• US stocks rallied, with the Dow and S&P 500 gaining the most for 2012 (climbing 2.4% and 2.3% respectively), on speculation that the world’s central bankers will move to stimulate growth.
• Australia’s economy surged with a 4.3% growth for the year through March, its fastest expansion in over four years since the financial crisis. A key driver was engineering construction, mainly in mining, which saw a 19.7% jump.
• United Envirotech has won a RMB104m (S$21m) engineering procurement and construction project in Liaoning province, China. The contract, awarded by the municipal government, involves upgrading a municipal wastewater treatment plant.
• Sembcorp Industries has
signed a JV for an industrial wastewater treatment plant in China’s Jiangsu province. The project gives Sembcorp exclusivity as provider of industrial wastewater treatment within an industrial park.
Eurozone’s 1q12 GDP second estimate was unrevised at 0%q-q growth (-0.1%y-y), compared to a contraction of 0.3% in 4q11. Exports offset investment weakness to avoid a technical recession. By expenditure, household and government consumption both reported zero q-q growth, with corresponding y-y figures contracted by -0.3% and -0.1% respectively. GFCF contracted for a third straight quarter, -0.3%q-q (-0.4%y-y), following -0.1%q-q (+0.2%y-y) in 4q11. Export rose by 0.5% q-q, reversing the 0.3% q-q contraction in 4q11. Import contracted for a third time in the 1 year period, by 0.1% q-q, after a mild 0.7% q-q gain in 4q11. Germany reported a 0.5% q-q growth, reversing the 0.2% drop in 4q11, but the y-y growth has been slowing down all the way to 1.2%, comparing a 2.0% y-y gain in 4q11. Even though avoiding back to back sequential contractions, the Eurozone for all intents and purposes seems to us to be in recession.
A separate report for Germany shows the nation’s April industrial output fell by 0.7% y-y, marking the second drop in 3 months, compared to the 1.4% y-y gain in March, and the manufacturing and mining sector, for the first time, experienced a y-y decline of 1.1% y-y, compared to the 1.8% y-y growth in March. Spain’s April industrial output contraction unexpectedly accelerated, by 8.3% y-y, compared to the 7.5% y-y contraction in March, marking the biggest drop in over 2 years.
Though the pressure for further loosening is increasing and the easing inflation pressure has granted some scope, ECB has decided to keep the benchmark rates on hold at the current record low 1%, saving the last precious ammunition of 1% for future. We expect the overhanging crisis in Eurozone would continue subjecting the whole global economy to downside risk.
Australia’s 1q12 GDP advanced 1.3% y-y, twice the pace estimated by market prediction, compared to a 0.6% growth in 4q11. By expenditures, consumption rose by 2.9% from a year ago, reversing the 0.7% drop in 4q11. Investment rose by 5.3% y-y, compared to the 0.7% drop in 4q11. Import growth stayed unchanged from 4q11, at 1.2% y-y, while export dropped by 1.3% y-y, compared to the 2.7% y-y growth in 4q11, due to the stronger currency, moderating China growth, and worsening Eurozone crisis. As reported earlier, against the global uncertainty, RBA has cut its current 2 year low benchmark interest of 3.75% by another 25 bps to 3.5%. With this recent cut and higher than expected performance, we expect the government would likely stay put for the near term.
Malaysia’s export unexpectedly fell for a second straight month in April, by 0.1% y-y, the same as the decline in March. By trading partners on m-m basis, the growth of export to Singapore slowed down to 1.1%, compared to the 3.7% m-m gain in March. Shipment to US dropped 7.7% m-m, reversing the 11.4% m-m gain in March. Growth of export to China slowed down to 5.6% m-m, compared to 8.6% m-m gain in March. With the increasing global uncertainty, the on-going declining trade balance would likely drag down the nation’s whole year GDP growth to between 5% and 6%.
EQUITY MARKETS:
Global equity's rebound looks strong (even the STI closed the gap and then some), but we believe is still technical in nature. For the rebound to transform from a technical one into something more, much more needs to happen on the fundamentals front. The ECB's rate cut did not materialize, except to say that Draghi reassured markets that the ECB "stands ready to act" as the economy "faces increased downside risks". While current LTRO will be extended till Jan 2013, there was no new offering as it he didn't think "it would be right for the ECB to fill other institutions' lack of action. Between a slowing global economy and macro risk from a Euro breakup weighing on the larger trend for stocks, we are looking for a wave of policy action for a sustained short-term rebound (see general guidance below). Some short term market positives already lurk in the background:
(1) risk of a Greek exit may have receded as New Democracy leads Syriza in 7 opinion polls
(2) China has been posturing heavily for a stimulus program
(3) a slowing US economy is raising the odds for QE3/twist2.
(Our general guidance in our morning notes and formal reports has been, as we weren't confident that econ/earnings data could outperform to drive markets, some combination of policy safety nets needs to occur in order to reverse consolidation/correction - QE3/Twist2, ECB intervention, further loosening by central banks to err on the side of growth as inflation recedes, a major China fiscal policy announcement. Longer term, we are still giving the heads up that post 6th November 12 USA presidential elections, markets could again be challenging going into 2013 - the US and EZ are under current law obliged to undertake tremendous fiscal tightening).
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