Weekly Market View (August 4 - 8, 2008)

Economic
US: The Federal Reserve (Fed) kept it policy rates unchanged at 2.00% as expected, and signaled that it would not raise rates in the near future. Reuters’ poll reported that market expected the Fed would keep its policy rates steady for the rest of the year.

Europe: The ECB left its policy rate on hold at 4.25% as expected. The ECB President expected euro zone growth to weaken this year, while inflation was expected to stay above its target. Rising oil prices pushed euro zone producer price index (PPI) up by 8.0% YoY in June, while pulled retail sales down 3.1% YoY, as high oil and food prices squeezed consumers’ purchasing power.

UK: The BoE held its benchmark rates at 5.0% as expected and signaled that it would leave rate on hold for a while.

Japan: Government monthly report showed that Japanese economy might get into recession. Reuters’ poll pointed out that market expected economy to shrink by 0.6% in 2Q08.

China: The State Information Centre expected the China economy to expand 10.2% in the third quarter, after expanding 10.6% and 10.1% in the first and second quarters respectively. The growth would be supported by the government policy, which heading toward sustaining growth.

Thailand: The Finance Minister Surapong Suebwonglee said that he expected August and September inflation would be closing to July’s, which was at 9.2%. He expected the inflation would be gradually declined in the fourth quarter of this year. He also kept his projected GDP08 at 6.0%. However, the BoT Deputy Governor Atchana Waiquamdee commented that its fight with inflation was not over yet, while the latest government economic stimulus package might not help supporting growth as expected, as oil price remained at high level. The Finance Minister commented that the policy difference would not lead to firing the BoT Governor or intervention of the Monetary Policy Committee (MPC). However, if the difference is so wide, one policy must stay, and the other must be off. He also commented that it is difficult to move the rate up as he did not expect inflation to hit double digits. The Center for Economic and Business Forecasting, University of the Thai Chamber of Commerce raise its GDP08 forecast up from 5.1% to 5.6%, as exports was expected to grow robustly.

Fixed Income Market
Yield dropped 3 - 15 basis point across the curve during the week due to substantial declined in oil prices which help easing the inflation concerns over 2008. Thai Finance Minister Surapong commented on Friday that he saw low possibility of rate hike in August. If the BoT still raises rate, it would intensify conflicts with the Finance Ministry, which wants growth-accommodative monetary policy. On other hand, if the BoT keeps rate steady, it could raise questions about its independency and credibility. Whether or not the MPC raises rate at August 27 meeting, most economists still expect further tightening of 25-50 basis points by year-end.

Equity Market
Market commenced the week with retreat to the low at 660 points on selling energy sector as oil price dropped and record US unemployment. However, the sentiment has improved considerably as the Fed held rates unchanged as expected with easing inflation outlook and signaled no rate increase soon. Speculation for return of political normalcy also drove the market up. Thaksin and his wife were expected to go into exile after the wife found guilty on tax evasion case and Thaksin's land graft case verdict approaching.