News and Research Update

July 4, 2009, 12:00 AM - Data Source: UBS Wealth Management Research

Research in focus:

31 March 2009 The financial crisis and its aftermath

The report details the causes of the financial crisis, the likely outcomes and the potential investment implications. Government policy will play an increasingly important role in shaping the economy and financial markets over the years to come. WMR evaluates monetary and fiscal policy measures, as well as key regulatory changes and highlights the longer-term implications for the economy, the financial sector, and return outlook for various asset classes.

Daily Market News:

Economic News

Indonesia: BI cuts by 25bp and more could come (July 3, 2009, 1:13 PM)
As was widely expected, Bank Indonesia (BI) cut interest rates further by 25bp to 6.75%. In its statement, BI signaled that the easing cycle is near its end. However, as we believe inflation will ease some more and remain muted in 2010, we expect 25 to 50bp in additional cuts in the coming months.

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Equity Markets EU

Daily European Equity Market Comment (July 3, 2009, 5:04 PM)
On Friday, European stocks declined in early trade, adding to the previous day's losses after the poor macro news flow regarding the rising unemployment in US. Later during the day, stocks pared declines supported by gains in banking, and media sector. Utilities and Basic Resources were amongst the worst performing sectors in the DJ STOXX 600 index. Mining stocks, Rio Tinto, BHP Billiton and ArcelorMittal were down as metal prices retreated. France Telecom and EDF fell after the stocks were downgraded by brokers. Metro, Germany's biggest retailer, declined on reports of lower retail sales in the Euro region in the month of May compared to the previous month. On the other hand, HSBC, Barclays, Deutsche Bank and Sanofi-Aventis were some of the best performing stocks in the blue-chip DJ STOXX 50 index.

Daily European Equity Market Comment (July 2, 2009, 4:51 PM)
On Thursday, European stocks tumbled after the unemployment in US surged to a 25 year high. Automobiles & Parts, Basic Resources and Financial Services were the worst performing sectors in the DJ STOXX 600 index. Mining stocks, Rio Tinto and Anglo American declined as the commodities prices retreated on concerns over global economic recovery. Energy stocks declined led by Royal Dutch Shell as oil prices fell after data showed sharp increase in US gasoline inventories. Clariant, world's largest chemical producer, tumbled after announcing its plans to sell around USD200mn of convertible bonds. On the other hand, Elan surged after Johnson & Johnson agreed to buy 18.4% stake in the company for USD 1bn.

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Equity Markets Asia

Daily Asian-Pacific Market Comment (July 3, 2009, 12:56 PM)
Following the weak overnight cues from the global markets, Asian markets traded mixed on Friday. The US unemployment rate increased to 9.5%, the highest ever since August 1983. The Chinese and Indian markets gained today, outperforming the region. China has gained more than 5% during this week. We continue with our overweight view on China. Recent economic data surprised positively confirming our more sanguine view on China's economy for 2009 than for the smaller Asian economies. We also think that Chinese authorities would have further means to provide additional fiscal stimulus in-case economic activity weakens. We also note that valuations remain attractive and have improved further in relative terms over recent weeks.

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Forex Markets

Forecast change USDBRL (July 3, 2009, 4:57 PM)
We change our USDBRL forecast from 2.05 in 3M to 2.03; from 2.20 in 6M to 1.95 and from 2.13 in 12M to 1.90. The apparent normalization in economic activity has been one of the main drivers for foreign exchange markets, for the benefit of risk-sensitive currencies such as the BRL.

Forecast change USDMXN (July 3, 2009, 4:55 PM)
We reduce the USDMXN forecast from 13.8 in 3M to 13.5 and from 15.0 in 6M to 14.0.
The measured, yet steady Central Bank intervention and the international support have helped to reduce volatility and is likely to reduce downside risk in the coming months.

JPY: Yen awaits the new currency chief (July 3, 2009, 1:38 PM)
Rintaro Tamaki will assume his new post as the vice finance minister for international affairs on July 14 during a challenging time when the US dollar and yen are under pressure. The Ministry of Finance has so far refrained from intervening directly in the FX market, which we expect to continue.

EURUSD: Risk still rules in June (July 3, 2009, 1:37 PM)
The trade-weighted US dollar index rose by 2%, accompanied by a rise in VIX index of 6%. Unsurprisingly, S&P 500 fell an almost 3% during the same period of time. Risk sentiment still rules the financial markets and the US dollar. We expect this trend to continue throughout the rest of the year.

The paradox part II (July 2, 2009, 5:53 PM)
Bad US data supports the US dollar and good data weakens it. This rule, which some observers considered to be a paradox, was confirmed again when the US labour market report disappointed with a high number of newly unemployed. The data led to risk aversion supporting the USD vs. Euro as usual.

SEK: Soft central bank softens currency (July 2, 2009, 5:51 PM)
The Swedish Riksbank cut rates by 0.25% to 0.25% and suggested in its comments that rates will stay there until end of 2010. Markets were surprised by those announcements and quoted the SEK weaker. We think however, that the general support for the SEK remains in place, despite slightly lower rates.

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