Daily Breakfast Spread, 19 Jan 2011

Daily Breakfast Spread

DBS Group Research 19 Jan 2011

Economics
Southeast Asia, India
• MY: CPI inflation for Dec10 is on tap today and the headline price barometer is
expected to read 2.1% YoY, just a tad higher than the previous month (2.0%).
Indeed, inflation has been more subdued in Malaysia than in many regional
countries. Though Malaysia's domestic price stability program may play a part, much
credit should be given to Bank Negara for taking decisive and pre-emptive action to
US Fed expectations hike the policy rate last year in order to curb inflation and prevent financial
Implied fed funds rate imbalances. The Overnight Policy Rate was lifted by 75bps last year and we continue
to expect another 50bps for this year to balance between the risks on growth and
Dec-10 Mar-11 Jun-11 inflation. That said, the appreciation in Ringgit has also part an important role in
Market keeping imported inflation at bay. The local currency was one of the best
Current 0.18 0.17 0.17 performing emerging Asia currencies last year. It appreciated by about 10.6%
1wk ago 0.18 0.17 0.18
DBS 0.25 0.25 0.25 against the greenback in 2010.
• TH: The sharp rise in exports in December should assuage concerns about the soft
Source: Bloomberg fed fund patch that Thailand entered last year that saw third quarter GDP growth come in all
futures
but flat. Customs trade data out yesterday showed Thai exports grew by 6% (MoM,
Notes: Given a FF target rate of sa) in December. This brings the rise in exports in 4Q10 to 10% (QoQ, sa), more than
0.25%, an implied FF rate of reversing the 4% decline in the previous quarter (Chart). The key driver in terms of
0.30 is interpreted roughly as exports destination was exports to China and HK which grew by 9.5% (MoM, sa) in
the market pricing in a 20%
chance of a Fed hike to 0.50% December and 16% (QoQ, sa) in 4Q10. Chinese trade data also show that China’s
from 0.25% (30 is 1/5th of the imports rose much more than exports in 4Q10 suggesting that final demand in
distance to 50 from 25). DBS China is behind the rise in Thai exports to China (Chart). As such, while the soft-
expectations are presented in patch mid last year in Thailand can be traced back both to double-dip worries in the
discrete blocks of 25bps, i.e., the
US and slowdown worries in China, the recovery in exports so far appears to have
Fed moves or it does not. See
also “Policy rate forecasts” largely come from China. One implication is that strong US demand will offer an
below. additional support to export growth ahead (we estimate that US consumption grew
by 4% (QoQ, saar) in 4Q and forecast growth of 2.8% in 2011). In terms of export
volumes, December data is not out until end-month and data for November
showed an encouraging 6% (MoM, sa) rise in export volumes. At the least, the rise
in nominal exports in December suggests the earlier improvement in export
volumes should have been preserved in December. All this augurs well for

TH: Exports by destination CN: exports to US and total exports

Re-indexed Jul08=100, USD, sa USD, Index: 2007=100, SA

140 190
CN: exports to US
130 Exports to China & HK CN: total exports
Exports ex- CN, HK 170
120 CN: total imports
110 150
100
130
90
80 110
70
Latest: 90
60
Dec10 Latest:
50 70
Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

1
Daily Breakfast Spread, 19 Jan 2011

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

G3
• US: The NAHB builders’ sentiment index failed to rise by even the 1 meager point
consensus had expected for December. That means the small drop in housing starts
expected by consensus (Dec, today) won’t be far off the mark. Such is the state of
housing where sideways movement has prevailed for the past 9-12 months and is
expected to continue for most of 2011. Inventories remain at 8.2 months’ worth of
current sales (290k, saar, in Nov10) and 10Y bond yields are up by 100bps from
Oct10 levels, both suggesting that new home construction is unlikely to accelerate
in the near-term.

US – housing starts
x1000/mth, saar NAHB index
45
1000 no growth
40
in either
housing starts series 35
800
(LHS) 30

600 25
20
400
15
10
200 NAHB (RHS)
5
0 0
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11

The good news, in some sense, is that housing construction now accounts for only
2.2% of GDP (it accounted for more than 6% of GDP back in 2005) and so
acceleration or deceleration doesn’t make much of a difference to the overall GDP
arithmetic. In the event, broader economic recovery continues. Real consumption is
now growing at over 4% (QoQ, saar) and (real and nominal) retail sales growth is
at a ten-year high. Domestic demand generally is growing at over 4% and, with the
volatility in the trade accounts subsiding, GDP growth overall should run at close to
3% through the quarters of 2011. Little wonder equity markets have trended north
in near straight line fashion since Aug10. At 1295, the SPX is now well and truly
back above pre-Lehman levels of Sep08 and seems interested only in continuing
the march.

