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Economic AnalysisGlobal Markets

Economic AnalysisGlobal Markets



UOB Economic-Treasury Research
Wednesday, 20 June 2012
Global Markets
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Line-up For The Day
The Fed concludes a two-day monetary policy
meeting today. Markets are bracing for a more dovish
FOMC statement, after recent data indicates a slowing
of the US economy and amid heightening concerns in
the Eurozone. Chairman Ben Bernanke will be releasing
the Feds revised economic projections as well as hold
his quarterly press conference. The market will thus be
looking out for how dovish the FOMC statement is and
the scale of any QE3 hints. Whether the Fed would act
is far from uncertain, but expectations have been run-
ning high that the Fed could decide to extend the Op-
eration Twist program the $400bln program which
was announced in September last year, and scheduled
to be completed at the end of this month.
Although the Eurozone economic docket is rela-
tively empty, developments with regards to Greece
will continue to be on the radar. Antonis Samaras
New Democracy party, which won the Greek election
on June 17 (with 129 seats), is hammering out a three-
way government committed to staying in the Euro.
He would be partnering with Socialist Pasok (finish-
ing third with 33 seats) and Democratic Left (finishing
sixth with 17 seats). They would hold 179 seats in the
300-member parliament. Once a Greek government is
formed, representatives of the Troika (EU, IMF and the
ECB) will travel to Athens and evaluate any requests
for changes in the bailout package for Greece. Thurs-
days Spanish bond auction will also come in focus
In the UK, the BoE minutes of the June 7 meeting
and latest labour data will be rolled out. Following
last weeks speeches by the Chancellor and the BoEs
Governor; as well as the latest inflation readings out
of the UK released yesterday; markets are expecting

Foreign Exchange Rates (as of 19 June 2012)

FX Close Asian High Asian Low NY High
JPY 78.89 79.05 78.85 79.08
EUR 1.2595 1.2621 1.2588 1.2730
GBP 1.5672 1.5696 1.5665 1.5757
CHF 0.9535 0.9542 0.9517 0.9555
AUD 1.0130 1.0147 1.0105 1.0202
NZD 0.7924 0.7940 0.7909 0.7990
CAD 1.0232 1.0233 1.0220 1.0244
Market Holiday Date Event
US 04 Jul US Independence Day
Interest Rates Current Next CB Meet
USD Fed Funds Rate 0.25% 21 Jun
EUR Refinancing Rate 1.00% 05 Jul
GBP Repo Rate 0.50% 05 Jul
AUD Official Cash Rate 3.50% 03 Jul
NZD Official Cash Rate 2.50% 26 Jul
CAD Overnight Rate 1.00% 17 Jul
JPY Official Cash Rate 0.10% 12 Jul
Stock Indices (as 0f 19 June 2012) Closing % chg
Dow Jones Industrial Average 12837.33 +0.75
S&P 500 1357.98 +0.98
NASDAQ Composite 2929.76 +1.19
Tokyo Nikkei 225 8655.87 -0.74
London FTSE 100 5586.31 +1.73
Frankfurt DAX 6363.36 +1.84
All Ordinaries 4167.42 -0.39
Commodities (as 0f 19 June 2012) Closing
NYMEX Crude (July) 84.03
Comex Gold (June) 1622.20
1 /3 1

more gilt purchases to be announced in July. The an-

nual rate of headline CPI inflation fell unexpectedly
to 2.8% in May from 3.0% in April. Whilst the core rate
of inflation ticked up marginally to 2.2% from 2.1%
in April, this too had come in below expectations of
2.3%. The BoE has also announced its intention to
offer GBP5bln in its first Extended Collateral Term
Repo (ECTR) operation today. It will be conducted
via variable rate auction, with the minimum bid
spread set at 25bps above the Bank Rate.
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Comex Gold (June) 1622.20
Reuters CRB Index 277.21
Bond Yields (as 0f 19 June 2012) Closing
US 2-Year Bond 0.29
US 10-Year Bond 1.62
JP 10-Year JGB 0.82
EU 10-Year Bund 1.53
UK 10-Year Long Gilt 1.72

Global Markets
Wednesday, 20 June 2012
Central Bank Outlook
Minutes from the last RBA Board meeting released
yesterday revealed that the decision to ease policy
in June was finely balanced, indicating the deci-
sion facing the Board was to leave rates unchanged
or cut by 25bps. A larger rate cut, as some were ex-
pecting, does not appear to have been on the table.
We think that the RBA is on a wait-and-see mode now.
However, we may see an increased willingness in the
RBA to further ease policy if we witness an increasing
slowdown in the global economy combined with the
risks out of Europe, and also if concerns over a slow-
down in China continue to take root. In that scenario
where things really go wrong, we believe then that the
RBA could bring the cash rate lower down to 3.0% (the
record lows plumbed during the 2008-2009 global fi-
nancial crisis).

