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 hike the policy rate last year in order to curb inflation and prevent financial 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 inflation. That said, the appreciation in Ringgit has also part an important role in keeping imported inflation at bay. The local currency was one of the best performing emerging Asia currencies last year. It appreciated by about 10.6% against the greenback in 2010. TH: The sharp rise in exports in December should assuage concerns about the soft patch that Thailand entered last year that saw third quarter GDP growth come in all but flat. Customs trade data out yesterday showed Thai exports grew by 6% (MoM, sa) in December. This brings the rise in exports in 4Q10 to 10% (QoQ, sa), more than reversing the 4% decline in the previous quarter (Chart). The key driver in terms of exports destination was exports to China and HK which grew by 9.5% (MoM, sa) in December and 16% (QoQ, sa) in 4Q10. Chinese trade data also show that China’s imports rose much more than exports in 4Q10 suggesting that final demand in China is behind the rise in Thai exports to China (Chart). As such, while the softpatch mid last year in Thailand can be traced back both to double-dip worries in the US and slowdown worries in China, the recovery in exports so far appears to have largely come from China. One implication is that strong US demand will offer an 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

US Fed expectations
Implied fed funds rate Dec-10 Mar-11 Jun-11 Market Current 0.18 0.17 0.17 0.17 0.18 1wk ago 0.18 DBS 0.25 0.25 0.25


Source: Bloomberg fed fund futures Notes: Given a FF target rate of 0.25%, an implied FF rate of 0.30 is interpreted roughly as the market pricing in a 20% chance of a Fed hike to 0.50% from 0.25% (30 is 1/5th of the distance to 50 from 25). DBS expectations are presented in discrete blocks of 25bps, i.e., the Fed moves or it does not. See also “Policy rate forecasts” below.

TH: Exports by destination
Re-indexed Jul08=100, USD, sa 140 130 120 110 100 90 80 70 60 50 Jul-06 Jul-07 Jul-08 Latest: Dec10 Jul-09 Jul-10 Exports to China & HK Exports ex- CN, HK

CN: exports to US and total exports
USD, Index: 2007=100, SA 190 170 150 130 110 90 Latest: 70 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 CN: exports to US CN: total exports CN: total imports

1

Euribor has stopped sliding and is starting to rise again. Indeed.2 months’ worth of current sales (290k. 19 Jan 2011 manufacturing production which has been lackluster until November. broader economic recovery continues. The euro’s slide since last November was not only attributed to improving US data renewing US rate hike expectations. China has been more vocal of late about needing to diversify its foreign reserves away from the dollar 2 . inflation in Eurozone pushed above the ECB’s target. Monday’s sell-off was more than offset by yesterday’s buy back. after the Greek debt crisis found closure. GDP growth overall should run at close to 3% through the quarters of 2011. is that housing construction now accounts for only 2. saar) and (real and nominal) retail sales growth is at a ten-year high. both suggesting that new home construction is unlikely to accelerate in the near-term. China and Japan have stepped forward to support Eurozone bonds. US jobs data did not support the case to start aggressively discounting US rate hikes. the SPX is now well and truly back above pre-Lehman levels of Sep08 and seems interested only in continuing the march.Daily Breakfast Spread. with the volatility in the trade accounts subsiding. Real consumption is now growing at over 4% (QoQ.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 some sense. 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. G3 • US: The NAHB builders’ sentiment index failed to rise by even the 1 meager point consensus had expected for December. saar 1000 800 600 400 200 0 Jan-08 NAHB (RHS) housing starts (LHS) no growth in either series NAHB index 45 40 35 30 25 20 15 10 5 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 0 Jan-11 The good news. the risks to our and consensus 2011 forecast may well lie to the upside despite our expectation for rate normalization. First. That means the small drop in housing starts expected by consensus (Dec. today) won’t be far off the mark. Like in June 2010. In the event. Little wonder equity markets have trended north in near straight line fashion since Aug10. Domestic demand generally is growing at over 4% and. Unfortunately. The currency pair remains a volatile currency. 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. similar to trading in the first two weeks of January. but also to falling Euribor. At 1295.3250 and 1.3450 since January 14. Worse. Inventories remain at 8. in Nov10) and 10Y bond yields are up by 100bps from Oct10 levels. saar. these positions are threatened on two fronts. Second. Currencies • FX: EUR/USD has been trapped mostly between 1. US – housing starts x1000/mth.

