January 8, 2009, 12:00 AM - 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: Mortgage applications fall in latest week (January 7, 2009, 4:00 PM)
Mortgage applications fell by 8.2% compared to last week. Mortgage rates have fallen by roughly 1% and mortgage applications have risen sharply since the Fed announced its purchase program of MBS from GSEs in late November. The development promises some stabilization in housing demand soon.

Indonesia: New Year surprise again a rate cut (January 7, 2009, 3:58 PM)
After the 25bp cut in December, Bank Indonesia again surprised with a 50bp rate cut to 8.75% to boost growth. Market expected 25 bps. Six-month low inflation in December, a stable currency and concerns over growth prospect all aided this move. We expect BI to cut rates further but gradually.

Taiwan: record decline in exports (January 7, 2009, 3:55 PM)
December exports showed a record 41.9% y/y contraction. As the world slipped into deeper recession, demand for the island's electronics is dropping like a rock. Exports weakened across all regions. Imports also declined by a record 44.6% y/y. Trade activities is set to remain weak in 1Q09.

USA: ADP private payrolls collapse in December (January 7, 2009, 3:55 PM)
ADP private payrolls fell by 693k in December, worse than expected. The methodology to estimate the figure has been updated to better match the government's nonfarm payrolls release. The report suggests a drop of around 670k in nonfarm payrolls on Friday.

Taiwan: a surprised rate cut (January 7, 2009, 2:21 PM)
Central Bank held an unscheduled meeting to cut the policy rate by 50 bps to 1.5% right after the announcement of the disappointing trade data. With declining exports, rising jobless rate, and dismal growth outlook, central Bank is expected to lower rate further.

Australia: Retail sales rise in November (January 7, 2009, 1:09 PM)
Retail sales increased 0.4% m/m in November, far better than market expectations. In contrast to most other developed economies, Australia appears to have held up reasonably well in the fourth quarter. However, we still see considerable downside risks to growth in 2009 and 2010.

Germany: unemployment turns (January 7, 2009, 1:04 PM)
In December, German unemployment rose for the first time since January 2006. On a seasonal adjusted basis, unemployment rose 18'000 from a month earlier. Accordingly, the unemployment rate rose from 7.5% to 7.6%. We expect further deterioration in the employment conditions this year.

USA: FOMC Minutes reveal a very concerned Fed (January 6, 2009, 10:20 PM)
The FOMC Minutes for the 16 December FOMC meeting stood under the star of a dismal economic outlook and tough communication choices. The Fed showed real concern for a prolonged recession and disinflation that would go beyond levels consistent with price stability.

Equity Markets EU

Daily European Equity Market Comment (January 7, 2009, 4:57 PM)
On Wednesday, European stocks retreated on speculation that deteriorating earnings will overshadow government efforts to revive the global economy. Utilities led the decline in the market. E.ON, Germany's biggest utility, slumped after Russian natural-gas exports through Ukraine to Europe were halted for the first time in three years. Scottish & Southern Energy, the UK's second-biggest energy supplier, tumbled after the company said that it will sell 5 percent of its issued share capital to fund investment in power plants. We are moderately underweight on Utilities. Rio Tinto and BHP Billiton slid, as the US rival Alcoa reported its third major production cut in many months. Commerzbank sank after a broker said that the company's acquisition of Dresdner Bank may curb its profits. On the other hand, Automobiles & Parts and Health Care stocks witnessed some buying interest. Barclays and BNP Paribas were amongst the top performers of the day.

Equity Markets USA

Equity Market Comment (January 7, 2009, 10:50 PM)
The S&P 500 declined 3.0% yesterday. The Semiconductor industry was the hardest hit, falling 5.8% following Intel's disappointing earnings preannouncement. Heightened economic uncertainty and a prolonged recession is leading to many IT projects being pushed out or outright cancelled. This bodes poorly for the highly cyclical semiconductors. Despite more rational production levels, rising inventories at semiconductor companies indicate that end-demand is rapidly softening.

The Insurance industry also fell significantly yesterday; declining 5.8%. While turbulent equity/credit markets will pressure the Insurance industry, we believe it should outperform the market going forward. Within Insurance, Property and Causality offers defensive attributes, including solid balance sheets which are generally less sensitive to overall economy. Life insurers are more sensitive to the overall fluctuations of the capital markets, however depressed valuations offer an attractive investment opportunity.

Equity Market Comment (January 7, 2009, 4:07 AM)
The S&P 500 rose 0.8% yesterday, with strong gains from the global cyclicals, Tech and Industrials, an area we believe will underperform the market going forward. Developed markets industrial demand has fallen dramatically since September, while emerging markets are rapidly scaling back on capital-intensive production. Despite the potential strong infrastructure stimulus package, construction spending faces very challenging conditions given weakness from several once strong end-markets, with increased cancellations and postponed projects also likely to occur due to lack of financing. The Tech sector has also been under increased pressure as heightened economic uncertainty has lead to IT projects being pushed out or cancelled, while earnings are also being impacted by the beleaguered Financial sector given that its comprises nearly 20% of Tech revenues. We continue to overweight sectors with the greatest earnings stability: Consumer Staples, Health Care, and Telecom.

Equity Markets Asia

Daily Asian-Pacific Market Comment (January 7, 2009, 11:28 AM)
Asian stocks traded mixed on Tuesday. Japan, Korea and Taiwan were some of the major markets that closed higher on optimism that worldwide government spending would restore economic growth. Commodity stocks jumped after metal prices rallied. Among the losers, India's Sensex was the worst hit after Satyam, the nation's fourth largest IT services company by sales, reported that the company's financials had been inflated. The stock lost 77% today and was a drag on other technology companies in the region. Indonesia lost close to 1% despite a cut in interest rate by the government to boost growth. A drop in telecom and utility stocks offset a rally in commodity stocks in Indonesia. Hong Kong's Hang Seng index fell on concern of major sell-off by foreign investors. Telecom stocks also suffered on anticipation of higher licensing costs.

Forex Markets

EURUSD: Cup and Handle supports longer-term view (January 7, 2009, 3:18 PM)
The 2007 breakout of the multiyear bullish "cup and handle" still suggests longer-term projections of 1.90-1.95. However, in the near-term, initial resistance is near 1.38-1.39. To the downside, initial support lies at 1.30-1.32 or the Nov/Dec '08 highs and the 50-day moving average.

IDR: Deep rate cut delights the rupiah (January 7, 2009, 12:20 PM)
Bank Indonesia lowered its key policy rate by 50bps on Wednesday and signals future cuts. The further easing of liquidity conditions delight the rupiah, as USDIDR fell by 1.8%. We however see more upside in the pair in the short-term on continuous USD strength and worsening economic data from Asia.