18 august – the bernanke put_18_08_11_23_38
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l Global Research l
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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0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
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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
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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
Pressure likely to remain on
European banks, with the funding
channel the primary global risk
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Key events/data in the week ahead
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
-6%
-4%
-2%
0%
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4%
6%
8%
10%
12%
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]
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Key events/data in the week ahead
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
Economy Key data and event Period GMT Forecast Previous
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
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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 %
Sources: CEIC, Standard Chartered Research
Headline
Core(excl fresh food)
Core (excl fresh foodand energy)
-2.0
-1.5
-1.0
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1.0
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11
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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
Sources: CEIC, Standard Chartered Research
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)
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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, %
Sources: CEIC, Standard Chartered Research
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
% y/y
Sources: Bloomberg, Standard Chartered Research
IP
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Edward Lee, +65 6596 8252
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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
Sources: Bloomberg, Standard Chartered Research
Consumer confidence index
Retail sales, % y/y(RHS)
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Tony Phoo, +886 2 6603 2640
Vincent Tsui, +852 3983 8563
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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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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%.
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Key events/data in the week ahead
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
Economy Key data and event Period GMT Forecast Previous
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
Thomas Costerg, +44 20 7885 8615
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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)
Source: Standard Chartered Research
-6
-5
-4
-3
-2
-1
0
1
2
3
2008 2009 2010 2011F 2012F 2013F
UK
Euro area
Switzerland
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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
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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
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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
Economy Key data and event Period GMT Forecast Previous
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
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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
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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.
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Key events/data in the week ahead
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
Economy Key data and event Period GMT Forecast Previous
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
David Mann, +1 646 845 1279
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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
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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
https://research.standardchartered.com/ResearchDocuments/Pages/ResearchArticle.aspx?R=78779
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
https://research.standardchartered.com/ResearchDocuments/Pages/ResearchArticle.aspx?R=78728
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
https://research.standardchartered.com/ResearchDocuments/Pages/ResearchArticle.aspx?R=78725
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
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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
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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
Source: Standard Chartered Research
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Macro forecasts
Forecasts in BLUE (RED) indicate upward (downward) revision
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
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Commodities forecasts
Forecasts in BLUE (RED) indicate upward (downward) revision
*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.
Sources: Bloomberg, Standard Chartered Research
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
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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
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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
Source: Standard Chartered Research
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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
Source: Standard Chartered Research
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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.
Source: Standard Chartered Research
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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
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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.
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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
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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
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