Weekly Market View (August 25 - 29, 2008)

Economic
US: The US economy grew by 3.3% in 2Q08, higher than the first report of a 1.9% growth, as consumer spending and exports were stronger than previously estimated. However, the FOMC minute showed that the committee acknowledged that a downside risks remained, while weak housing sector, higher energy prices, and weak labour market would put pressure on the economic outlook.

Europe: The European statistic office reported the euro zone inflation rose 3.8% in August, eased from 4.0% in July, as oil prices slipped. Germany reported unemployment rate fall to 16-year low, implying that its labour market remained strong amid a weakening economy.

Japan: Core inflation (excluding fresh fruit, vegetable and seafood, but including energy) hit 10-year high at 2.4% in July.

Thailand: The Office of the National Economic and Social Development Board (NESDB) reported that high inflation dragged the Thai economic growth downed to 5.3% in 2Q08, below consensus of 5.7%. The NESDB expected the Thai economy would expand 5.2 – 5.7% this year, while inflation was expected to be around 6.5 – 7.0% in the third and fourth quarters this year. For July’s economy, the BoT reported the economy continued to expand from June. Private consumption expanded by 9.3% YoY, or +3.4% MoM. Private investment grew by 3.9% YoY, or +0.4% MoM. Exports rose 43.9%, while imports rose 53.4%, recorded a trade deficit of USD762mn. On the monetary policy, the BoT raise its policy rate by 0.25% as inflation and its anticipation remained high, while the direction of oil prices remained dubious. The central bank believed that a rate hike to 3.75% would not have much affect to the economic growth, but it would help delaying another hike.

Fixed Income Market
Government bond yield tumbled 10 - 40 bps for tenor 2-year onwards while short-term yield moved up toward a 3.75% policy rate. 2QGDP announced on August 25, weighed down market by negative surprise 5.3% YoY compared with 5.8% consensus. Demand for long duration bond was boosted by foreign investors and interbank after GDP results, and remained in a bullish mode after MPC decided to raise 1-day RP rate from 3.50% to 3.75% with a dovish statement hinted no more hike for the rest of the year.

Inflation peaked out on July and expected to ease from August onwards. GDP was forecasted to slow in 2H08 and some banks' analyst expected rate cut in the next year after core inflation start to decline.

Equity Market
Market plunged at the beginning of the week on escalating political tension after anti-government group vowed to stage their last attempt to overthrow the government as well as slower-than-expected 2Q08’s GDP growth. SET index hit its lowest level this week on Tuesday as protestors stormed into government’s TV station and laid siege of Premier’s Offices. However, the broader index managed to close higher this week as bargain hunters stepped. On brighter side, monthly economic numbers of July showed sustained strength in domestic consumption. Market turnover remained very light with local institutions leading the buying spree. Oil price is near unchanged level from last week, earlier gains from hurricane fears were pared as US authority ensured the supply from their strategic reserves.

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