Weekly Market View (July 21-25, 2008)

Economic
US: Treasury Secretary Henry Paulson said a strong dollar is important to US interests and it would support long-term economic growth. Philadelphia Federal Reserve President Charles Plosser commented that despite weak labour and financial markets, the Fed might start raising interest rates to detect rising problem from rising inflation. However, in the Fed’s Beige Book, there is no signal for a rate hike in the next FOMC meeting.

Europe: Industrial orders declined more than expected by 4.4% YoY in May. In Germany, the Finance Minister said the economic growth declined considerably in 2Q08, but it would not completely grind to a halt. Recent Ifo business survey results showed that German business confidence dropped from 101.2 in June to 97.5 in July.

UK: The economy grew by 1.6% in 2Q08, the lowest level in 3 years, and decelerated from 2.3% in 1Q08. Retail sales rose 2.2% YoY in June, slowed from a 7.9% YoY in a month earlier.

Japan: Core inflation rose at the fastest pace at 1.9% in June as expected. Exports fall 1.7% in June, the first negative growth in the last 5 years. Analysts noted this might be a signal that weak US economy had began to impact the others. Market expected the BoJ would keep its policy rate at 0.5% until the end of this year.

Thailand: The BoT Deputy Governor Atchana Waiquamdee said that Thai economic growth in the second half would slow from the first half, but the BoT put more focus on economic stability rather than economic growth. She admitted that the interest rates are on an upward trend. The Fiscal Policy Office expected a 5.9% growth in 1H08, where 1Q08 and 2Q08 grew by 6.0% and 5.8% respectively. It expected the Thai economy would be expanded by 5.3 – 5.5% in the third and fourth quarter of this year, which would produce a growth of 5 – 6% for this year. The Finance Minister said that the government would release another economic stimulus package in the next 1 – 2 months. On the trade balance account, the Ministry of Commerce reported that exports growth hit a new record high at 27.4% in June, total value of USD16.27bn, as exports to Asian countries and China were robust. Imports rose 30.7%, total value of USD15.64bn. A trade surplus was reported at USD628mn. For the first 6 moths of this year, exports rose by 23.1% or value of USD87.21bn, imports increased 33.6% or value of USD88.28bn, generated a trade deficit of USD1.1bn.


Fixed Income Market
Local fuel price dropped as crude price lowered and government excise tax subsidy plan help easing July inflation expectation. The inflation figures are scheduled to be announced next week. Consequently, government bond yield dipped around 10 bp across the curve this week.

AYF expects the BOT to increase RP not more than 50 bp toward end of 2008 while yield curve already priced in another 2 hikes. Thus, the downside on bond price is less than few months before. AYF recommended diversifying part of investment to medium term bond (1 - 3 years maturity).


Equity Market
The week started on bullish tone, shot up nearly 5% WoW at peak, as credit market concern eased after results from major US financials were not as bad as feared and inflation concern receded with losses in energy commodities after USD strengthening and Hurricane worries fading. However, the optimism was short-lived, weekly gains were partly wiped out by week-end on US housing slump, ongoing street protests, and political uncertainties. Among the top gainers this week were banks and property developers on strong 2Q08 results and lower fuel prices.