Markets Overview HIGHLIGHTS AHEAD

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1 Global Economics & Markets Research URL: Wednesday, 20 January 2016 HIGHLIGHTS AHEAD The key US data on Wednesday (20 Jan) will probably be the December CPI. The rest of the US data docket includes the December housing starts & building permits, the MBA mortgage applications, and the December real average weekly earnings data but the focus for the US will remain on the corporate earnings calendar with Goldman Sachs, Kinder Morgan today. The data docket is moderately filled for the rest of the developed economies which include German December PPI, Japan December convenience store sales, UK December jobless claims & November unemployment, wages data, UK December RICS house price balance. The key Australian data today will be the January consumer confidence survey. On the international front, the attention will be on the World Economic Forum Annual Meeting 2016 which takes place from January 2016 in the now well-known Davos-Klosters, Switzerland. Malaysia s December CPI at 12 pm is likely to edge higher to 2.7% y/y from 2.6% in November. That should not have bearing on the monetary policy decision on Thursday where Bank Negara Malaysia (BNM) is widely expected to be on hold at 3.25%. While inflation could rise in 2016 due to low base effect and cost related adjustments, the central bank is likely to stand pat for the year. In Taiwan, the export orders data for December is scheduled at 4 pm SG time. Export orders are expected to contract for the 9th consecutive month, by 7.0% y/y vs. 6.3% drop in November. Singapore will conduct a round of COE auction today which recently saw a marked decline of nearly S$9,000 in the Category A COE and may pull down car prices further if there s another sharp decline and in turn add further downward pressure on the private road transport component of Singapore s headline CPI inflation. CENTRAL BANK OUTLOOK Bank of England (BOE) Governor Mark Carney who was speaking at the Queen Mary University of London on Tuesday (19 Jan) said that the Bank will do the right thing at the right time on rates but now [is] not the time to hike. He warned for vigilance for signs of low inflation pushing down wage deals and that oil price collapse means inflation likely to stay low for longer. He highlighted the need for above-trend growth, faster domestic cost growth, core inflation closer to 2% before raising rates. He also thought that adjustment in China is not over yet, will see subdued global growth. The International Monetary Fund (IMF) updated its World Economic Outlook (WEO) on Tuesday (19 Jan) where it downgraded both 2016 global growth forecast from 3.6% to 3.4%, and 2017 global growth from 3.8% to 3.6%. The IMF also noted that the December (2015) Fed Rate hike was based on strong US economic growth but it expects fewer rate increases in The IMF expects ECB to respond to growing deflationary pressures but it anticipates BOE will not be in a rush to raise rates without strong evidence of tightening labor market. The IMF also sees the CNY rate as broadly appropriate and noted that downside risks include faster China slowdown, further dollar appreciation and higher risk aversion. FX The US dollar ended stronger against the pound and the yen but lost ground against the euro and some of the commodityrelated currencies in the Tuesday session. The GBP/USD initially rose higher to after the higher than expected CPI data but it resumed its descent following BOE Governor carney s comments and closed lower at (from ) while the USD/JPY closed higher at (from previously). The euro was 0.2% higher against the dollar and the EUR/USD pair closed the day at (from previously). The Aussie dollar found further stability against the dollar for second straight session despite the ongoing weakness in commodities and the AUD/USD ended higher to (from ). In comparison, the NZD/ USD retreated further to end lower at (from ) as the New Zealand 4Q inflation posted the largest decline in 7 years and the slowdown gave room for RBNZ to cut rates further. This morning (20 Jan, 8:30am Singapore time), the NZD/USD headed lower to USD/Asians mostly pulled lower on Tuesday. USD/MYR and USD/IDR ended lower at and 13,852 from and 13,905 respectively on Monday. USD/TWD was near-flat at while USD/KRW fell 0.4% to 1, on Tuesday. However, USD/HKD continued to face upward pressure, ending up 0.1% at on Tuesday. USD/SGD traded lower in a range of on Tuesday. SGD NEER is at 1.5% below the mid-point this morning with -1% to -2% implying USD/SGD range of , based on current FX levels. USD/CNY ended near-flat at on Tuesday while USD/ CNH rose to from on Monday. This morning,

2 our UOB central parity model is projecting a lower USD/ CNY fix of /87 compared to on Tuesday. EQUITIES US equities markets resumed trading on Tuesday (19 January) with a volatile session and stocks ended with modest gains but energy shares continued to be weighed down by another drop in US crude oil price. The DJIA ended 28 points (0.17%) higher to 16, while the broader S&P 500 index was up by 1 point (0.05%) to end the session at The Nasdaq ended weaker as it closed points (-0.26%) down to The US corporate earnings calendar continues on Wednesday (20 Jan) and the list of reporting companies include Goldman Sachs, and Kinder Morgan. The set of uninspiring Chinese economic data renewed expectations of government stimulus and government-led funds entering the market which in turn set the SHCOMP higher on Tuesday. The SHCOMP ended up 3.2% on Tuesday, the most since November. The Asian equity indexes mostly rose following positive lead from China. The HSI and STI gained 2.1% and 1.8% respectively on Tuesday. US TREASURIES US Treasury broadly retreated as safe haven demand eased on Tuesday (19 Jan) as US equities etched out slight gains and UST yields climbed a bit higher across the curve. That said, the mild price declines in UST also signaled that many investors remained cautious in the current environment. The 2Y yield was higher by 2bps to 0.87%, 5Y up by 2.4bps to 1.49% and 10Y up by 2.1bps to 2.06% while the 30Y was 1.2bps higher at 2.83%. As for US Treasury auction activity, the US Treasury will sell the regular 4-week bills on Wednesday (20 Jan), instead of the usual Tuesday auction day. COMMODITIES Crude oil prices in US declined again on Tuesday (19 Jan) on concerns about Iranian crude returning and worsening the over-supply situation and US Nymex WTI futures fell to a fresh 12-year low, at US$1.14 lower to US$28.28, while the London Brent oil futures (which already reacted to the Iranian concerns on Monday) actually rebounded slightly by 28 cents to close at US$28.83 on Tuesday. The slight easing of risk aversion also saw gold price pulling back slightly by US$3.40 lower to US$ on Tuesday. ECONOMIC NEWS & DATA Japan December condominium sales plunged -34.1%y/y after a 4.8% increase in November. The final print for Japan December machine tool orders declined -25.7%y/y (similar to the prelim estimate of -25.8%y/ y) much worse than the -17.7% recorded in Nov. German December CPI final print was unchanged from the prelim estimate at -0.1%m/m (0.3%y/y) down from +0.1%m/ m (+0.4%y/y) in Nov. The German January ZEW survey provided some upside surprise as the expectations indicator fell by less than projected to 10.2 (from 16.1 in Dec, but above the forecast of 8.0) while the current situation indicator was higher at 59.7 (from 55 in Dec). However, the Eurozone ZEW survey eased markedly lower to 22.7 (from 33.9 in Dec). UK December CPI edged higher by 0.1%m/m, 0.2%y/y from 0.0%m/m (0.1%y/y) in Nov. This was the first time inflation exceeded the +0.1%y/y read since January UK core CPI increased at a faster than expected 1.4%y/y (above the expected & previous month reading of 1.2%y/y). The