Markets Overview HIGHLIGHTS AHEAD CENTRAL BANK OUTLOOK

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1 Global Economics & Markets Research Singapore Company Reg No Z Markets Overview Thursday, 12 March 2015 Jimmy Koh Head of Research (65) Alvin Liew Senior Global Economist (65) Lee Sue Ann Treasury Economist (65) Suan Teck Kin, CFA Senior Asian Economist (65) Ho Woei Chen Asian Economist (65) Francis Tan Asian Economist (65) Quek Ser Leang Market Strategist (65) CONTENT Highlights Ahead Central Bank Outlook FX Intraday Views FX SGS Equities US Treasuries Commodities Economic News & Data HIGHLIGHTS AHEAD Data picks up on Thursday. In the US, retail sales will come into focus. Data is for the month of February (expected to rise by 0.3% but with gains of 0.5% ex autos and 0.3% ex autos and gasoline), which will be important for shaping expectations for Q1 real GDP. And being Thursday, the latest weekly jobless claims data are also due in the US. February import prices, January business inventories as well as February s budget data will also be released. Elsewhere, house price data will be rolled out in the UK, and Euro area industrial production figures for January are due. Bank of Korea (BoK) unexpectedly cut its benchmark interest rate by 25 bps this morning to fresh record low of 1.75%. The move follows the surprise rate cut by the Bank of Thailand (BoT) on Wednesday. South Korea s February headline inflation continued to ease to 16-year low of 0.5% y/y from 0.8% in January and further downward pressure could be expected in March as South Korea plans to lower retail prices of natural gas for households and businesses by 10.1 percent on average, its biggest-ever cut. Malaysia s January industrial production growth at 12 pm is expected to remain firm at 7.0% y/y compared to 7.4% in December. India will release data on January industrial production and February CPI later today. The balance of data from China including the money supply and new CNY loans for February could also be out today. New loans is forecast to be around CNY750 bn, down from CNY1.47 tn in January while M2 growth is expected at 11.0% y/y in February (January: 10.8%). CENTRAL BANK OUTLOOK The RBNZ, earlier this morning, announced that the cash rate remains unchanged at 3.5% following their latest OCR review. The official statement saw significant downward revisions to the outlook for inflation, largely reflecting the sharp fall in oil prices. CPI inflation is forecast to be 0.0% for 2015 and 1.3% for 2016 (compared with 1.1% and 1.7% in the December 2014 statement). GDP forecasts were also adjusted a little, mostly reflecting revisions to the historical GDP numbers. GDP growth is forecast to be above trend over the next two years at 3.2% for 2015 and 3.5% for 2016 (compared with 3.5% and 3.1% in the December 2014 statement). The RBNZ appears to be comfortable on hold for now. With growth still running above trend in New Zealand and growth expected to remain strong, we are keeping to our view that the RBNZ s next move is more likely to be up than down, although we are not looking for any move this year. Page 1

2 FX INTRADAY VIEWS USD/SGD: While USD dipped initially as expected, the subsequent rebound did not move above the previous high at Upward momentum is dented somewhat but positive undertone is expected to lead to a drift higher to retest the resistance. Only a move below would indicate that the immediate upward pressure has eased. EUR/USD: EUR staged another dramatic drop to a low of The strong downward trend still appears incomplete and the pressure is still clearly on the downside for now. That said, a rebound will not be surprising but unless there is a move back above , expect another leg towards support. GBP/USD: Instead of trading sideways, GBP plunged below the /35 support to touch a low of The limited recovery from the low suggests that further downside risk from here. Expect any rebound to hold below for a move towards AUD/USD: In line with expectations, AUD held below the strong resistance at before dropping to touch an overnight low of While downward momentum is waning with the rebound from the low, the undertone is still weak and it is too early to expect a sustained recovery. Allow for a move to but is expected to cap for a move to retest the overnight low. USD/JPY: USD traded sideways as expected and the outlook remains mixed from here. Expect further range trading, albeit at a higher range of / USD/CNH: The strong support at continues to hold as expected with a low of yesterday. The rebound from the low is gaining momentum and the strong resistance at will likely come under pressure today. Immediate support is at ahead of A break above could lead to a quick rise to EUR/SGD: EUR plunged to a low of /88 before rebounding. The drop is oversold but extremely strong downward momentum suggest a retest of the overnight low is likely. Strong resistance is at GBP/SGD: While the high of /57 held below as anticipated, the sharp collapse from the high was unexpected. The rebound from the low of /68 appears to be corrective and barring a move back above , another leg lower towards is likely. AUD/SGD: The strong rebound from the overnight low of /85 suggests that a temporary low is in place. Expect sideway trading between and Looking further ahead, the outlook for AUD appears weak and we will probably see lower levels in the days ahead. JPY/SGD: The outlook for this pair is mixed, expect sideway trading today, likely between and FX Developments in currency markets have again been a focal point as the greenback continues to firm broadly. The EUR/USD weakened further, dipping below 1.06 and hitting lows of over- Page 2

