Wealth Management Research Update

May 9, 2008, 8:00 PM - Data Source: UBS Wealth Management Research

UBS global outlook 2007:

UBS research focus - Asia's ascent

This UBS research focus report entitled, "Asia's ascent," provides an assessment of the long-term economic growth outlook for several Asian countries and the corresponding implications for investment opportunities in the region. The report also shows the expected impact of Asia on global financial markets.

Daily Market News:

Economic News

USA: Trade deficit narrows in March (May 9, 2008, 5:13 PM)
The trade deficit narrowed more than expected from revised USD 61.7bn to USD 58.2bn in March. The real goods trade deficit also narrowed, from USD 50.9bn to USD 47.2bn, implying by itself an upward revision to 1Q08 real GDP growth of about 0.6%.

Australia: RBA sees lower growth, higher inflation (May 9, 2008, 10:42 AM)
In its Statement on Monetary Policy, the RBA forecasts economic growth to remain below 3% through 2010, but it does not expect inflation to fall below 3% until the second half of 2010. This suggests that the RBA could be on hold for a long time, especially if economic growth exceeds its forecast.

Philippines: Export growth slows unexpectedly (May 9, 2008, 10:41 AM)
The Philippines' export growth fell markedly by 6.8% y/y in March 2008 from 10.5% in February. This is largely attributable to slowing global demand and a stronger peso which eroded the competitiveness of locally manufactured electronic goods. We expect export growth to remain weak in coming months.

India: Inflation rises to 3.5-year-high (May 9, 2008, 10:40 AM)
Wholesale price inflation rose to 7.61% y/y in the week ended 26 April from 7.57% in the previous week, mainly due to rising prices of primary articles. This may lead the government to ban futures trading on more food articles. We expect another cash reserve ratio increase from India's Reserve Bank.

USA: Initial claims confirm gradual uptrend (May 8, 2008, 4:44 PM)
Initial jobless claims rose 365k in the week ended 3 May, down from upward revised +383k in the prior week. The 4-week moving average rose slightly from 365k to 367k, but it is still below the typical recession threshold of 400k. Claims will likely stabilize in the next couple of months

USA: Wholesale inventories retreat in March (May 8, 2008, 4:44 PM)
Wholesale inventories surprisingly fell by 0.1% m/m in March, after a downware revised increase of 0.9% in February. The weak reading implies a downward revision to real GDP growth in 1Q08, but other data, prominently the March trade balance and retail sales revisions for March, will also matter.

UK: Bank of England left base rate unchanged (May 8, 2008, 4:20 PM)
The Bank of England left its base rate unchanged at 5% in May. The decision was widely expected, given that inflation remains high in coming months. However, the economy is clearly weakening and we expect the bank to lower interest rates again in June.

EMU: ECB left interest rates unchanged (May 8, 2008, 4:19 PM)
The ECB left its main policy rates unchanged at 4%. The decision was widely expected. In the press statement, ECB President Trichet seemed to confirm that rates are likely to remain unchanged for months to come. We expect the first rate reduction to come in early 2009.

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Equity Markets EU

Daily European Equity Market Comment (May 9, 2008, 5:01 PM)
European stocks declined on Friday on increased concerns about the credit crisis and surging commodity costs as oil rose above USD 125 per barrel. The concerns on credit crisis increased after AIG, the world's biggest insurer by assets, reported a first-quarter net loss of USD 7.81bn and disclosed more than USD 15bn in pretax writedowns. Media, Banks, and Basic Resources were amongst the worst performing sectors with Lloyds TSB, HBOS, BNP Paribas, Societe Generale, and Barclays amongst the worst performing stocks. British Energy declined on rumors that EDF, Europe's biggest power producer, plans an offer for the company that will be at least 5% below the company's share price. Food & Beverages and Telecom were the best performing sectors with Unilever, Telefonica and France Telecom amongst the best performing stocks.

Daily European Equity Market Comment (May 8, 2008, 5:03 PM)
European stocks declined on Thursday on growth concerns after European Central Bank President Jean-Claude Trichet said that inflation is high and risks to growth are remaining. Banks and Travel & Leisure were the worst performing sectors with Credit Suisse, BNP Paribas, Royal Bank of Scotland, Societe Generale, UniCredit, and Barclays as the worst performing stocks. UniCredit, Italy's biggest bank, declined after its first-quarter profit missed analysts' estimates due to credit-market writedowns and a EUR 683 mn loss from trading. Basic Resources and Food & Beverages were the best performing sectors with BHP Billiton, Rio Tinto, and Unilever amongst the best performing stocks. Unilever, the world's second-largest maker of food and detergent, advanced after reporting profits ahead of analysts' estimates. Sage Group, the U.K.'s largest software maker, advanced after the company posted higher first-half profit.