Eurozone November current account balance widened to EUR26.4bn in Nov (from EUR25.6bn in Oct). The US NAHB January housing market index held steady at 60 (same as the revised December reading) suggesting that modest growth in the key sector of the US economy is continuing. The Eurozone December construction output improved with a 0.8%m/m (2.1%y/y) increase, up from an upwardly revised 0.6%m/m (0.8%y/y) in Nov. UK November ONS house price increase rose to 7.7%y/y (from 7% in Oct). The US bipartisan Congressional Budget Office (CBO) said on Tuesday (19 Jan) that the bipartisan budget and tax deals Congress had agreed on in late 2015 will lead the US budget deficit to widen in 2016, the first time since New Zealand s 4Q 15 inflation slowed to its weakest since Prices fell a hefty -0.5%q/q in 4Q from +0.3%q/q in 3Q and much worse than the Bloomberg median expectation for -0.2%q/q. Compared to 1 year ago, inflation grew by just 0.1%y/y, from 0.4%y/y in 3Q and well missing the Bloomberg median expectation for 0.3%y/y. The very benign inflation outcome fueled speculation that it will give RBNZ greater scope to cut interest rate further from its present record low 2.5%, and it send the kiwi dollar weaker against the USD this morning (20 Jan). China s 4Q15 GDP rose by 6.8%y/y (in line with consensus and our expectations of 6.9%) from 6.9%y/y, marking the slowest growth pace since For the full year, China s economy expanded 6.9%, also in line with expectations, from 7.3% in 2014, the weakest since On a seasonally adjusted basis, 4Q15 GDP rose 1.6%q/q, decelerating markedly from 1.8%q/q in 3Q15 and underlining the downside pressure on the broader economy. However, the q/q pace in 4Q15 is far ahead of the 1.3%%q/q registered in 1Q15, which is the slowest since data is available. For 2016, we expect China s Wednesday, 20 January P a g e

3 economic growth to be able to maintain about 6.8% pace for the full year, based on our rather conservative assumptions that tertiary activities will slow to below 8%, from 8.3% in For the tertiary sector, we expect activities to stabilize at around 6% growth for 2016, similar to the 6.1% pace in For 2017 and beyond, we expect overall economic growth pace to decelerate continuously, and to hit 6.4% by As such for the 13th 5 year plan period ( ), it is not unreasonable that growth projections fall between 6.5 to 7.0% range. Meanwhile, high frequency monthly data releases for December suggest some signs of stabilizing in place for the broad economy, with no major deteriorations taking place. Chinese regulators are reportedly enforcing regulations for some banks in coastal cities on outflows from their RMBdenominated capital pools which cannot exceed size of the pools. Banks are required to conduct strict checks on corporate business and transactions affecting the RMBdenominated capital pools and it is not immediately clear whether the policy will be extended nationwide. The move is expected to tighten CNH liquidity in the offshore market. China s PBoC said that it would inject more than CNY600 bn (US$91.22 bn) to help ease a liquidity squeeze expected before the Lunar New Year in early February. This will be done through the three policy tools of the standing lending facility (SLF), medium-term lending facility (MLF) and pledged supplementary lending (PSL). The central bank will step up monitoring of liquidity and use reverse repo to meet short-term liquidity demand. China s securities regulator has approved 7 IPOs, the first batch under new listing rules introduced this year. Hong Kong s unemployment rate was steady at 3.3% in December, similar to November s. to boost lending soon and expects credit growth at low teens in The rating agency said banks NPLs will rise to 3.5% by year-end with weakness in the mining sector. The key risks are low FDI inflows, high foreign ownership of government bonds and rising external debt. Indonesia s Financial