Macro Data - China

China 
Inflation in China eased to a near five-year low in September, adding to further evidence of a slowdown in the world's second largest economy.

The consumer price index (CPI) rose 1.6% on-year in September - the lowest since January 2010, and was down from August’s 2%, according to the National Bureau of Statistics (NBS). The CPI rose by a marginal 0.5% in September from the previous month, suggesting rising risks of deflation in China due to weak domestic demand.

On the other hand, China's producer price index (PPI), which measures inflation at wholesale level, dropped 1.8% on-year, following a 1.2% decline in August. The reading was the 31st consecutive year-on-year monthly decline logged and at a faster pace than the previous month, indicating shrinking demand and rising production overcapacity amid slowing economic growth. Yu Qiumei, senior statistician of the NBS, attributed the decline in September to price dives in crude oil, refined oil and steel.

Factory prices of production materials fell 2.4% in September, while factory prices for consumer goods gained 0.1%. In the first nine months, the country's PPI dropped 1.6% on-year. While much of the decline was due to falling prices for food, fuel and other commodities, the readings also pointed to broad weakness in the world’s second-largest economy as global disinflationary pressures are spreading to China.

In view of the mounting risks to growth and rising risks of deflation, while inflation remained well below the official annual target of 3.5%, Beijing is widely expected to continue rolling out a stream of stimulus measures in coming months to shore up the economy, although officials has been refrained from taking more aggressive action such an interest rate cut.

Macro economic

U.S.A 
The September minutes of the Federal Reserve's powerful Open Market Committee showed little change from its previous statements — which made bulls on Wall Street extremely happy. As expected, the Fed said that it planned to end its market-friendly bond-buying program, called quantitative easing, after this month. The Fed has been purchasing Treasury and mortgage-backed securities to keep long-term interest rates low. And the Fed showed no inclination to increase the key federal funds rate, currently near zero. In its statement, the Fed said that it plans to keep the fed funds rate at its current level for a "considerable time" after its bond-buying program ends. Many officials have been expecting the first rate increase by mid-2015. An improving U.S. job market led some officials to press for earlier increases. Weighing against that, the minutes showed that concerns about global growth and the disinflationary impact of a strong currency are giving officials pause about moving too quickly.

Eurozone 
Economic growth is set to slow in the eurozone, while remaining at current modest rates in most of the world's other large economies over the coming months, according to leading indicators released Wednesday by the Organization for Economic Cooperation and Development. The leading indicators are the latest blow to hopes that the 18 nations that use the euro would embark on a sustained recovery this year, having put the worst of their fiscal and banking crises behind them. Instead of picking up, economic growth slowed in the first quarter, while it came to a halt in the second. The Paris-based research body's gauge of future economic growth indicates the remainder of 2014 won't be much better, and could even mark a return to contraction. They also suggest that the currency area will remain the global economy's weak spot. The eurozone's leading indicator began to rise in late 2012, foreshadowing the currency area's return to growth in the second quarter of 2013. It plateaued in the early part of this year, and has now fallen for three straight months, a development the OECD said points to "growth losing momentum." The leading indicators also pointed to weaker growth in Germany and Italy. They follow a series of data releases that have intensified concern that the eurozone's biggest economy may struggle to grow at all in the third quarter. Figures released Tuesday showed industrial output in Germany fell 4.0% in August. The figures came a day after a surprise decline of 5.7% in manufacturing orders for August, also the sharpest since January 2009, when the world was mired in financial crisis.

China 
Growth in China's services sector weakened slightly in

Macro Data by PhillipCapital

In US, consumer spending rose by 0.2% m-m in Dec as incomes surged by the most in 8 years, after the 0.4% m-m gain in Nov. The saving rate increased to 6.5%, the highest since May 2009, from 4.1%. Wages and salaries increased 0.6 % m-m. Disposable income, or the money left over after taxes, climbed 2.8% m-m after adjusting for inflation, the biggest gains since May 2008. Consumer comfort declined for a 4th straight week, a sign the payroll tax increase that kicked in at the start of the year is starting to ripple through the economy. Initial jobless claims rose 38,000 to 368,000 in the week ended Jan. 26, partially erasing a slide in the prior two weeks and reflecting the difficulty of adjusting the figures for swings at the start of a year. “With appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline,” the central bank said in a statement. Household spending “advanced,” though “the unemployment rate remains elevated.” With that being said, the open ended QE has not yet draw to a close.