Currencies
• FX: EUR/USD has been trapped mostly between 1.3250 and 1.3450 since January 14.
The currency pair remains a volatile currency. Monday’s sell-off was more than
offset by yesterday’s buy back, similar to trading in the first two weeks of January.
This reflects the struggle that euro bears face to hold on net short euro positions in
hope of more deterioration in the Eurozone sovereign debt crisis.
Like in June 2010, after the Greek debt crisis found closure, these positions are
threatened on two fronts. First, Euribor has stopped sliding and is starting to rise
again. The euro’s slide since last November was not only attributed to improving US
data renewing US rate hike expectations, but also to falling Euribor. Unfortunately,
US jobs data did not support the case to start aggressively discounting US rate
hikes. Worse, inflation in Eurozone pushed above the ECB’s target. Second, China
and Japan have stepped forward to support Eurozone bonds. China has been more
vocal of late about needing to diversify its foreign reserves away from the dollar

2
Daily Breakfast Spread, 19 Jan 2011

into euro, yen and selected emerging market currencies. This need has become
more urgent because of the need to allow yuan appreciation amidst rising
inflation.
Apart from these two factors, we also noted that the US dollar’s reserve status came
into question after the US started the first round of quantitative easing in March
2009. Although QE2 started in November 2010, the same issue has surfaced recently
amidst political headwinds over the large US fiscal deficits and federal debt. Back
then, the US Secretary of State Hillary Clinton broke tradition and visited Asia first
instead of Europe. Today, US President Obama is throwing a state dinner for China
President Hu Jintao. The need to maintain foreign support for US debt triggered
the dollar sell-off from March into November 2009. In this regard, euro bears may
once again find themselves caught wrong-footed, with euro rising on speculators
cutting their net short positions, like in June-August 2010.

Looking Back
• US mkts: US stocks rose overnight on optimism in the manufacturing sector. The
Dow Jones Industrial Average rose 0.43% to 11837.93 and the Nasdaq closed 0.38%
higher at 2765.85. Treasury yields were flat at 0.59% in the 2Y sector and rose 3bps
to 3.36% in the 10Y sector.

3
Daily Breakfast Spread, 19 Jan 2011

Economic calendar

Event Consensus Actual Previous

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

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

Jan 19 (Wed)
US: housing starts (Dec) 550k saar 555k saar
US: bldg permits (Dec) 554k saar 544k saar
MY: CPI (Dec) 2.2% y/y 2.0% y/y

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

Jan 21 (Fri)
no key data

Central bank policy calendar

Policy
Date Country Rate Current Consensus DBS Actual
This week
No policy meeting this week

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

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

4
 Daily Breakfast Spread, 19 Jan 2011

GDP & inflation forecasts

GDP growth, % YoY CPI inflation, % YoY
2007 2008 2009 2010f 2011f 2007 2008 2009 2010f 2011f
US 1.9 0.0 -2.6 2.8 2.8 2.9 3.8 -0.3 1.6 1.8
Japan 2.4 -1.2 -5.1 2.7 1.6 0.1 1.4 -1.4 -0.4 0.5
Eurozone 2.9 0.3 -4.0 1.7 1.5 2.1 3.3 0.3 1.6 1.5
Indonesia 6.3 6.0 4.5 6.0 6.0 6.4 9.8 4.8 5.1 7.0
Malaysia 6.2 4.6 -1.7 7.2 5.5 2.0 5.4 0.6 1.8 2.4
Philippines 7.1 3.8 0.9 6.2 5.0 2.8 9.3 3.3 4.0 4.4
Singapore 8.2 1.4 -1.3 15.0 7.0 2.1 6.5 0.6 2.8 3.2
Thailand 4.9 2.5 -2.2 8.2 4.5 2.2 5.5 -0.8 3.3 4.0
Vietnam 8.4 6.2 5.3 6.7 6.9 8.3 23.1 7.0 9.0 10.0
China 13.0 9.6 9.1 10.0 9.5 4.8 5.9 -0.7 3.3 4.0
Hong Kong 6.4 2.1 -2.7 6.6 5.0 2.0 4.3 0.5 2.5 4.0
Taiwan 6.0 0.7 -1.9 10.3 3.8 1.8 3.5 -0.9 1.0 1.4
Korea 5.1 2.3 0.2 6.2 3.9 2.5 4.7 2.8 3.0 3.7
India* 9.2 6.5 7.7 8.8 8.5 4.7 8.4 3.6 8.0 5.6
* India data & forecasts refer to fiscal years beginning April; inflation is WPI
Source: CEIC and DBS Research