The major currencies strengthened against the
greenback on hopes that a Greek coalition gov-
ernment will be formed soon; and on expectations
that the Fed will deliver more stimulus. Alongside
the fall in yields, EUR/USD was seen climbing to highs
of 1.2730. The markets ignored Germanys ZEW indica-
tor, which saw the headline investor sentiment indica-

In Europe, equities also closed sharply

Spains IBEX rose 2.7%, whilst Italys MIB and Greeces
Athex both rose around 3.3%. Markets are hoping for
action from the ECB but will likely have to wait at least
the July 5 Governing Council meeting. European cen-
tral bankers are also meeting today, but
rate announcement is scheduled. Tuesdays
saw Spanish 10-year bond yields easing a tad below
the 7.0% mark and Italian 10-year bond yields falling
to 5.9%.
In Europe, equities ended mixed as markets atten-
tion turned to Spains beleaguered banking sector.
The Greeces Athex composite rose 3.6%
mark indices fell about 3% in Spain and Italy. Spanish
10-year government bond yields rose to a new high
of 7.18%. Italian debt was under pressure as well, with
10-year government bond yields rising to 6.08%.
US Treasuries
US Treasuries lost their luster although prices were
little changed as

markets remained extremely
tious ahead of the FOMC. The session ended with Trea-
suries bear steepening and the 2/10 spread at around
133bps the yield on the 10-year Treasury bond and
the 2-year Treasury note seen at 1.62% and 0.29% re-



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tor, which saw the headline investor sentiment indica-
tor falling to -16.9 in June, from 10.8 in May; and the
current situation index falling to 33.2 in June from 44.1
previously. Gains have been reversed with the EUR/
USD seen trading below the 1.2700-levels this morn-
ing. USD/JPY stayed within the 78.85-79.08 range,
with prices seen flirting around the higher end of the
range this morning. GBP/USD moved in line with the
EUR/USD, touching highs of 1.5757 overnight; whilst
AUD/USD rose to as high as 1.0202 as risk appetites
improved sharply.
The major US equity indexes rallied as markets
looked to the formation of a Greek government; on
hopes for an altering of the bailouts harsh terms;
and speculation that the Fed will announce further
steps to help the economy following their two-day

The Dow Jones Industrial Average gained
95.51 points (0.75%) to close at 12,837.33; the S&P 500
climbed 13.20 points (0.98%) to end at 1,357.98; and
the Nasdaq surged 34.43 points (1.19%) to finish at
2,929.76. The CBOE Volatility Index closed near 18 on

the 2-year Treasury note seen at 1.62% and 0.29% re-


Hopes for more monetary stimulus
helped to lift oil prices. Support also came from on-
going dispute over Irans nuclear program. Whilst Irans
two-day talks with world powers did not resolve differ-
ences on Tuesday, the parties agreed to hold a techni-
cal follow-up meeting in Istanbul on July 3. Tuesdays
session saw the prompt-month NYMEX crude futures
contract ended at $84.03/bbl. Gold prices snapped a
seven-day rally, but hovered in tight trades as markets
awaited news from European leaders and the Fed. The
Comex gold April contract settled at $1622.20/oz.
In Spain, the Treasury sold just above the EUR3bln
of bills that had been targeted,

of 12-month bills sold at an average
(up from 2.985% at the last auction on
EUR639.3mln of 18-month bills sold
from 3.302% previously).

Global Markets
Wednesday, 20 June 2012
Economic Indicators
Date Time Indicators Month Actual Market Forecast
19 Jun 1630 UK CPI m/m May -0.1 0.1
1630 UK Retail Pr Ind m/m May 0.0 0.2
1700 EU Construction Output sa m/m Apr -2.7 -
1700 EU Construction Output wda y/y Apr -5.0 -
1700 EU ZEW Survey (Econ sentiment) Jun -20.1 -
1700 GE ZEW Survey (Econ sentiment) Jun -16.9 2.3
2030 US Housing Starts May 708 722
2030 US Building Permits May 780 730
20 Jun 1900 US MBA Mortgage application Jun 15 -
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makes no representation as to the accuracy or completeness. Also, opinions and predictions contained herein reflect our opinion as of date of the analysis
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Jimmy Koh
(65) 6539 3545
Alvin Liew
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Lee Sue Ann
(65) 6539 3549
20 Jun 1900 US MBA Mortgage application Jun 15 -
21 Jun 0030 USD Fed Funds Rate Jun 0.25
1500 FR PMI Manufacturing Jun A 44.5
1530 GE PMI Manufacturing Jun A 45.2
1600 EU PMI Composite Jun A 45.5
1600 EZ Current acct nsa Apr -
1600 EZ Current acct sa Apr -
1600 EU PMI Manufacturing Jun A 44.8
1600 EU PMI Service Jun A 46.4
2030 US Initial Jobless Claims Jun 16 383
2030 US Continuing Claims Jun 9 3278
2200 EZ Consumer Confidence Jun A -20.0
2200 US Phil Fed Jun 0.0
2200 US Existing Home Sales May 4.57
2200 US Hse Pr Ind m/m Apr 0.4
2200 US Leading Indicators May 0.1
22 Jun 1600 GE IFO - Biz Climate Jun 105.6