In Euro zone, Germany’s retail sales fell by 1.7% m-m in Dec, compared to a 1.2% m-m gain in Nov and market expected 0.1% m-m drop. Over the year, retail sales fell by 4.7%, compared to a 0.9% y-y fall in Nov. Unemployment rate unexpectedly fell to 6.8% from 6.9, with the number of unemployed workers falling by 16K, while the market was forecasting 8K rise. In France, producer price fell by 0.3% m-m in Dec, exceeding the market expected 0.1% m-m drop indicating a weak production activity. Consumer spending stagnated from Nov, while the market was predicting a 0.2% m-m gain, after the 0.2% m-m gain achieved in Nov. As reported earlier, confidence indicator showed an improving sentiment; however, the confidence has not translated to real economy.

In Japan, industrial production rose by 2.5% m-m in Dec, trailing the market expected 4.1% m-m gain, after a 1.4% m-m drop in Nov. Labor cash earning fell by

US News Headlines

Major U.S. stock averages rallied Thursday, as better-than-expected economic reports outweighed disappointing quarterly results from Bank of America and Citigroup.

The Dow Jones Industrial Average soared 85 points, or 0.63%, to 13,596. The blue-chip index has been up for five days out of six.

The S&P 500 advanced 8 points, or 0.56%, to 1,481. The benchmark index traded at a five-year high at its intraday high of 1485.16.

The Nasdaq tacked on 18 points, or 0.59%, to 3,136.

In economic news, the Labor Department reported Thursday that initial jobless claims for the week ended Jan. 12 were 335,000, a decrease of 37,000 from the previous week's upwardly revised figure of 372,000 and the lowest since Jan. 19, 2008. The four-week moving average was 359,250, a decrease of 6,750 from the previous week's average of 366,000.

On average, economists were expecting initial jobless claims to slide to

News Headlines

US Wrap: Major U.S. stock averages climbed Thursday on optimism over an upbeat set of China trade numbers and hopeful comments on the eurozone economy. Support also came from comments by St. Louis Federal Reserve Bank President James Bullard that the U.S. economy may experience strong growth this year and the next, partly thanks to the central bank's policy easing.

The Dow Jones Industrial Average closed up 81 points, or 0.6%, to 13,471. The S&P 500 added 11 points, or 0.8%, to 1,472. The Nasdaq increased 16 points, or 0.5%, to 3,122. After the ECB meeting, the central bank's president Mario Draghi said he was expecting a gradual recovery in eurozone economic activity later this year as bond markets stabilize. "In particular, our accommodative monetary policy stance, together with significantly improved financial market confidence and reduced fragmentation, should work its way through to the economy, and global demand should strengthen," Draghi said. China, the world's second-largest economy, reported a strong rebound in exports in December, which reached a seven-month high.

Imports in the period rose

News Headlines

US Wrap:
The major U.S. indices surged late Monday after President Barack Obama emerged to say that a deal to avoid the so-called fiscal cliff was close to fruition but not yet finalised. The Dow Jones Industrial Average added 1.28%, or 166 points, to 13,104. The blue-chip index gained 7.26% in 2012. The S&P 500 surged 1.69%, or 24 points, to 1426. The S&P gained 13.41% in 2012. The Nasdaq spiked 2%, or 59 points, to close the year above 3,000 points at 3019. The tech-heavy index gained 15.91% in 2012 to post the largest increase among the major U.S. equity indices.

President Barack Obama emerged after the closing bell on Friday to say that he had engaged in a "constructive discussion" with House and Senate leadership about preventing tax hikes on the middle class. "But if an agreement isn't reached in time between Sen. Reid and Sen. [Mitch] McConnell, then I will urge Sen. Reid to bring to the floor a basic package for an up-or-down vote," Obama said on Friday. The president said the basic package would include a plan to protect middle-class tax cuts, extend unemployment insurance and groundwork for deficit reduction.

The Dallas Federal Reserve manufacturing survey showed that Texas factory activity edged up in December to 2.7 from last month's 1.7, according to the Texas Manufacturing Outlook Survey. Gold for February delivery spiked

Global Economic

The upswing in global equity markets that started in July is now running out of steam, which comes as no surprise: With no significant improvement in growth prospects in either the advanced or major emerging economies, the rally always seemed to lack legs. If anything, the correction might have come sooner, given disappointing macroeconomic data in recent months.
Starting with the advanced countries, the euro zone recession has spread from the periphery to the core, with France entering recession and Germany facing a double whammy of slowing growth in one major export market (China/Asia) and outright contraction in others (southern Europe).


