Weekly Market View (August 18 - 22, 2008)

Economic
US: Producer Price Index (PPI) rose 1.2% in July, whereas housing starts and construction permits decreased by 11%, and 17.7% respectively. Market was concerned about the inflation which stayed at the high level, while housing market continued to slow down.

Europe: The Euro zone economy recorded a trade deficit of EUR0.1bn in June due to higher oil import, but the export to the US reduced. In Germany, Producer Price Index (PPI) increased 8.9% in July, the highest increase in 27 years, due to soared energy prices.

UK: British retail sales unexpectedly jumped by 0.8% MoM in July (market expected a 0.3% drop) even as retail prices hit 10-year high at 1.6% YoY.

Japan: BoJ maintained its policy rate at 0.5% as expected.

Thailand: The Finance Minister said that the MoF were preparing to propose new economic stimulus measures to the economic policy committees meeting, which would be held on 27th August. The objective of the measures was to support 6.0% economic growth target. Reuter’s poll reported that analysts expected the NESDB to report an economic growth of 5.7% YoY in 2Q08, shrank by 1.0% QoQ, and they further expected the MPC to hike rate by 0.25% to 3.75% during the meeting. For July’s external sector, total exports rose 43.9% YoY, a value of USD16,957mn as exports to new markets expanded by 56.1%, resulting in increasing the proportion of new market to 50.7%. Imports, increased by 55.1%, accounted for USD17,984.3mn. Thailand imported more energy (98.2%), capital goods (36.3%), and raw materials (52.9%) causing July’s trade deficit of USD1,026.9mn.

Fixed Income Market
THB bonds retreated after six-week rally. Bonds tumbled as yields rose 15-20bps by end of the week as market expected the BoT would hike rate to fight with rising inflation. THB/USD strengthened back to 33.90 after the BoT intervention.

Equity Market
SET plunged this week with renewed worries about trouble at major US mortgage backers and more related write-downs to come. Baht weakness, which was in line with regional currencies, has partly led to foreign selling this week, though trading turnover pared to very low level. Political uncertainties at home also weighed down buying interest. Optimism driven by relatively strong 2Q08 results was over. Also, satisfactory banks loan growth could not encourage heavy buying interest. Meanwhile, commodities stroked back this week with oil price gaining as much as 7% to two weeks high on weakening USD as well as rising geopolitical tension between US and Russia.