News and Research Update

October 11, 2008, 12:00 PM - Data Source: UBS Wealth Management Research

Research in focus:

Currencies: a delicate imbalance

The 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

India: Lower reserve ratio boosts liquidity (October 10, 2008, 2:49 PM)
The Reserve Bank of India slashed the reserve requirement ratio (CRR) by another 100bp. Following the 50 bps cut on 7 October, this brings the CRR to 7.5%, pumping about USD 12.7bn of additional liquidity into the financial system. We expect further CRR cuts ahead, but no interest rate cuts for now.

India: Industrial production plummets in August (October 10, 2008, 2:47 PM)
Industrial production growth slumped to a low of 1.3% y/y in August (consensus 6%), down from revised 7.1% in July. Despite slowing production growth, we do not expect the RBI to cut rates in its 24 October meeting as inflation remains a concern. The risk to GDP growth has increased, in our view.

Malaysia: Production plunges to 16-month low (October 10, 2008, 2:46 PM)
Industrial production (IP) grew at 0.9% y/y in August (consensus 1.9%) against a revised 2.4% in July. The slowdown in production is broad-based and primarily due to weak global growth. We do expect IP to deteriorate further as we believe that also domestic growth has started its descent.

Philippines: Strong export growth in August (October 10, 2008, 2:12 PM)
Exports grew above 6.5% y/y in August, accelerating from 4.4% in July. This was primarily due to rising shipment to China and Japan that offset the slowdown of exports to the US. We expect exports to moderate in coming months once the slowdown in the US starts impacting Asian economies.

Singapore: MAS eases policy stance (October 10, 2008, 2:11 PM)
Reacting on weak growth figures and a dire external environment, the Monetary Authority of Singapore (MAS) eased monetary policy at its biannual policy meeting. The MAS manages monetary policy through the exchange rate and reduced the appreciation target of the trade-weighted SGD to zero.

Singapore: GDP contracts in the third quarter (October 10, 2008, 2:10 PM)
According to advance estimates, real GDP contracted 0.5% y/y in 3Q, after 1.9% growth in 2Q. This means GDP contracted two quarters in a row, the technical definition of recession. We expect growth to remain negative as Singapore's export-oriented economy reacts to the sluggish global environment.

Switzerland: Labour market has bottomed out (October 10, 2008, 9:25 AM)
Although the unadjusted unemployment rate remained at 2.4% in September, the seasonally adjusted rate increased to 2.6% from 2.5% in August. We expect the labor market to deteriorate gradually in the coming months as economic activity in Switzerland is slowing.

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Equity Markets EU

Daily European Equity Market Comment (October 10, 2008, 4:59 PM)
On Friday, European stocks declined on concerns over deepening credit crisis and growing fears that the steps taken so far to calm the markets would fail to ward off global recession. Basic Resources, Banks, Insurance and Telecom were amongst the worst performing sectors in the DJ STOXX 600. Mining stocks, BHP Billiton, Anglo American and Rio Tinto tumbled as metal prices fell. Oil stocks, Total, BP and Royal Dutch Shell slumped after crude oil prices retreated on concern that economic slowdown will lower demand. Royal Bank of Scotland, Deutsche Bank, Societe Generale, Credit Suisse and Barclays were the top laggards among banks. Utility stocks declined led by E.ON and GDF Suez. Nobel Biocare tanked, after the world's largest maker of dental implants, said it might fail to meet its guidance.

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Equity Markets Asia

Daily Asian-Pacific Market Comment (October 10, 2008, 12:48 PM)
Concerns of a deepening financial crisis pushing the global economy into a recession caused the Asian markets to fall on Friday. In Japan, the Nikkei index lost more than 9%, after the news of a real estate investment trust failing and an unlisted life insurance company's bankruptcy filing, hit the market. In Korea, the KOSPI index fell to its lowest in three years but stabilized after the won rebounded. Trading was halted in Taiwan after the benchmark index plummeted 10%. More than USD 6 trillion has been erased from global equities this week, even as central banks from all across the world were forced to cut interest rates after the year-long credit-market seizure increased concerns that banks will run short of money. Major stock losers include banking stocks like ICICI Bank in India, Sumitomo Mitsui Financial Group in Japan and Bangkok Bank in Thailand.

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Forex Markets

Distrust driving currencies (October 10, 2008, 3:25 PM)
Distrust remains in financial markets supporting the as safe haven perceived Japanese yen, Swiss franc and US dollar, while the Australian, New Zealand and Canadian dollar are under pressure. As long as market uncertainty persists, we expect further gains for the save haven currencies.

EURNOK: Norwegian inflation hits a 20 year high (October 10, 2008, 11:36 AM)
Norwegian headline CPI reached a 20 year high in September. Nevertheless, Norges Bank has brought forward their regular meeting and we expect them to cut interest rates as the other leading central banks did. As long as market uncertainty persists we expect the Norwegian Krone to remain weak.

EURCHF: on a 3 year low (October 10, 2008, 10:09 AM)
Global fears pushed EURCHF to a 3 year low below 1.52. In the current environment investors are looking for safe haven assets such as the Swiss franc. As long as market uncertainty prevails we expect further gains for the Swiss franc against the euro.

KRW: Lifted by interventions, curbs on speculation (October 10, 2008, 9:24 AM)
On Friday, there appears to be a concerted effort to shore up the ailing currency. Having tumbled 28.5% against USD this year, the won is the worst performing emerging market currency, after a collapsing Icelandic krona. Amid heavy interventions, the government also vows to stem FX speculation.

EURUSD: Brush off high initial claims (October 10, 2008, 9:23 AM)
The greenback seems little bothered with the high initial claims figure which firmly plants itself in the recession territory. As a synchronized global recession looks increasingly likely, uncertainties in the markets should overwhelm upcoming economic data.

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