3 night. This has taken the EUR to its lowest level against the USD since early In a speech, ECB President Mario Draghi suggested that developments in the euro area were pointing in the right direction and that the Bank s asset purchasing program may be shielding Euro area countries from contagion stemming from renewed concerns about Greece. USD/JPY was underpinned by rallying equities. The pair is currently trading near yesterday s highs of , though it s still a long way short of matching Tuesday s brief look over GBP/USD saw much weaker than expected production data though with little adverse reaction on the pair, now seen around the levels. Industrial production came in at -0.1% m/m in January, below market, up 1.3%y/y. Manufacturing output fell 0.5% m/m in January, to be up 1.9%yoy. AUD/USD regained the handle earlier on Wednesday s session but slipped again towards the close and ahead of employment data on Thursday. NZD/USD was soft going into the RBNZ decision, and saw choppy trades after an initial bounce as rates were left unchanged. USD/Asians continued to climb on Wednesday with USD/MYR touching an intraday high of while USD/IDR rose to a high of 13,245. At a press conference on Wednesday, Bank Indonesia Governor Agus Martowardojo said that the tight policy bias will be maintained if inflation and current-account deficit don t show improving trend and the IDR volatility remains in safe condition. USD/KRW touched a high of 1, on Wednesday ahead of the monetary policy decision and USD/TWD ended at its session high of , up from close on Tuesday. USD/THB rose to from on Tuesday after BoT s rate cut. USD/SGD high was capped at around on Wednesday. SGD NEER is currently trading at -1.55% from the mid-point with -1.0% to -2.0% implying USD/SGD range of based on current FX levels. USD/CNY ended near-flat at on Wednesday while USD/CNH traded lower to from on Tuesday. UOB s USD/CNY model estimates the fixing to be set higher at /34 today, compared to the central parity of on Wednesday. EQUITIES The major US equity indexes closed mildly lower amid continued concern over dollar gains and the timing of a Fed interest rate hike. The Dow Jones Industrial Average closed down points (0.16%) at 17,635.39; the S&P 500 closed down 3.92 points (0.19%) at 2,040.24; and the Nasdaq closed up 9.85 points (0.20%) at 4, European equities closed higher on Wednesday, bouncing back heavy losses seen in the previous session. However, further losses were seen on Greek bourses, as technical talks between the Troika and Greece proceed. Asian equity indexes mostly retreated on Wednesday. The HSI and FSSTI fell 0.8% and 0.6% respectively while SHCOMP managed a gain of 0.2% despite a lackluster set of data releases yesterday. US TREASURIES The rally in US Treasuries slowed down as the spectre of 10-year and 30-year supply and a slightly firmer Wall Street weighed. The $21bn re-opened 10-year note auction came in at 2.139%, with a bid/cover of 2.65, non-comps of $22.3mn, indirect bidding of 58.6% and direct bidding of 10.2%. Wednesday s session saw the yield on the 2-year Treasury note and the yield on the 10-year Treasury bond settling at 0.68% and 2.11% respectively. Page 3

