PP 7767/09/2010(025354)

Economic Highlights
Global
•
MARKET DATELINE

28 April 2010

1 Concerns Over A Sovereign Debt Contagion In Europe

Increased

2 US Consumer Confidence Improved In April And House

Prices In Major Cities Picked up Yoy In February

Tracking The World Economy...

Today’s Highlight

Concerns Over A Sovereign Debt Contagion In Europe Increased

As Greece waits for the European Union’s (EU) aid package to be approved, worries of a contagion in European
government bond markets swelled after Standard & Poor’s (S&P) downgraded debt rating of both Greece and Portugal.

Greece’s sovereign credit rating was cut by three notches to junk-bond status of BB+ on 27 April, from BBB+. The
downgrade, which puts Greece on par with Panama and Colombia, reflected Greece’s high level of budget deficit of 13.6%
of GDP in 2009 and the severe austerity measures that the country must adopt in the face of domestic opposition. S&P
also downgraded Portugal’s debt by two notches to A- from A+, as it expects Portugal’s government to struggle to stabilise
its relatively high debt ratio until 2013.

The downgrade pushed down the euro by 1.5% to US$1.3183 on 27 April, bringing its decline for the year to 8%. The
cost of insuring Portuguese and Greek debt against default also soared with Spain and Italy moving up as well. Similarly,
the spread on the debt of Italy, the Euroland’s third-largest economy, rose 30 basis points to 217 points, while the extra
yield that investors demand to hold Greek 10-year bonds over German bunds jumped 93 basis points to 652 basis points
yesterday. In the same vein, Portugal’s 10-year bond yield jumped 41 basis points to 5.724%.

German has yet to approve a €45bn (US$59bn) Greek rescue package and its Chancellor Angela Merkel is coming under
pressure from allied and opposition lawmakers to compel Greece’s lenders to help bail out the country as well. Growing
German calls for lenders to share in the rescue are undermining market confidence in German’s willingness to help fund
the bailout ahead of a state election on 9 May. Hence, while Greece has satisfied the European Commission that it has
sufficient measures in place to cut its budget deficit by around 4% of GDP in 2010, Germany wants more details on how
it will cut the deficit further in 2011 and 2012.

The US Economy

US Consumer Confidence Improved In April

◆ The Conference Board’s consumer confidence index rose to 57.9 in April, from 52.3 in March and a low
of 46.4 in February. This was the strongest reading since Lehman brothers Inc. collapsed in September 2008,
indicating that rising stock prices and an improvement in job market are giving households hope that the recovery
from the worst recession since the 1930s will be sustainable. As it stands, non-farm payrolls increased for the
third month in five months in March, suggesting that the job market is picking up. Over the next six months,
consumers expect business conditions and job market to improve, which will translate into higher income. As a

Peck Boon Soon

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 28 April 2010

result, consumers’ future expectation index rose to 77.6 in April, the highest level since October 2007 and
from 70.4 in March, suggesting that consumers are feeling more upbeat looking ahead. This is because consumers
expect business conditions and job market to improve. As a result, more consumers indicated that they plan to
buy automobiles and major appliances within the next six months. As a whole, the improvement in consumer
confidence suggests that consumer spending is likely to improve, albeit gradually.

House Prices In Major Cities Picked Up Yoy In February

◆ House prices in 20 US metropolitan areas rebounded to increase by 0.6% in February, compared with
-0.7% in January, according to S&P/Case-Shiller. This was the first increase in more than three years, signaling
that the housing market is recovering, albeit gradually. The improvement in house prices was aided by
the government tax credit for first-time home buyers, which has been extended to June after expiring in November
and broadened to include more affluent buyers. An improvement in job market also helped. Seasonally adjusted
house prices, however, fell by 0.1% mom in February, compared with +0.3% in January.

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