Economic growth in the United States has remained anaemic, at 1.5-2 per cent for most of the year, and Japan is lapsing into a new recession. The United Kingdom, like the euro zone, has already endured a double-dip recession and now, even strong commodity exporters - Canada, the Nordic countries, and Australia - are slowing in the face of headwinds from the US, Europe, and China.
Meanwhile, emerging-market economies - including all of the BRICs (Brazil, Russia, India and China) and other major players like Argentina, Turkey and South Africa - also slowed this year. China's slowdown may be stabilised for a few quarters, given the government's latest fiscal, monetary and credit injection; but this stimulus will only perpetuate the country's unsustainable growth model, one based on too much fixed investment and savings and too little private consumption.

LIQUIDITY HOSES TURNED ON
Next year, downside risks to global growth will be

Macro Data

In US, non-manufacturing PMI fell to 54.2 in Oct from the 55.1 reading in Sep, indicating a slightly slower expansion. As reported earlier on 1 Nov, US manufacturing PMI rose to 51.7 from September 51.5, indicating a slightly faster expansion.

In China, HSBC service PMI reported a drop to 53.5 in Oct, from the 54.3 reading in Sep, indicating a slowing expansion in service sector. This contrasts to the earlier announced government non-manufacturing PMI, which reported an improvement to 55.5, rebounding from the earlier 53.7. As announced earlier, both HSBC manufacturing PMI and government official manufacturing PMI registered an improvement in Oct, adding to our conclusion that China is bottoming out, though likely in a slow pace.

In Hong Kong, HSBC PMI rose to

Macro Data

In the US, the flash Oct Markit PMI reading edged up 0.2ppt m-m to 51.3. While manufacturing activity continues to expand, the mild pace of expansion reflects the sluggishness in the economy. On the housing front, new single-family home sales rose 5.7% m-m to seas adj ann rate of 389,000 in Sept. Median prices also rose 11.7% y-y in Sept, signalling an improving housing market. In the EZ, economic activity remained continued to contract.

The EZ composite PMI declined from 46.1 in Sept to 45.8 in Oct - the lowest level in more than 3 years. The German Ifo business confidence index also fell to 100.0, from 101.4 in the preceding month. This suggests that notwithstanding the ECB’s recent commitment to OMT, the underlying fundamental macro headwinds confronting the bloc still persist.

In Thailand, exports unexpectedly rose 0.2% y-y in Sept, reversing from a contraction of 6.95% in the preceding month. Still, the broader export trend is still down amid sluggish external demand. Recall the Bank of Thailand (BoT) eased in October, cutting the benchmark one-day bond repurchase rate by 25 bps to 2.75% after standing pat for the five consecutive meetings. BoT explained that the motive for easing then was largely to boost domestic demand as growth is likely to come in

Macro News Headlines

In China, HSBC services PMI rose to 54.3 in September, compared to the 52.0 reading in August, indicating a faster expansion. The gain contradicts the earlier reported loss in the government backed non-manufacturing PMI from 56.3 to 53.7. HSBC services PMI has a main focus on small and medium enterprises, indicating that the government support in small and medium business is taking effect.

In Hong Kong, HSBC PMI fell to 49.6, the first reading below the expansion/contraction dividing line of 50 since July, indicating a contraction in business activities. Hong Kong’s economy is undermined by China’s non-bottom-out and the sluggish global demand. We are forecast a 1-2% GDP Growth for 2012.

In Taiwan, export rose by 10.4% y-y on electronic goods shipment, marking the first y-y gain in September since March,, compared to a 4.2% yy drop in August. Import also rose by 1.3% y-y, after the 7.6% y-y contraction in August. On m-m basis, export rose by a significant 10.0%, after falling by 0.8% in August. Import rose by 8.0% m-m, after a 10.7% m-m drop in August.

In Germany, the economy is displaying signs of resilience amid an ongoing EZ sovereign debt crisis. Exports picked up -unexpectedly- by 2.4% m-m sa in August, following a 0.4% gain in the preceding month. Notably, shipments to Asia and other markets outside of the EZ mitigated sluggish demand within the bloc. By contrast, industrial production slipped 0.5% m-m sa in August, on account of lackluster activity in the construction sector.

Macro News Headlines

In the US, Services PMI rose from 53.7 to 55.1, beating estimates. ADP data indicated that private sector employment rose 162,000 in Sept, down from the 189,000 gain in the preceding month. The ADP average miss of the official Non-farm payrolls is 66,000. Mortgage applications rose 16.6% last week, with refinancings surging 19.6% (to the highest level since Apr 2009) owing to a decline in mortgage rates in the wake of the Fed's pledge to purchase agency MBS to the tune of US$40bn/mth till the economy (particularly the labour market) improves.

