Weekly Market View (July 28 – August 1, 2008)

Economic
US: The Conference Board consumer confidence index rose for the first time in the last 6 months, as oil prices decreased. However, economic data released later this week showed poor results i.e. GDP grew weaker than expected in 2Q08 at 1.9% and unemployment rate climbed up from 5.5% in June to 5.7% in July as 51,000 jobs were cut.

Europe: Euro zone economic confidence retreated to 89.5, the lowest level since May 2003. Inflation hit a new record high at 4.1% in July, while market expected the ECB would raise its policy rates in September meeting to curb inflation. In Germany, unemployment dropped by 20,000 on the month in July to 3.250 million, the lowest figure in 16 years. However, a 3.7% YoY decreasing in retail sales added nervous to the German and economic gloom.

Japan: Unemployment rose 4.1% in June, the highest level in 2 years, and household spending decreased for the fourth consecutive month by 1.8%. Industrial output dropped a slightly lower than expected, added worry on a weak economy.

China: President Hu Jintao said sustaining economic growth is its economic priority. The central bank also authorized commercial banks to increase their lending by 5%, which supported the president Hu’s word.

Thailand: The BoT revised its 2008 headline inflation up to 7.5 – 8.8% from 4.0 – 5.0% previously estimated, while core inflation was revised up to 2.8 – 3.8% from 1.5 – 2.5% earlier estimated. The central bank also revised GDP08 down from 4.8 – 6.0% previously projected to 4.8 -5.8%. For June economic data released on the last day of July, private consumption index rose 1.2% MoM, while private investment index upped 0.7% MoM. Trade account showed USD926mn surplus, where exports rose 28.5% and imports increased 31.5%. July’s inflation rose 9.2% as oil prices stayed at high level. However, the BoT said that July’s inflation was not too high as it came out as expected, and the number slightly changed from a month earlier. Market expected the central bank would raise its policy rate by 0.25% in 27th August meeting.

Fixed Income Market
This week Government bond rallied approximately 20-30 bps, especially for more than 2-year tenors. Oil retreated to around USD122 from its all-time high at USD147, together with lower commodity prices, reinforcing lower inflation expectation. Lower yields also reflected uncertainty of global economics, US hit by unexpected rose in jobless claims while Australian banks faced more provision on sub-prime related portfolios. All sentiments put cap on policy rates of every central bank, especially emerging market region, which headline inflation weight much more on foods relative to developed countries.

Equity Market
The week started with a move to the downside as Supreme Court accepted Digit lottery case against Finance Minister. BoT’s GDP downgrade as well as upward revision for CPI also added selling pressure. Yet, Thai stocks managed to gain ground toward the end of the week following regional markets as concerns over US slowdown and inflationary threat receded. July’s headline CPI of Thailand, which dialed in at 9.2%, was also lower than consensus forecast. Global oil prices, which continued to decline on worries of demand destruction, also helped relieve inflationary fear.