Looking Back • US mkts: US stocks rose overnight on optimism in the manufacturing sector.Daily Breakfast Spread. yen and selected emerging market currencies.93 and the Nasdaq closed 0.43% to 11837. the same issue has surfaced recently amidst political headwinds over the large US fiscal deficits and federal debt. 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. US President Obama is throwing a state dinner for China President Hu Jintao.59% in the 2Y sector and rose 3bps to 3. In this regard. Treasury yields were flat at 0. The Dow Jones Industrial Average rose 0.85. 19 Jan 2011 into euro.36% in the 10Y sector. Although QE2 started in November 2010. The need to maintain foreign support for US debt triggered the dollar sell-off from March into November 2009. 3 . the US Secretary of State Hillary Clinton broke tradition and visited Asia first instead of Europe. euro bears may once again find themselves caught wrong-footed. This need has become more urgent because of the need to allow yuan appreciation amidst rising inflation. like in June-August 2010.38% higher at 2765. with euro rising on speculators cutting their net short positions. Today. Apart from these two factors. Back then.

25% 2.3% y/y 17 sa 4.75% 1.25% 2.1% 5.imports HK: CPI (Dec) Jan 19 (Wed) US: housing starts (Dec) US: bldg permits (Dec) MY: CPI (Dec) Jan 20 (Thur) US: initial jobless claims (Jan 15) US: existing homes sales (Dec) TW: export orders (Dec) CH: CPI (Dec) CH: real GDP (4Q) CH: retail sales (Dec) CH: fixed asset investment (Dec) Jan 21 (Fri) no key data Consensus Actual Previous 11.0% y/y 16 sa 4. prod.2% y/y 555k saar 544k saar 2.1% y/y 550k saar 554k saar 2.75% 1.5% y/y 35.9% y/y Central bank policy calendar Policy Date Country Rate This week No policy meeting this week Next week 25-Jan 25-Jan 27-Jan 27-Jan Last week 12-Jan 13-Jan 13-Jan Current Consensus DBS Actual JP IN US MY o/n call rate o/n repo FDTR OPR 0. 19 Jan 2011 Economic calendar Event Jan 17 (Mon) SG: NODX (Dec) PH: remittances (Nov) Jan 18 (Tue) US: home builders Index (Jan) HK: unemployment rate (Dec) JP: ind.00% 2.10% 6.6% y/y 9.4% y/y 10.0% USD800m 16.3% y/y 4.5% y/y 4.34% y/y 5.25% 2.Daily Breakfast Spread.50% 0.9% y/y 9.8% y/y 11.87m saar 12.1% y/y 9.0% 5.50% 1.68m saar 14.1% y/y 9.8% y/y USD1295m 18.30% y/y 4.50% 1.25% 2.00% 4 .25% 2.7% y/y 25.0% y/y 422k sa 4.75% 0.8% y/y USD408m 28.00% 2.6% y/y 18.5% y/y 9.00% 2.75% TH KR EZ 1 day repo 7 day repo 7-day refi rate 2. (Nov) TH: trade balance (Dec) -.10% 6.25% 0.3% y/y 4.00% 2.4% y/y 18.7% y/y 24.0% y/y 445k sa 4.exports -.0% y/y 16 sa 4.3% y/y 10.