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Equity Markets USA

US Equity Markets Comment (May 8, 2008, 11:44 PM)
The S&P 500 advanced 0.4% on Thursday, recouping some of its losses from Wednesday. The commodity-sensitive Materials and Energy sectors continue to be the top-performing sectors within the S&P 500, as the underlying commodities continue their strong ascent. Food & Staples Retailing giant Wal-Mart also helped moved the market higher, following its better-than-expected April same-store sales because of strong numbers in food, health and entertainment sales. Going forward, we believe that while many US retailers are likely to continue to reduce forward earnings guidance, companies that offer a value proposition (e.g., Wal-Mart) should reap resilient earnings, a result of trading down by increasingly value-conscious US consumers.

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Equity Markets Asia

Daily Asian-Pacific Market Comment (May 9, 2008, 12:39 PM)
Asian stocks declined the most in three weeks, led by automakers and technology companies. Toyota, the world's second largest automaker, retreated after saying that higher oil prices and a slow down in the U.S. would hurt profitability. Hyundai and Kia Motors dropped in South Korea for similar reasons. Olympus, the world's sixth largest camera maker, slipped on a lower profit forecast. Bridgestone, one of the world's largest tyre makers, retreated on declaring lower profits due to rising input costs. Chinese stocks fell on speculation that the government would sacrifice economic growth in order to contain inflation. Energy stocks, however, moved higher, led by BHP Billiton in Australia, on surging oil prices. Oil refiners, such as China Petroleum in Hong Kong, declined on concern that oil prices would erode profits.

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Forex Markets

CAD: Employment report supports CAD (May 9, 2008, 3:06 PM)
Another strong Canadian job report supported the CAD and pushed USDCAD close to parity. So far the US slowdown had only a slightly negative impact on the Canadian economy. Nevertheless, the Canadian economy is not immune from the US slowdown and we continue to target USDCAD at 1.05 in 3m.

CHF, JPY: Risk aversion is back (May 9, 2008, 3:03 PM)
The return of risk aversion as gauged by negative equity performance once again supported the two low yielding currencies CHF and JPY. We continue to expect further financial market fragility. Therefore, EURCHF is likely to drop again below 1.60 and USDJPY below 100.

EURSEK: Riksbank's Rosenberg not ruling out a cut (May 9, 2008, 12:21 PM)
Riksbank's deputy governor Rosenberg said that an interest rate cut cannot be ruled out at a later point. At the same time she also said that inflation expectations are a little too high. EURSEK continues to float around 9.30. We continue to see limits for SEK strengthening in the very short term.

EURNOK: higher core inflation helps NOK (May 9, 2008, 12:17 PM)
Norwegian core inflation rose more than market had expected, and helped the NOK to further strengthen against the EUR. The market expectation of a further rate hike by the Norges Bank increased. We continue to expect EURNOK to trade in the 7.8-8.0 range.

ISK: Sedlabanki worried (May 9, 2008, 9:32 AM)
Sedlabanki's chief economist Sighvatsson said that Iceland is in a very dangerous economic territory and faces major problems in stabilising the ISK. The main target remains to stabilise the ISK. Sighvatsson also mentioned that the adoption of the EUR would bring more stability.

AUD: Mixed signals from RBA (May 9, 2008, 9:23 AM)
The RBA signalled in its quarterly statement that inflation might move higher and stay there for longer. At the same time it indicated that growth might decline. Nevertheless, we continue to expect the RBA to keep interest rates unchanged for the time being. This should support the AUD.

EURUSD: Hawkish Trichet supports EUR (May 8, 2008, 4:44 PM)
While some market participants had expected a dovish press conference, ECB president Trichet surprises a part of the market with its still hawkish comments. EURUSD moved up from 1.53 to above 1.54. We continue to expect EURUSD to stay on elevated levels.

AUD: Aussie recovers on strong employment (May 8, 2008, 9:37 AM)
AUD recovered against a strengthening USD on a broad basis after the strong Australian employment figures. This increases the likelihood that the RBA will keep interest rates for a longer time on elevated levels. We continue to expect AUDUSD to stay above 0.90 for a longer time.

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