Weekly Market View (July 7- 11, 2008)

Economic

US: Kansas City Federal Reserve President Thomas Hoenig commented that the Fed should raise its policy rate to neutral level to prevent high inflation taking root.

Europe: Eurostat revised euro zone1Q08 GDP down to 0.7% QoQ (2.1% YoY) from 0.8% QoQ (2.2% YoY) in earlier report. On the Germany economy, German Finance Minister Peer Steinbrueck said that rising global inflation might hit domestic consumption in Germany. He agreed with the ECB that it should focus on preventing inflation problem. He believed that raising policy rate would have a small affect on the Germany economy.

UK: The BoE kept its policy rate unchanged at 5.0% as expected. Manufacturing output declined 0.8% MoM in May, the sharpest declining since December 2005, which might imply that UK economy had been slowing down. Moreover, UK consumer confidence dropped for the 6th consecutive month. There was no sign that consumers would slow their spending, however.

Japan: The BoJ governor said that profit margin of Japanese companies had been decreasing as oil and raw material prices rose, which pushed wholesales price index to its 27 years high at 5.6% in June. Consumer confidence dropped to 32.3 in 2Q08, the lowest level since the survey began in 1982. However, analysts expected the BoJ would keep its policy rate on hold at 0.5% through out this year.

China: Government source said that inflation rose by 7.1% in June, dropped from 7.7% in May.

Thailand: Reuters’ poll reported that market expected the MPC to raise its policy rate by 0.25% in the 16th July meeting to curb inflation. However, analysts did not expect an aggressive rate hike as it might hurt economic growth.

Fixed Income Market
During this week, Thai government bond yield was volatile and ended with declining by 5- 28 bps across the curve. These were led by a negative outlook on the US economy from deterioration of US banking crisis after Freddie Mac and Fannie Mae may face troublesome of huge capital raising ability. The second Iran's missile tests and supply concerns from Nigeria and Brazil push oil price back above 140 USD/barrel. The next MPC meeting will be held on 16 July 08, 11 out of 12 analysts expect 1-day repo to shift by 0.25%.

Equity Market
Market took a beating to lowest level of this year early in the week as specter of political instability was heightened after the Constitutional Court ruled that a Joint Communique Thai Foreign Minister signed with Cambodia over Preah Vihear Temple is unconstitutional and a key executive of People Power Party found guilty over electoral fraud by Supreme Court. Blue chippers in bank property and energy sectors were once again among the week’s worst casualties. However, market bounced off lows late in the week on expectation of strong 2Q08 results. Meanwhile, foreign selling continued its course this week. Oil price declined heavily to trade near two-week low as USD rose and Iran downplayed the possibility of war, before jumping back as Iran continued to test-fired missiles as part of war games.

The information contained herein is AYF's opinion at the time of its publication and subject to change without prior notice.

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