4 COMMODITIES Gold tumbled almost 1% to a 3-month low, as the greenback continued to climb. The Comex gold April contract settled at $ /oz. Oil was little changed as EIA crude stocks rose an as expected 4.5mln bbls (est 4.4m) even as imports slumped 575k bpd and refinery runs rose 187k bod (+1.2%). However, distillate stocks unexpectedly jumped 2.5mln bbls (est -2.6m) and gasoline stocks fell just 187k bpd, when a 1.7mln bbls drop was forecast, helping keep a lid on any price gains. The prompt-month NYMEX crude futures contract settled at $48.17/bbl. ECONOMIC NEWS & DATA In the US, the MBA mortgage applications index decreased -1.3% for the week ending 6 March. According to the release, downward pressure stemmed entirely from a decrease in refinancing activity (-3.0%), partially offset by upward pressure in new purchases (+2.0%). China s retail sales grew a weaker-than-expected 10.7% y/y in Jan-Feb (Bloomberg: 11.6%) while industrial production slowed to 6.8% y/y (Bloomberg: 7.7%) in the same period and fixed asset investment was weighed down by property investment to expand at a slower 13.9% y/y pace in Jan-Feb (Bloomberg: 15.0%). Data continues to point to softer growth outlook ahead for China. The Bank of Thailand (BoT) cut its policy rate by 25bps to 1.75% on Wednesday, after holding it unchanged for the past 8 policy meetings. The monetary policy committee (MPC) voted 4-to-3 in favour of the decision. In their statement, the BoT said that the economy is projected to recover at a slower pace than formerly assessed in the periods ahead, while noting that the downside risks from a slowdown in China is higher. Meanwhile, the BoT projected tourism to recover steadily and partially offsetting the weaker domestic demand. In its latest annual report, Bank Negara Malaysia (BNM) has lowered its inflation forecast to 2%- 3% this year, down from earlier range of 2.5%-3.5%. It expects GDP growth at 4.5%-5.5% this year while current account surplus is seen narrowing to MYR21.4 bn in 2015 from MYR49.5b last year. Page 4

5 Economic Indicators Date Time Indicators Month Actual Market Forecast Previous 11 Mar 1530 THB 1-Day Repo Mar % 1900 US MBA Mortgage Applications Mar % 12 Mar 1200 MY Industrial Production y/y Jan % 2030 US Retail Sales Advance m/m Feb % 2030 US Retail Sales Ex Auto m/m Feb % 2030 US Import Price Index m/m Feb % 2030 US Import Price Index y/y Feb % 2030 US Initial Jobless Claims Mar k 2030 US Continuing Claims Feb k 13 Mar 0200 US Monthly Budget Statement USD Feb bn 1030 SG Unemployment Rate sa 4Q F % 1300 SG Retail Sales y/y Jan % 1300 SG Retail Sales m/m sa Jan % 1530 TH Foreign Reserves USD Mar bn 2030 US PPI Final Demand m/m Feb % 2030 US PPI Ex Food and Energy m/m Feb % 2030 US PPI Ex Food, Energy, Trade m/m Feb % 2030 US PPI Final Demand y/y Feb US PPI Ex Food and Energy y/y Feb % 2030 US Ex Food, Energy, Trade y/y Feb % 2200 US U. of Mich. Sentiment Mar P Mar 2030 US Empire Manufacturing Mar US Industrial Production m/m Feb - 0.2% 2115 US Capacity Utilization Feb % 2200 US NAHB Housing Market Index Mar Mar 0400 US Net Long-term TIC Flows USD Jan bn 0400 US Total Net TIC Flows USD Jan bn 0830 SG NODX y/y Feb - 4.3% 0830 SG NODX m/m sa Feb - 1.6% 1630 HK Unemployment Rate sa Feb - 3.3% 2030 US Housing Starts Feb k 2030 US Building Permits Feb k 18 Mar 0930 CN February Property Prices MY CPI y/y Feb - 1.0% 1730 UK Claimant Count Rate Feb - 2.5% 1730 UK Jobless Claims Change Feb k 1730 UK ILO Unemployment Rate 3Mths Jan - 5.7% 1900 US MBA Mortgage Applications Mar Page 5

6 19 Mar 0545 NZ GDP q/q sa 4Q - 1.0% 0545 NZ GDP y/y 4Q - 3.2% 2030 US Current Account Balance USD 4Q bn 2030 US Initial Jobless Claims Mar bn 2030 US Continuing Claims Mar US Philadelphia Fed Business Outlook Mar US Leading Index Feb - 0.2% 20 Mar 1530 TH Foreign Reserves Mar Mar 0830 TW Unemployment Rate Feb % 1300 SG CPI m/m nsa Feb % 1300 SG CPI y/y Feb % 1300 SG CPI Core y/y Feb - 1.0% 1600 TW Industrial Production y/y Feb HK BoP Current Account Balance USD 4Q bn 2030 US Chicago Fed Nat Activity Index Feb US Existing Home Sales Feb mn 24 Mar 0945 CN HSBC China Manufacturing PMI Mar P US CPI m/m Feb % 2030 US CPI Ex Food and Energy m/m Feb - 0.2% 2030 US CPI Index nsa Feb US Markit US Manufacturing PMI Mar P US New Home Sales Feb - 481k 2200 US Richmond Fed Manufacturing Index Mar Mar 0700 SK GDP q/q sa 4Q F - 0.4% 0700 SK GDP y/y 4Q F - 2.7% 1900 US MBA Mortgage Applications Mar US Durable Good Orders Feb - 2.8% 2030 US Durables Ex Transportation Feb - 0.3% 26 Mar 1300 SG Industrial Production m/m sa Feb % 1300 SG Industrial Production y/y Feb - 0.9% 1630 HK Exports y/y Feb - 2.8% 1630 HK Imports y/y Feb - 7.9% 1630 HK Trade Balance Feb bn 2030 US Initial Jobless Claims Mar US Continuing Claims Mar US Markit US Composite PMI Mar P US Markit US Services PMI Mar P Mar 1530 TH Foreign Reserves Mar TW Monitoring Indicator Feb US GDP Annualized q/q 4Q T - 2.2% 2030 US Personal Consumption 4Q T - 4.2% 2030 US GDP Price Index 4Q T - 0.1% 2030 US Core PCE q/q 4Q T - 1.1% 2200 U. of Michigan Sentiment Mar F - - Page 6