Policy & exchange rate forecasts

Policy interest rates, eop Exchange rates, eop
current 1Q11 2Q11 3Q11 4Q11 current 1Q11 2Q11 3Q11 4Q11
US 0.25 0.25 0.25 0.25 0.50 … … … …
Japan 0.10 0.10 0.10 0.10 0.20 82.6 82 81 80 79
Eurozone 1.00 1.00 1.00 1.25 1.50 1.339 1.38 1.42 1.46 1.50
Indonesia 6.50 6.75 7.50 7.75 8.00 9,063 8,850 8,800 8,750 8,700
Malaysia 2.75 3.00 3.25 3.25 3.25 3.06 3.08 3.04 3.00 2.96
Philippines 4.00 4.25 4.50 4.75 5.00 44.5 43.0 42.0 41.0 40.0
Singapore n.a. n.a. n.a. n.a. n.a. 1.28 1.28 1.26 1.24 1.22
Thailand 2.25 2.50 3.00 3.25 3.50 30.5 29.5 29.1 28.8 28.5
Vietnam^ 9.00 9.50 10.00 10.00 10.00 19,499 20,100 20,100 20,100 20,520
China* 5.81 6.06 6.31 6.56 6.81 6.58 6.56 6.50 6.44 6.37
Hong Kong n.a. n.a. n.a. n.a. n.a. 7.78 7.75 7.75 7.75 7.75
Taiwan 1.63 1.88 2.13 2.38 2.63 29.0 28.5 28.0 27.5 27.0
Korea 2.75 3.00 3.25 3.75 4.00 1114 1040 1020 1000 980
India 6.25 6.50 6.50 6.50 6.50 45.4 44.0 43.5 43.0 42.5
^ prime rate; * 1-yr lending rate

Market prices
Policy rate 10Y bond yield FX Equities
Current Current 1wk chg Current 1wk chg Index Current 1wk chg
(%) (%) (bps) (%) (%)
US 0.25 3.37 1 79.0 -1.3 S&P 500 1,295 2.0
Japan 0.10 1.25 7 82.6 0.7 Topix 932 0.5
Eurozone 1.00 3.11 19 1.339 2.4 Eurostoxx 2,711 2.5
Indonesia 6.50 8.52 5 9063 -0.2 JCI 3,549 2.7
Malaysia 2.75 4.11 -4 3.06 0.2 KLCI 1,570 0.5
Philippines 4.00 6.50 10 44.5 -1.0 PCI 4,073 1.0
Singapore Ccy policy 2.62 -11 1.284 0.4 FSSTI 3,250 0.2
Thailand 2.25 3.72 -2 30.5 -0.4 SET 1,025 1.1
China 5.81 … … 6.58 0.3 S'hai Comp 2,709 -3.4
Hong Kong Ccy policy 2.73 -4 7.78 0.0 HSI 24,154 1.7
Taiwan 1.63 1.46 -3 29.0 -0.1 TWSE 8,988 0.6
Korea 2.75 4.67 -3 1113 -0.2 Kospi 2,096 0.4
India 6.25 8.19 5 45.4 -0.8 Sensex 19,092 -0.5
Source: Bloomberg

5
 Daily Breakfast Spread, 19 Jan 2011

Contributors:
Economics
David Carbon Singapore (65) 6878 9548
Ramya Singapore (65) 6878 5282
Ma Tieying Singapore (65) 6878 2408
Irvin Seah Singapore (65) 6878 6727
Chris Leung Hong Kong (852) 3668 5694
Currencies
Philip Wee Singapore (65) 6878 4033
Fixed income strategy
Jens Lauschke Singapore (65) 6224 2574

Administrative / technical support

Violet Lee Singapore (65) 6878 5281

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

Client Contacts
Singapore Japan
DBS Bank (65) 6878 8888 DBS Tokyo (81 3) 3213 4411
DBS Asset Management (65) 6878 7801
DBS Vickers Securities (65) 6533 9688
Korea
The Islamic Bank of Asia (65) 6878 5522 DBS Seoul (82 2) 339 2660

