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- MSCI Far East ex-Japan: -1.51% to 447.6
- Euro Stoxx 50: -0.57% to 2186.8
- S&P500: +0.72% to 1335
MARKET OUTLOOK:
Tactically, equity markets may face a sideways drift with downside pressure as the "rally on policy expectation" has stalled for 2 days now (in US and Asia) as the scale of twist2 underwhelmed. The underlying fundamentals is a slowing global economy, with markets looking ahead to rising recession risks in 2013 as large scale fiscal withdrawals in the US and EZ will likely worsen the slowdwon. Any further continuance of a tactical rally from here would need to see other central banks join in the wave of easing, and more decisive action from the Eurozone.
On the Eurozone front, the meeting of the big4 chiefs - Germany, France, Italy, Spain on Friday has yielded a document that outlines some of the things that will be thrashed out on Thursday's bigger summit: (1) banking union to break the link between bank bailouts threatening sovereign debt sustainability - a single regulator, common deposit insurance mechanism, a resolution fund (i.e. bailout) funded by a financial transaction tax; (2) to go beyond balanced budget commitments (under the New Fiscal Compact) toward joint liability & fiscal integration - on joint liability Germany's Merkel is not opposed per se unless there is fiscal oversight, and that just means fiscal union backed by a political union (see our Strategy paper "Road to Fiscal Union" dated 29 Nov 11 for an explanation). As political union is going to be a slow project and markets move quite much faster, what markets will looking for on Thursday would at least be a blueprint on how Europe will get there. On the immediate we expect proposals for a banking union as more achievable as the funding for a bank bailout fund, if funded by a financial transaction tax would alleviate the need for further sovereign funded bailouts. The European Redemption Fund, which is joint-liability, but pay-your-share, debt mutualisation fund for debt in excess of 60% to GDP would also be discussed as a means of reducing refinancing risk for troubled nations, but the fact that this requires a certain degree of fiscal oversight is likely to start the ball rolling for eventual fiscal union.
(Our general guidance in our morning notes and formal reports has been, as we weren't confident that econ/earnings data could outperform to drive markets, some combination of policy safety nets needs to occur in order to reverse consolidation/correction. The market in anticipation of policy did rally, but the Fed's announced twist2 was too small in size, so other central banks now need to do more if the market is to not punctuate its overall downward trajectory with a sharper short term rally. Longer term, we are still giving the heads up that post 6th November 12 USA presidential elections, markets could again be challenging going into 2013 - the US and EZ are under current law obliged to undertake tremendous fiscal tightening.).
For our larger trend outlook: Global Macro & Markets, 12 Apr.
Singapore Sector Strategy: Sector Strategy, 1 June
Singapore Sector Reports: Banks / Transport / Telcos / Property / REITS / Thematic
Regional Strategy: HK, 22 June / Thai, 18 June / S'pore, 8 June / M'sia, 30 May / China, 24 May / Indon, 29 March
MACRO DATA:
In Malaysia, inflation continued to remain benign. Headline inflation eased for the seventh consecutive month to 1.7% y-y in May (led by higher food prices), compared to 1.9% in the preceding month. Given the slowing global growth, it is tempting to forecast a rate cut to mitigate the growth downside given the benign inflation context. However, in view of the impending elections, we maintain our view that BNM will continue to stand pat till after, and re-assess its policy rate position post-elections (barring any extreme event in the global macro environment).
In Europe, Germany’s business climate index fell to 105.3 in June, the lowest level over 2 years, compared to 106.9 in May. IFO services confidence fell to 21.3 in June, after May’s 24.8. The nation’s growth is weakening as austerity measures across Europe curb demand for German goods.
China’s June NMI flash business sentiment index slumped to 51.92 from May’s 54.40, marking a second straight monthly fall, indicating weakening business activities. This is aligned with the earlier reported June HSBC flash PMI, which dropped to 48.1 after May’s 48.4. The nation’s slowdown in growth is on-going despite the earlier 25 bps benchmark rate cut.
Taiwan’s unemployment rate increased to 4.25% sa in May, from April’s 4.19% as the slowing growth of China and Europe turmoil hurt the economy’s export, which makes up over two thirds of Taiwan’s economy. An earlier report shows Taiwan’s export orders fell by 3.04% y-y in May, the fifth fall in 6 months, compared to the 3.52% y-y drop in April. Following domestic energy price hikes, the central bank so far has kept policy unchanged. |
| | | Source: Phillip Securities Research Pte Ltd |
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25-Jun 2012 Monday
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