News and Research Update

November 19, 2008, 8:00 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

USA: NAHB index collapsed to all-time low in Nov (November 18, 2008, 8:58 PM)
The NAHB Housing Market Index fell from 14 to 9 in November, a new all-time low. Present single-family house sales and prospective buyers traffic deteriorated, while future sales held steady. At 9 the index points to a severe contraction in home sales, implying a deepening of the housing recession.

USA: Producer prices plunge in October (November 18, 2008, 8:57 PM)
Producer prices for finished goods fell by more-than-expected 2.8% m/m in October. Core PPI for finished goods rose by more-than-expected 0.4%. Energy prices fell by 12.8%, driving the plunge in overall prices. The report makes clear that disinflation is unfolding rapidly.

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Equity Markets EU

Daily European Equity Market Comment (November 19, 2008, 4:35 PM)
On Wednesday, European markets traded lower with Chemicals, Banks, Insurance and Basic Resources amongst the worst performing sectors in the DJ STOXX 600 index. BASF plunged after the world's largest chemical company cut its full year profit guidance for a second time. HSBC declined after a broker downgraded the stock citing further deterioration in economic outlook and lower capital ratios. BNP Paribas, Barclays, Credit Suisse, Deutsche Bank and ING were amongst the other top laggards in financials. Mining stocks, BHP Billiton and Rio Tinto, retreated as metal prices fell on concerns that economic slowdown will hurt demand for metals. British Land slipped after the company reported a wider second quarter loss. We have a moderate underweight stance in Real Estate as we expect business activity in construction and real estate to slow sharply.

Daily European Equity Market Comment (November 18, 2008, 4:47 PM)
On Tuesday, European markets pared its early losses as the energy stocks gained on higher oil prices. ENI, Total, BP and Royal Dutch Shell were amongst the major gainers in the blue-chip DJ STOXX 50 index. We are moderate overweight on energy stocks despite recent fall in oil prices as we expect these companies to maintain their current attractive dividend yield. Nokia also advanced after China Mobile said it will sign a contract with Nokia for supply of dual band handsets. Banks were the major losers for the second day in a row on the fears that they might need more capital as the prices of mortgage-linked securities continues to decline. Barclays, BNP Paribas, Royal Bank of Scotland and Société Générale were the major losers amongst heavy-weight banks. Mining stocks BHP Billiton and Rio Tinto also declined as the metal prices retreated on concerns over deepening global recession.

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Equity Markets USA

Equity Market Comment (November 19, 2008, 8:36 AM)
The S&P 500 has lost more than 41% of its value over the past year, and global equity markets have fared even worse. Market uncertainty has caused volatility to spike to unprecedented levels with fear of the unknown leading to irrational investment decisions, with some investors focused on return of capital rather then return on capital. However stocks for the long run have worked, stocks remain the highest returning asset class, even after factoring in the most recent market turmoil. The compound annual growth rate for the S&P 500 from 1928 through the present is 9.5% - almost double that of Treasury bonds (5.4%), and nearly 2.5 times higher than T-bills (3.7%). While viewing market returns over such lengthy historical periods offers little insight into the return prospects for those with shorter-term horizons, looking at returns over a rolling 10 year period, there have only been two times since 1928 that stocks registered negative returns. Those include 1938 and 2008.

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Equity Markets Asia

Daily Asian-Pacific Market Comment (November 19, 2008, 11:22 AM)
On Wednesday, most Asian markets closed lower. In Japan, the Nikkei index declined, led by technology stocks like Tokyo Electron and Elpida Memory. Falling banking stocks also weighed on the sentiment, with Mitsubishi UFJ Financial and Mizuho Financial, leading the declines. In Hong Kong, the Hang Seng index closed lower, led by banking stocks like ICBC, Bank of Communications and Bank of China. In Taiwan, stocks closed lower, despite a late rebound in technology stocks like Nanya Technology and Realtek. In Korea, the KOSPI index declined led by KB Financial Group. In India, the benchmark index closed lower as heavyweights like Reliance Industries and HDFC Bank fell.

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Forex Markets

Attempting to breakout of near-term consolidation (November 19, 2008, 5:14 PM)
The EURUSD is attempting to breakout of a potential near-term consolidation pattern (symmetrical triangle) near 1.272. A valid breakout could inspire a test of 1.3292, or the Oct 08 reaction high, which also corresponds to the 10 Oct low. Downside risk still corresponds to 1.23, or the Oct 08 low.

EURCHF: no longer in sync with stock markets (November 19, 2008, 5:12 PM)
While global stock markets declined, in contrast to previous movements, the franc lost against the euro. The increasing rate differential, the scarce liquidity in CHF (which intensifies movements) and the SNB's aggressive monetary policy response weigh on the CHF. We see EURCHF at 1.53 in 3 months.

EURNOK: NOK not yet ready to strenghten (November 19, 2008, 3:47 PM)
While Norway is not immune from the financial crisis, Norges Bank's governor Gjedrem still sees Norway in a better position than most countries. In the short term we expect the NOK to remain weak. We think like Gjedrem that the NOK should strengthen as soon as financial market conditions improve.

EURSEK: a new record high (November 18, 2008, 2:58 PM)
EURSEK reached on Tuesday a new record high above the level of 10.20. The movement was triggered by dropping equity markets and renewed concerns from the exposure of the Swedish financial sector to the Baltic States. In the short term, we expect the Swedish krona to remain weak.

AUD: Central bank blues (November 18, 2008, 12:37 PM)
The Aussie fell on Tuesday with investors' mood subdued due to the gloomy outlook detailed in the Reserve Bank of Australia's policy minutes. The final decision to lower the rate by 75bps last month, while market expectations looked at 50bps, reflects the escalating concerns over the economy.

GBPUSD: Stable with lower inflation (November 18, 2008, 12:28 PM)
Cable remained stable at around 1.50, as CPI came out lower than expected. Wednesday brings the BoE minutes, which have the potential to once again move markets, following the 150 bps cut and bearish inflation report. We think much of the bad news has been priced into GBP, but USD remains favored.

Technical damage requires time to mend (November 18, 2008, 3:45 AM)
The GBPUSD continues to sell off, making new lows. The FX remains oversold and a technical oversold rally would not surprise us. The breakdown that began in Aug '08 has fallen 23% so far and has violated major supports. Next supports are 1.4044 and 1.3682 or the 2002/2001 lows, respectively.

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