In Euro zone, retail sales unexpectedly rose by 0.1% m-m in August, the same pace as it was in July, while the market was predicting a 0.1% m-m drop. In Germany, retail sales rose by 0.3% m-m, after the 1.0% m-m drop in July. A separate report shows that final reading for September service PMI reported 46.1, indicating a contracting service sector, compared to the flash reading of 46.0 and 47.2 in August. The composite reported 46.1 in September, compared to the preliminary reading of 45.9 and 46.3 in August.

In China, non-manufacturing PMI fell to

News Headlines - China 2012 growth target

China is on course to meet its 2012 growth target despite recently slowing, Premier Wen Jiabao said Tuesday, as he defended his 10 years at the helm of the world's second economy. China's economy "was showing signs of stabilising" and would likely meet the 7.5 percent growth target the government set for the year, Wen said in a speech to the World Economic Forum in the eastern city of Tianjin.

"We are fully confident that we have the conditions and capability to overcome difficulties on the way ahead, maintain fast and stable economic growth and realise development at a higher level and with better quality," he said. "The economic growth is still within the target range set at the beginning of the year and is showing stabilising signs despite the slowdown."

China has already cut interest rates twice this year to boost flagging growth and trimmed the amount of funds banks must place in reserve three times since last December, but Wen said there was room for more cuts.

"We will, according to economic trends, make full use of

News Headlines - US and China

• Despite the lower than expected job creation in the US for the month of Aug’12 at 96,000 (versus expectations of over 100,000) and 41,000 downward revisions for June and July data, US stocks were marginally higher last Friday (Dow Jones up 0.11%, S&P 500 up 0.4% and Nasdaq 0.02%). This is likely due to anticipation of QE3 from Fed Chairman Ben Bernanke later this week after a similar version was launched by Mario Draghi last week in Europe.

• Nasdaq’s weak performance was dragged down by Intel which fell 3.6% after the world’s largest chip producer reduced its 3Q to Sept’12 sales forecast from US$13.8bln-14.8bln to only US$12.9bln-13.5bln (representing a 7.7% reduction) reflecting weaker than expected demand in the PC market from corporates and emerging markets. PC related stocks were whacked together with Intel.

• China’s industrial output for Aug’12 rose 8.9%, in line with expectations and showing a continued moderation from the July’s 9.2% and June’s 9.5% while inflation accelerated to 2% from July’s 1.8%. This should come as no surprise as the government has said that they are re-focusing their efforts to boost growth as they cut interest rates twice in June-July’12, reduced bank reserve requirements 3x since Nov’11 and last week launched a Rmb1 trillion stimulus plan to boost infrastructure spending.

Analyst Highlight

MARKET OUTLOOK:

Sellers dominated the US trading session (as indicated by the long lower shadows and short upper shadow) amid disappointing econ data over the long weekend as well as yesterday, driving the S&P 500 and DJIA lower. On the US macro front, manufacturing activity continued to contract for the third consecutive month (owing to a decline in new orders) and construction spending fell (suggesting still sluggish housing market activity) (See Macro Data below). Chartwise, technical indicators (on various time frames) for the Dow are pointing to a correction to the downside. We caution that positive stimulus -if any- from central banks are likely to only result in tactical rallies for equities that cannot be sustained against this subdued macro backdrop as well as massive fiscal uncertainties on the G2 front.

The upcoming major risk event will be the ECB policy meeting tomorrow (i.e. Thursday). The recent intensification of Spain's banking problems is leading to an escalation of liquidity issues in the banking system, which puts pressure on ECB to act this week. While Spainish 10yr yields have retreated to around 6.5% (on the back of hopes of positive ECB intervention on Thurs), yields are still hovering precariously close to 7% (which translates to unsustainable borrowing costs). We expect consistent with hints dropped by ECB’s president Mario Draghi- that the ECB is likely to purchase short-term bonds (maturity of 2 to 3 years) to alleviate the elevated borrowing costs as well as risk premia of at-risk economies in the EZ (Spain and Italy), without contravening EU treaties. Nonetheless, we remind our readers that any form of ECB intervention will come with strings attached (i.e. conditionality) -a key ECB/German requirement. We look to the ECB’s policy meeting tomorrow for details of such a plan if it is finalised by then.

For the Fed,

Bernanke’s speech at the Fed Jackson Hole

Bernanke’s speech at the Fed Jackson Hole symposium poses a critical event risk.

