 6.0 6.4 9.8 4.8 5.1 7.0

Malaysia 6.2 4.6 -1.7 7.2 5.5 2.0 5.4 0.6 1.8 2.4

Philippines 7.1 3.8 0.9 6.2 5.0 2.8 9.3 3.3 4.0 4.4

Singapore 8.2 1.4 -1.3 15.0 7.0 2.1 6.5 0.6 2.8 3.2

Thailand 4.9 2.5 -2.2 8.2 4.5 2.2 5.5 -0.8 3.3 4.0

Vietnam 8.4 6.2 5.3 6.7 6.9 8.3 23.1 7.0 9.0 10.0

China 13.0 9.6 9.1 10.0 9.5 4.8 5.9 -0.7 3.3 4.0

Hong Kong 6.4 2.1 -2.7 6.6 5.0 2.0 4.3 0.5 2.5 4.0

Taiwan 6.0 0.7 -1.9 10.3 3.8 1.8 3.5 -0.9 1.0 1.4

Korea 5.1 2.3 0.2 6.2 3.9 2.5 4.7 2.8 3.0 3.7

India* 9.2 6.5 7.7 8.8 8.5 4.7 8.4 3.6 8.0 5.6

* India data & forecasts refer to fiscal years beginning April; inflation is WPISource: CEIC and DBS Research

Policy interest rates, eop Exchange rates, eop

current 1Q11 2Q11 3Q11 4Q11 current 1Q11 2Q11 3Q11 4Q11

US 0.25 0.25 0.25 0.25 0.50

Japan 0.10 0.10 0.10 0.10 0.20 82.6 82 81 80 79

Eurozone 1.00 1.00 1.00 1.25 1.50 1.339 1.38 1.42 1.46 1.50

Indonesia 6.50 6.75 7.50 7.75 8.00 9,063 8,850 8,800 8,750 8,700

Malaysia 2.75 3.00 3.25 3.25 3.25 3.06 3.08 3.04 3.00 2.96

Philippines 4.00 4.25 4.50 4.75 5.00 44.5 43.0 42.0 41.0 40.0

Singapore n.a. n.a. n.a. n.a. n.a. 1.28 1.28 1.26 1.24 1.22Thailand 2.25 2.50 3.00 3.25 3.50 30.5 29.5 29.1 28.8 28.5

Vietnam^ 9.00 9.50 10.00 10.00 10.00 19,499 20,100 20,100 20,100 20,520

China* 5.81 6.06 6.31 6.56 6.81 6.58 6.56 6.50 6.44 6.37

Hong Kong n.a. n.a. n.a. n.a. n.a. 7.78 7.75 7.75 7.75 7.75

Taiwan 1.63 1.88 2.13 2.38 2.63 29.0 28.5 28.0 27.5 27.0

Korea 2.75 3.00 3.25 3.75 4.00 1114 1040 1020 1000 980

India 6.25 6.50 6.50 6.50 6.50 45.4 44.0 43.5 43.0 42.5

^ prime rate; * 1-yr lending rate

Policy rate 10Y bond yield FX EquitiesCurrent Current 1wk chg Current 1wk chg Index Current 1wk chg

(%) (%) (bps) (%) (%)

US 0.25 3.37 1 79.0 -1.3 S&P 500 1,295 2.0Japan 0.10 1.25 7 82.6 0.7 Topix 932 0.5Eurozone 1.00 3.11 19 1.339 2.4 Eurostoxx 2,711 2.5

Indonesia 6.50 8.52 5 9063 -0.2 JCI 3,549 2.7Malaysia 2.75 4.11 -4 3.06 0.2 KLCI 1,570 0.5Philippines 4.00 6.50 10 44.5 -1.0 PCI 4,073 1.0Singapore Ccy policy 2.62 -11 1.284 0.4 FSSTI 3,250 0.2Thailand 2.25 3.72 -2 30.5 -0.4 SET 1,025 1.1

China 5.81 6.58 0.3 S'hai Comp 2,709 -3.4Hong Kong Ccy policy 2.73 -4 7.78 0.0 HSI 24,154 1.7Taiwan 1.63 1.46 -3 29.0 -0.1 TWSE 8,988 0.6

Korea 2.75 4.67 -3 1113 -0.2 Kospi 2,096 0.4India 6.25 8.19 5 45.4 -0.8 Sensex 19,092 -0.5

Source: Bloomberg

8/7/2019 dbs2011jan19

6/7

6


Contributors:

EconomicsDavid Carbon Singapore (65) 6878 9548Ramya Singapore (65) 6878 5282

Ma Tieying Singapore (65) 6878 2408Irvin Seah Singapore (65) 6878 6727Chris Leung Hong Kong (852) 3668 5694

CurrenciesPhilip Wee Singapore (65) 6878 4033

Fixed income strategyJens Lauschke Singapore (65) 6224 2574

Administrative / technical supportViolet Lee Singapore (65) 6878 5281

Please direct distribution queries to Violet Lee on 65-6878-5281

Client Contacts

SingaporeDBS Bank (65) 6878 8888DBS Asset Management (65) 6878 7801DBS Vickers Securities (65) 6533 9688The Islamic Bank of Asia (65) 6878 5522