7 Foreign Exchange Rates (as of 11 Mar 2015) FX Close Asian High Asian Low NY High NY Low EUR GBP AUD NZD JPY SGD MYR IDR THB PHP INR TWD KRW HKD CNY Interest Rates Current Next CB Meet UOB s Forecast USD Fed Funds Rate % 19 Mar % EUR Refinancing Rate 0.05% 15 Apr 0.05% GBP Repo Rate 0.50% 09 Apr 0.50% AUD Official Cash Rate 2.25% 07 Apr 2.25% NZD Official Cash Rate 3.50% 12 Mar 3.50% JPY Official Cash Rate % 17 Mar % SGD 3-Mth SIBOR 0.88% - - MYR O/N Policy Rate 3.25% 07 May 3.25% IDR O/N Rate 7.50% 17 Mar 7.50% THB 1-Day Repo 1.75% 29 Apr 1.75% PHP O/N Reverse Repo 4.00% 26 Mar 4.00% INR Repo Rate 8.00% 07 Apr 8.00% TWD Discount Rate 1.88% 31 Mar 1.88% KRW Base Rate 2.00% 12 Mar 2.00% HKD Base Rate 0.50% % CNY 1-Yr Wking Capital 6.00% % Stock Indices (as of 11 Mar 2015) Closing % chg ytd % chg Dow Jones Industrial Average S&P NASDAQ Composite Tokyo Nikkei London FTSE Frankfurt DAX All Ordinaries FTSE Straits Times Index FTSE Bursa Malaysia KLCI Index Jakarta SE Composite Index Thailand SET Index Philippines SE PSEi Index Taiwan SE Weighted Index Korea SE KOSPI Index Hong Kong Hang Seng Index Shanghai SE Composite Index India Sensex 30 Index UOB s Estimation of SGD NEER (as of 12 Mar 2015) Assuming 2.0% on each side of the pivot point Lower-End Upper-End Mid-Point Commodities (as of 11 Mar 2015) Closing % Chg NYMEX Crude (Apr) Comex Gold (Apr) Reuters CRB Index Bond Yields (as of 11 Mar 2015) Closing Net Chg US 2-Year Bond US 10-Year Bond JP 10-Year JGB EU 10-Year Bund UK 10-Year Long Gilt Market Holiday Date Event IN/PH Apr 02 Mahavir Jayanti/Holy Thursday SG/HK/ID/PH Apr 03 Good Friday AU/NZ/GB/US Apr 03 Good Friday AU/NZ/GB Apr 06 Easter Monday CN/TW Apr 06 Tomb Sweeping Day TH Apr 06 Chakri Memorial Day HK Apr Day After Ching Ming/Easter Mon PH Apr 09 Araw Ng Kagitingan TH Apr Songkran Festival Day IN Apr 14 Ambedkar Jayanti NZ Apr 27 Anzac Day Disclaimer: This analysis is based on information available to the public. Although the information contained herein is believed to be reliable, UOB Group makes no representation as to the accuracy or completeness. Also, opinions and predictions contained herein reflect our opinion as of date of the analysis and are subject to change without notice. UOB Group may have positions in, and may effect transactions in, currencies and financial products mentioned herein. Prior to entering into any proposed transaction, without reliance upon UOB Group or its affiliates, the reader should determine, the economic risks and merits, as well as the legal, tax and accounting characterizations and consequences, of the transaction and that able to assume these risks. This document and its contents are proprietary information and products of UOB Group and may not be reproduced or otherwise. Page 7