The recent summer rally was largely buoyed by hopes for synchronised policy stimulus from major central banks. However, we caution that market might not be able to sustain its momentum against a still fragile macroeconomic backdrop. In fact, markets should be positioning for some disappointments and could sell off over the next few weeks, pending

(i) Bernanke’s clarification on the Fed’s stance at the Jackson Hole symposium this Friday and

(ii) ECB’s ability to deliver.

As to whether there will be QE3 in Sept, it is going to be a close call. We are of the view that while the US economy is still sluggish (no strong economic rebound), it is not sufficiently weak enough to warrant further QE in September (but inevitably by the end of this year).

We opine that this “additional monetary accommodation” (alluded in the Aug FOMC minutes) might also that the form of an extension of the current late-2014 rate guidance.

Macro Data news

MACRO DATA:
US existing home sales dropped unexpectedly, -5.4%m-m. Housing is in a recovery very a very low base, but we maintain that the current rate of growth in starts is not able to offset other headwinds from incomes and capex slowdown. The Conference Board's Leading Economic Index suggested weakness in 2H12 as it declined 0.3%m-m, according to the managers of the indicator it suggests no strengthening of the US economy over the next few months.

In UK, retail sales dropped 0.5% m-m in June, compared to the 1.0% m-m gain in May 2012. Retail sales excluding auto fuel fell by 0.1%, compared to the 0.9% m-m gain. On y-y basis, retail sales including and excluding auto fuel rose by 1.9% and 2.9% respectively. The Bank of England said this week that economic growth this year will be “roughly flat.” It also said it’s “less likely” inflation expec tations will become ingrained in the economy. The nation’s inflation has stepped down to 2.4% in June from May’s 2.8%, moving towards the government target inflation of 2.0%.

Japan’s all industry index declined by

News Headlines + Commodities and Currencies

MACRO DATA:
China’s GDP growth slows down to 7.6% y-y in 2q12, compared to the 8.1% y-y gain in 1q11. Though the y-y reading is slower, on a q-q basis, the nation’s GDP advanced by 1.8% q-q, compared to the 1.6% q-q pace in 1q12, which somehow relieves our concern that the economy would get worse. The government has conduct two benchmark rate cuts in June and July, by 25 bp and 31 bp respectively, and going forward we would expect more actions by government to bolster the economy, especially in such a sensitive period of government power transition.

In Singapore, economic growth contracted 1.1% q-q saar (adv est) in 2Q12, reversing from the 9.4% expansion in the preceding quarter. The negative growth momentum was largely due to weaker performance by the manufacturing sector (on a sequential basis) -owing to a decline in biomedical manufacturing output. Amid a global slowdown -particularly in US, EU and China, we do not rule out the possibility of a technical recession for Singapore (an externally-oriented economy) in 3Q12. Should growth come in weaker-than-expected in the months ahead, MAS might

News Headlines

US Wrap:

US stocks ended mixed on Thursday as China’s surprising interest rate cut was offset by Federal Reserve’s Chairman Ben Bernanke’s testimony on Thursday which dimmed investors’ hopes for more immediate US stimulus. China’s central bank had cut its benchmark interest rate by 25 basis points which helped lifted the stocks of US companies linked to China’s commodityhungry industrial complex. Bernanke said the Fed was ready to take action but gave no hint of imminent steps hence his remarks were seen as offsetting more supportive comments from other Fed members in the last 24 hours, but still leaves the door open for more action at the Fed’s next meeting on June 19-20. While Europe still remains in the limelight, stocks showed little reaction to a downgrade by Fitch in Spain’s credit rating to “BBB” with a negative outlook, just two notches away from junk status. The Dow rose 46pts (+0.4%), the S&P500 lost 0.1pts (-0.0%) while the Nasdaq declined 14pts (-0.5%).

Scoop of the Day:

News Headlines

News Headlines
• 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

News Headlines

• US stocks climbed higher on rising optimism that Greece will stay in the euro-zone, which outweighed a disappointing reading on US consumer confidence. The S&P 500 Index and the DJIA climbed 1.1% and 1.0% respectively.

• China has ruled out stimulus measures of the scale deployed during the global financial crisis. Premier Wen Jiabao had called for a greater focus on growth last week.

• Metro Holdings posted FY12 PATMI of S$91.9m, up 12%, as revenue grew 7% to S$187m.

• Tung Lok Restaurants reported a FY12 net loss of S$1.8m, versus a net profit of S$4.1m the year before. Revenue declined 8% to S$86.6m.

• Fischer Tech registered a