6 -5.00 3.9 -1.0 3.1 0.7 2.5 3Q11 … 80 1.25 4.8 1.8 1.2 0.6 5.50 8.6 0.4 Exchange rates.0 1.2 -1.0 4.0 5.4 1.8 2.10 1. eop current US Japan Eurozone Indonesia Malaysia Philippines Singapore Thailand Vietnam^ China* Hong Kong Taiwan Korea India 0.5 6.44 7.50 3.a.50 current … 82.339 9.2 1.25 0.50 8.5 -1.28 29. 1.10 1.3 -2.1 8.8 3.4 2.00 6.7 6.00 6. 2.50 3Q11 0.6 1.a.7 2010f 2.100 6.1 -0.295 932 2.5 ^ prime rate.46 8.50 6.4 2.0 1.9 4.700 2.75 6.3 0.7 -1.2 4.63 2.4 2009 -0.75 3.37 7.50 0.5 2.1 2.570 4.3 9.25 5.092 1wk chg (%) 2.1 -4.6 2.3 4.00 6.00 10.00 6.4 -0.5 6.5 2.4 0.50 2.24 28.5 5.2 4.0 7.26 29.0 2. 3.339 9063 3.00 7.5 2008 0.5 1.50 9.25 9.06 n.11 8.4 -0.96 40.5 5.3 0.4 1.50 2Q11 0.6 * India data & forecasts refer to fiscal years beginning April.0 1.38 8.100 6.0 0.81 n.78 29.5 1040 44.4 -0.88 3.25 10Y bond yield Current 1wk chg (%) (bps) 3.2 0.1 -3.0 2.9 0.9 2.25 0.5 5.25 n.0 8.0 -0.988 2.00 n.73 1.2 -0.25 10.25 0.096 19.8 3.2 5.06 44.284 30.75 3.8 1.0 1.10 1. eop 1Q11 … 82 1.50 4Q11 0.5 1.1 1. 2.00 4.0 5. 2.7 8.8 5.63 2.7 5.25 4.00 6.a.3 0.0 -1.00 41.154 8. % YoY 2007 US Japan Eurozone Indonesia Malaysia Philippines Singapore Thailand Vietnam China Hong Kong Taiwan Korea India* 1. inflation is WPI Source: CEIC and DBS Research Policy & exchange rate forecasts Policy interest rates.42 8.073 3.6 1.9 9.5 India Source: Bloomberg 5 .25 7.00 Ccy policy 2.8 7. 2.8 4.13 3.8 3.7 0.250 1.9 8. 3.8 2.31 n.a.7 2008 3.0 7.750 3.50 10.3 6.4 3.4 6.81 Ccy policy 1.5 7.6 1.08 43.4 3.6 2010f 1.67 8.00 6.0 4.5 20. 1.10 1. * 1-yr lending rate Market prices Policy rate Current (%) US Japan Eurozone Indonesia Malaysia Philippines Singapore Thailand China Hong Kong Taiwan Korea 0.850 3.5 23.1 5.37 1.63 4.7 0.11 6.8 20.0 4.20 1.58 7.75 27.2 7.2 CPI inflation.81 n.00 6.25 5.4 2.0 1020 43.1 20.499 6.3 6.520 6.00 6.50 7.00 5.22 28.8 0.7 0.7 0.709 24.8 0.4 3.75 28.5 -0.5 20.38 3.72 … 2.5 1.2 15.50 n.25 1Q11 0. 2.2 6.75 6.025 2.2 8.5 19.a.75 27.3 6.5 6.28 30.46 4.52 4.19 1 7 19 5 -4 10 -11 -2 … -4 -3 -3 5 FX Current 79.5 1.78 29.a.25 6.75 4.9 2.0 0.6 -0.711 3.75 n.4 1wk chg (%) -1.8 Index S&P 500 Topix Eurostoxx JCI KLCI PCI FSSTI SET S'hai Comp HSI TWSE Kospi Sensex Equities Current 1.25 3.4 9.2 9.0 4.1 2.6 -0.2 7.0 6.0 2011f 1.6 3.3 4.7 1.549 1.6 10.5 4.8 2.10 1.0 3.75 4.2 8.4 4.50 2.75 6.7 2.25 0.0 2.0 10. 19 Jan 2011 GDP & inflation forecasts GDP growth.75 28.800 3.a.4 0.Daily Breakfast Spread.0 6.3 6.5 4.62 3.0 -0.0 4Q11 79 1.063 3.3 -1.3 9.58 7.9 8.50 2.5 1.3 6.0 1113 45.0 1.0 82.9 6.0 2Q11 … 81 1.8 2007 2.3 3.8 2.0 1.0 0.0 4.2 6.25 0.4 13.5 2009 -2.06 44.5 6.a.5 1000 43.56 n.9 0.1 -2.0 1114 45.6 3.1 9.3 9.56 7.a.3 2.0 8.0 980 42.04 42. 3.7 10. % YoY 2011f 2.0 3.100 6.1 6.a.00 n.

Daily Breakfast Spread. 19 Jan 2011 Contributors: Economics David Carbon Ramya Ma Tieying Irvin Seah Chris Leung Singapore Singapore Singapore Singapore Hong Kong Singapore Singapore (65) (65) (65) (65) (852) 6878 6878 6878 6878 3668 9548 5282 2408 6727 5694 Currencies Philip Wee Jens Lauschke (65) 6878 4033 (65) 6224 2574 Fixed income strategy Administrative / technical support Violet Lee Singapore (65) 6878 5281 Please direct distribution queries to Violet Lee on 65-6878-5281 Client Contacts Singapore DBS Bank DBS Asset Management DBS Vickers Securities The Islamic Bank of Asia (65) (65) (65) (65) 6878 6878 6533 6878 8888 7801 9688 5522 Japan DBS Tokyo (81 3) 3213 4411 (82 2) 339 2660 (6 03) 2148 8338 (6 08) 7595 500 (6 04) 263 6996 (63 2) 845 5112 (886 4) 2296 (886 7) 323 (886 4) 2230 (886 6) 213 (886 2) 8101 (886 3) 339 0088 2362 9188 3939 0598 6060 Korea DBS Seoul China DBS Beijing DBS Dongguan DBS Fuzhou DBS Guangzhou DBS Hangzhou DBS Shanghai DBS Shenzhen DBS Suzhou DBS Tianjin (86 010) 5839 7527 (86 769) 2211 7868 (86 591) 8754 4080 (86 20) 3884 8010 (86 571) 8788 1288 (86 21) 3896 8888 (86 755) 8269 1043 (86 512) 6288 8090 (86 22) 2339 3073 (852) 3668 (853) 2832 (852) 3668 (86-21) 6888 0808 9338 1148 6820 Malaysia DBS Kuala Lumpur DBS Labuan Hwang-DBS Penang Philippines DBS Manila Taiwan DBS Chungching DBS Kaohsiung DBS Taichung DBS Tainan DBS Taipei DBS Taoyuan Hong Kong DBS Hong Kong DBS Macau DBS Asia Capital DBS Asia Capital Shanghai Thailand DBS Bangkok (66 2) 636 6364 (44 20) 7489 6550 (97 1) 4364 1800 (1 213) 627 0222 India DBS Delhi DBS Mumbai (91 11) 3041 8888 (91 22) 6638 8888 (62 021) 390 3366 (62 061) 3000 8999 (62 021) 531 9661 United Kingdom DBS London Indonesia DBS Jakarta DBS Medan DBS Surabaya UAE DBS Dubai USA DBS Los Angeles 6 .

incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error. completeness. special. express or implied. another $2bn of inflow SGD: Higher with or without tightening HK’s inflection point as offshore CNY center CN: Medium-term inflation outlook IN: Interest Rate Outlook & Strategy SG: GDP contribution of the IRs FX: JPY intervention risk rising HK: How far can HKgo as China's major Renminbi offshore center? US Fed: Between a stock and bond place 17 Jan 11 6 Dec 10 29 Nov 10 ID: Upgrade expectations 11 Nov 10 Asia: Votes of confidence 11 Nov 10 FX: The ascension of the CNY 3 Nov 10 CN: Rising wage concern 1 Nov 10 SG: A year of two halves 28 Oct 10 Taiwan-China: A quick look at the ECFA 26 Oct 10 TW & KR: Rates up 26 Oct 10 IN: Interest Rate Outlook & Strategy 18 Oct 10 MY: Addressing the supply side challenges 13 Oct 10 TH: Upgraded. against all odds 13 Oct 10 Asia: Negara vanguarda 11 Oct 10 TH: Instability and growth 8 Oct 10 ID & KR: External positions 7 Oct 10 Asia: Who’s vulnerable to EU trouble? 7 Oct 10 SG: Can Sing rates go to zero? 28 Sep 10 EZ: It was never meant to be easy 27 Aug 10 MY: Surprise awaits 27 Aug 10 IN policy: Inter-meeting hikes the new norm? 21 Apr 10 26 Aug 10 ID: Interest Rate Outlook & Strategy 18 Aug 10 IN: Risk of more / earlier hikes 10 Aug 10 KR: Interest Rate Outlook & Strategy 10 Aug 10 SG: More strength to SGD 16 Apr 10 15 Apr 10 19 Apr 10 20 Apr 10 30 Apr 10 30 Apr 10 7 May 10 13 May 10 14 May 10 19 May 10 20 May 10 25 May 10 17 Jun 10 17 Jun 10 28 Jun 10 29 Jun 10 30 Jun 10 7 Jul 10 9 Jul 10 9 Jul 10 29 Jul 10 China and US: Demand trumps supply CN: Implications of rising wages (Part II) 6 Aug 10 4 Aug 10 Disclaimer: The information herein is published by DBS Bank Ltd (the “Company”). The Company. their directors. as to its accuracy. even if the Company or any other person has been advised of the possibility thereof. or use by. and may effect transactions in securities mentioned herein and may also perform or seek to perform broking. consequential. officers and/or employees may have positions or other interests in. indirect. Opinions expressed are subject to change without notice. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. Any recommendation contained herein does not have regard to the specific investment objectives.: MICA (P) 083/11/2010 7 . 19 Jan 2011 Recent research SG: Budget to tackle the gap SG: Singapore attempts the impossible SG: 2011: Above expectations KR: Interest Rate Outlook & Strategy EUR: One for the bulls KRW: Stronger than consensus ID: 2011 budget preview Asia: Interest Rate Outlook & Strategy IN: Higher rates or higher inflation Asia: The six ways to absorb capital inflow MY: A step towards Vision 2020 IN: Rising growth potential ID: Inflows & monetary policy SG: It’s payback time ID: Inflows drown fundamentals Asia: Another day. It is based on information obtained from sources believed to be reliable. The Company and its associates. options or other financial instruments or to provide any investment advice or services. or any of its related companies or any individuals connected with the group accepts no liability for any direct. futures. financial situation and the particular needs of any specific addressee. timeliness or correctness for any particular purpose. any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.Daily Breakfast Spread. Licence No. 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. investment banking and other banking or financial services for these companies. but the Company does not make any representation or warranty. negligent or otherwise) or further communication thereof. omission or misstatement herein. The information herein is not intended for distribution to.