China Malaysia
DBS Beijing (86 010) 5839 7527 DBS Kuala Lumpur (6 03) 2148 8338
DBS Dongguan (86 769) 2211 7868 DBS Labuan (6 08) 7595 500
DBS Fuzhou (86 591) 8754 4080 Hwang-DBS Penang (6 04) 263 6996
DBS Guangzhou (86 20) 3884 8010 Philippines
DBS Hangzhou (86 571) 8788 1288 DBS Manila (63 2) 845 5112
DBS Shanghai (86 21) 3896 8888
DBS Shenzhen (86 755) 8269 1043 Taiwan
DBS Suzhou (86 512) 6288 8090 DBS Chungching (886 4) 2296 0088
DBS Tianjin (86 22) 2339 3073 DBS Kaohsiung (886 7) 323 2362
DBS Taichung (886 4) 2230 9188
Hong Kong DBS Tainan (886 6) 213 3939
DBS Hong Kong (852) 3668 0808 DBS Taipei (886 2) 8101 0598
DBS Macau (853) 2832 9338 DBS Taoyuan (886 3) 339 6060
DBS Asia Capital (852) 3668 1148
DBS Asia Capital Shanghai (86-21) 6888 6820 Thailand
DBS Bangkok (66 2) 636 6364
India
DBS Delhi (91 11) 3041 8888 United Kingdom
DBS Mumbai (91 22) 6638 8888 DBS London (44 20) 7489 6550

Indonesia UAE
DBS Jakarta (62 021) 390 3366 DBS Dubai (97 1) 4364 1800
DBS Medan (62 061) 3000 8999
USA
DBS Surabaya (62 021) 531 9661
DBS Los Angeles (1 213) 627 0222

6
 Daily Breakfast Spread, 19 Jan 2011

Recent research

SG: Budget to tackle the gap 17 Jan 11 China and US: Demand trumps supply 6 Aug 10

SG: Singapore attempts the impossible 6 Dec 10 CN: Implications of rising wages 4 Aug 10
(Part II)
SG: 2011: Above expectations 29 Nov 10
ID: Upgrade expectations 29 Jul 10
KR: Interest Rate Outlook & Strategy 11 Nov 10
Asia: Votes of confidence 9 Jul 10
EUR: One for the bulls 11 Nov 10
FX: The ascension of the CNY 9 Jul 10
KRW: Stronger than consensus 3 Nov 10
CN: Rising wage concern 7 Jul 10
ID: 2011 budget preview 1 Nov 10
SG: A year of two halves 30 Jun 10
Asia: Interest Rate Outlook & Strategy 28 Oct 10
Taiwan-China: A quick look at the ECFA 29 Jun 10
IN: Higher rates or higher inflation 26 Oct 10
TW & KR: Rates up 28 Jun 10
Asia: The six ways to absorb capital inflow 26 Oct 10
IN: Interest Rate Outlook & Strategy 17 Jun 10
MY: A step towards Vision 2020 18 Oct 10
MY: Addressing the supply side challenges 17 Jun 10
IN: Rising growth potential 13 Oct 10
TH: Upgraded, against all odds 25 May 10
ID: Inflows & monetary policy 13 Oct 10
Asia: Negara vanguarda 20 May 10
SG: It’s payback time 11 Oct 10
TH: Instability and growth 19 May 10
ID: Inflows drown fundamentals 8 Oct 10
ID & KR: External positions 14 May 10
Asia: Another day, another $2bn of inflow 7 Oct 10
Asia: Who’s vulnerable to EU trouble? 13 May 10
SGD: Higher with or without tightening 7 Oct 10
SG: Can Sing rates go to zero? 7 May 10
HK’s inflection point as offshore CNY center 28 Sep 10
EZ: It was never meant to be easy 30 Apr 10
CN: Medium-term inflation outlook 27 Aug 10
MY: Surprise awaits 30 Apr 10
IN: Interest Rate Outlook & Strategy 27 Aug 10
IN policy: Inter-meeting hikes the new norm? 21 Apr 10
SG: GDP contribution of the IRs 26 Aug 10
ID: Interest Rate Outlook & Strategy 20 Apr 10
FX: JPY intervention risk rising 18 Aug 10
IN: Risk of more / earlier hikes 19 Apr 10
HK: How far can HKgo as China's 10 Aug 10
major Renminbi offshore center? KR: Interest Rate Outlook & Strategy 16 Apr 10

US Fed: Between a stock and bond place 10 Aug 10 SG: More strength to SGD 15 Apr 10

Disclaimer:
The information herein is published by DBS Bank Ltd (the “Company”). It is based on information obtained from sources believed to be
reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or
correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein
does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The
information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement
by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals
connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or
damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or
otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The
information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other
financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or
employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or
seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not
intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to
law or regulation.
Licence No.: MICA (P) 083/11/2010