Weekly Market View (September 1 - 5, 2008)

Economic
US: OECD revised US GDP08 up from 1.2% previously estimated to 1.8%, as growth in 2Q08 was stronger than expected. However, the OECD pointed out that the problem in housing sector would be a threat for growth.

Europe: The ECB kept its policy rate steady at 4.25% as expected, citing its concerns on economic slowdown. The Eurostat confirmed that the euro zone economy shrank 0.2% QoQ in 2Q08, as consumption and investment dropped. July’s producer price index (PPI) rose 1.1% MoM or upped 9.0% YoY, as oil prices hit its record high. Germany Economic Minister said that German economy probably slipped into recession as 2Q08 GDP contracted 0.5% QoQ. He expected a negative QoQ growth in 3Q08.

UK: The BoE hold its policy rate at 5.0% as expected. However, market worried about recession and expected the BoE would cut its policy rate before the end of this year.

Japan: Private capital spending fell 6.5% QoQ in 2Q08, confirming that Japanese economy was in trouble.

Thailand: A drop in oil prices and government measures help lowering August’s inflation compared to a month earlier. Headline inflation rose 6.4% YoY, but declined 3.0% MoM. Core inflation (excluding fresh food and energy prices) increased 2.7% YoY, but dropped 0.9% MoM. The BoT governor said that the central bank might change inflation targeting from core inflation to headline inflation as higher oil prices caused the gap between core and headline inflation much wider than before. The governor also commented that the Thailand economic fundamental remained strong, and she believed if political situation was back to normal, everything should move on smoothly. However, as direction of oil prices remained in doubt and government measures would give benefit for short-term only, the BoT suggested that inflation risks could not be completely sidelined, and the bank would keep a close monitor on it.

Fixed Income Market
Government bond yield edged up 0 - 0.10% with the steepening trend, short term yield (1 - 3 year) stayed still while long end (7 - 10 years) increased approximately 0.10%. The key factors of market correction this week were expectation on significant higher supply in FY09 due to jumping government budget deficit from THB165bn in FY08 to THB249bn in FY09, and profit taking flow after market rally for the past few months.

Equity Market
SET Index plunged to the lowest level in 20 months amid political clash between Prime Minister and protestors as well as concerns on global economic slowdown. Selling pressure on Thai stocks intensified as State of Emergency in the Capital was declared right after battle between the pro and anti-government supporters broke out. S&P said to cut Thai rating outlook if violence worsened. Global sell-off persisted as signs pointed to further economic slowdown i.e. deteriorating US consumer spending and higher unemployment. Oil prices continued to drop this week largely as hurricane damage lesser than expected and as Euro hit its year-low. Hence, energy sector bore the brunt of selling this week. Whilst domestic names i.e. banks held up relatively well with much lower-than-expected CPI reported. Rate-hike talk ended with inflation falling sharply from 10-year high as a result of slide in commodity prices and government subsidies.