ChinaDBS Beijing (86 010) 5839 7527DBS Dongguan (86 769) 2211 7868DBS Fuzhou (86 591) 8754 4080DBS Guangzhou (86 20) 3884 8010DBS Hangzhou (86 571) 8788 1288DBS Shanghai (86 21) 3896 8888DBS Shenzhen (86 755) 8269 1043DBS Suzhou (86 512) 6288 8090DBS Tianjin (86 22) 2339 3073

Hong KongDBS Hong Kong (852) 3668 0808DBS Macau (853) 2832 9338DBS Asia Capital (852) 3668 1148DBS Asia Capital Shanghai (86-21) 6888 6820

IndiaDBS Delhi (91 11) 3041 8888DBS Mumbai (91 22) 6638 8888

IndonesiaDBS Jakarta (62 021) 390 3366DBS Medan (62 061) 3000 8999DBS Surabaya (62 021) 531 9661

JapanDBS Tokyo (81 3) 3213 4411

KoreaDBS Seoul (82 2) 339 2660

MalaysiaDBS Kuala Lumpur (6 03) 2148 8338DBS Labuan (6 08) 7595 500Hwang-DBS Penang (6 04) 263 6996

PhilippinesDBS Manila (63 2) 845 5112

TaiwanDBS Chungching (886 4) 2296 0088DBS Kaohsiung (886 7) 323 2362

DBS Taichung (886 4) 2230 9188DBS Tainan (886 6) 213 3939DBS Taipei (886 2) 8101 0598DBS Taoyuan (886 3) 339 6060

ThailandDBS Bangkok (66 2) 636 6364

United KingdomDBS London (44 20) 7489 6550

UAEDBS Dubai (97 1) 4364 1800

USA

DBS Los Angeles (1 213) 627 0222

8/7/2019 dbs2011jan19

7/7

7


Recent research

Licence No.: MICA (P) 083/11/2010

Disclaimer:

The information herein is published by DBS Bank Ltd (the Company). It is based on information obtained from sources believed to bereliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness orcorrectness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained hereindoes not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. Theinformation herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgementby addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individualsconnected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss ordamages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent orotherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. Theinformation herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or otherfinancial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/oremployees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or

seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is notintended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary tolaw or regulation.

China and US: Demand trumps supply 6 Aug 10

CN: Implications of rising wages 4 Aug 10(Part II)

ID: Upgrade expectations 29 Jul 10

Asia: Votes of confidence 9 Jul 10

FX: The ascension of the CNY 9 Jul 10

CN: Rising wage concern 7 Jul 10

SG: A year of two halves 30 Jun 10

Taiwan-China: A quick look at the ECFA 29 Jun 10

TW & KR: Rates up 28 Jun 10

IN: Interest Rate Outlook & Strategy 17 Jun 10

MY: Addressing the supply side challenges 17 Jun 10

TH: Upgraded, against all odds 25 May 10

Asia: Negara vanguarda 20 May 10

TH: Instability and growth 19 May 10

ID & KR: External positions 14 May 10

Asia: Whos vulnerable to EU trouble? 13 May 10

SG: Can Sing rates go to zero? 7 May 10

EZ: It was never meant to be easy 30 Apr 10

MY: Surprise awaits 30 Apr 10

IN policy: Inter-meeting hikes the new norm? 21 Apr 10

ID: Interest Rate Outlook & Strategy 20 Apr 10

IN: Risk of more / earlier hikes 19 Apr 10

KR: Interest Rate Outlook & Strategy 16 Apr 10

SG: More strength to SGD 15 Apr 10

SG: Budget to tackle the gap 17 Jan 11

SG: Singapore attempts the impossible 6 Dec 10

SG: 2011: Above expectations 29 Nov 10

KR: Interest Rate Outlook & Strategy 11 Nov 10

EUR: One for the bulls 11 Nov 10

KRW: Stronger than consensus 3 Nov 10

ID: 2011 budget preview 1 Nov 10

Asia: Interest Rate Outlook & Strategy 28 Oct 10

IN: Higher rates or higher inflation 26 Oct 10

Asia: The six ways to absorb capital inflow 26 Oct 10

MY: A step towards Vision 2020 18 Oct 10

IN: Rising growth potential 13 Oct 10

ID: Inflows & monetary policy 13 Oct 10

SG: Its payback time 11 Oct 10

ID: Inflows drown fundamentals 8 Oct 10

Asia: Another day, another $2bn of inflow 7 Oct 10

SGD: Higher with or without tightening 7 Oct 10

HKs inflection point as offshore CNY center 28 Sep 10

CN: Medium-term inflation outlook 27 Aug 10

IN: Interest Rate Outlook & Strategy 27 Aug 10

SG: GDP contribution of the IRs 26 Aug 10

FX: JPY intervention risk rising 18 Aug 10

HK: How far can HKgo as China's 10 Aug 10major Renminbi offshore center?

US Fed: Between a stock and bond place 10 Aug 10

dbs2011jan19

Documents

Transcript of dbs2011jan19