Services Authority (OJK) will allow up to 85% foreign ownership in venture capital companies. Indonesia s Pertamina is set to cut operational cost by 30% as crude price falls below $30/bbl. The IMF has lowered the global growth by 0.2% point to 3.4% in 2016 and 3.6% in 2017 from its October estimates, citing slowdown in China trade and weak commodity prices and said that policymakers should consider ways to bolster shortterm demand. IMF economic counsellor Maurice Obstfeld said that global financial markets seemed to be overreacting to falling oil prices and the risk of a sharp downturn in China. He said that it was critical that China is clear about its overall economic strategy, including its currency. 2016: -Cuts global growth forecast from 3.6% to 3.4%. -Raises Eurozone growth from 1.6% to 1.7%. -Cuts US growth from 2.8% to 2.6%. -Affirms UK growth at 2.2%. -Affirms Japan growth at 1.0%. -Affirms China growth at 6.3%. 2017: -Cuts 2017 global growth from 3.8% to 3.6%. -Affirms Eurozone growth at 1.7%. -Cuts US growth from 2.8% to 2.6%. -Affirms UK growth at 2.2%. -Cuts Japan growth from 0.4% to 0.3%. -Affirms China growth at 6.0%. Fitch ratings said that the rate cut in Indonesia is not likely Wednesday, 20 January P a g e

4 Economic Indicators Date Time Indicators Month Actual Market Forecast Previous 18 Jan 0830 SG NODX y/y Dec % 0830 SG NODX m/m sa Dec % 19 Jan 1000 CN Industrial Production y/y Dec % 1000 CN Retail Sales y/y Dec % 1000 CN GDP Ytd y/y 4Q % 1000 CN GDP q/q sa 4Q % 1000 CN GDP y/y 4Q % 1030 CN Bloomberg GDP Monthly Estimate y/y Dec % 1630 HK Unemployment Rate sa Dec % 2300 US NAHB Housing Market Index Jan Jan 0500 US Total Net TIC Flows USD Nov bn 0500 US Net Long-term TIC Flows USD Nov bn 1000 CN Foreign Direct Investment y/y CNY Dec % 1200 MY CPI y/y Dec % 1730 UK Claimant Count Rate Dec % 1730 UK Jobless Claims Change Dec k 1730 UK ILO Unemployment Rate 3Mths Nov % 2000 US MBA Mortgage Applications Jan % 2130 US Building Permits Dec k 2130 US Housing Starts Dec k 2130 US CPI Ex Food and Energy m/m Dec % 2130 US CPI Index nsa Dec US CPI m/m Dec % 21 Jan 1800 MYR O/N Policy Rate Jan % 2045 EUR Refinancing Rate Jan % 2130 US Philadelpha Fed Business Outlook Jan US Initial Jobless Claims Jan k 2130 US Continuing Claims Jan k 22 Jan 0830 TW Unemployment Rate Dec % 1530 TH Foreign Reserves USD Jan bn 1600 TW Industrial Production y/y Dec % 2130 US Chicago Fed Nat Activity Index Dec US Markit US Manufacturing PMI Jan P US Existing Home Sales Dec mn 2300 US Leading Index Dec % 25 Jan 1300 SG CPI m/m nsa Dec - 0.2% 1300 SG CPI y/y Dec % 1300 SG CPI Core y/y Dec - 0.2% 2230 US Dallas Fed Manf. Activity Jan Wednesday, 20 January P a g e

5 26 Jan 0700 SK GDP q/q sa 4Q P - 1.3% 0700 SK GDP y/y 4Q P - 2.7% 1300 SG Industrial Production m/m sa Dec % 1300 SG Industrial Production y/y Dec % 1600 HK Exports y/y Dec % 1630 HK Imports y/y Dec % 1630 HK Trade Balance Dec bn 2200 US S&P/Case-Shiller US HPI m/m Nov % 2245 US Markit US Services PMI Jan P US Markit US Composite PMI Jan P US Consumer Confidence Index Jan US Richmond Fed Manufact. Index Jan Jan 1600 TW Monitoring Indicator Dec US MBA Mortgage Applications Jan US New Home Sales Dec - 490k 28 Jan 1000 PH GDP Annual y/y % 1000 PH GDP q/q sa 4Q - 1.1% 1000 PH GDP y/y 4Q - 6.0% 1030 SG Unemployment Rate sa 4Q - 2.0% 1730 UK GDP q/q 4Q A - 0.4% 1730 UK GDP y/y 4Q A - 2.1% 2130 US Durable Goods Orders Dec P US Durables Ex Transportation Dec P US Initial Jobless Claims Jan US Continuing Claims Jan US Pending Home Sales m/m Dec % 29 Jan 0700 SK Industrial Production y/y Dec % 0805 UK GfK Consumer Confidence Jan TW GDP Annual y/y % 0830 TW GDP y/y 4Q % 1530 TH BoP Current Account Balance USD Dec mn 1530 TH Exports USD Dec mn 1530 TH Imports USD Dec mn 1530 TH Trade Balance USD Dec mn 1530 TH Foreign Reserves Jan UK Lloyds Business Barometer Jan US Employment Cost Index 4Q - 0.6% 2130 US Advance Goods Trade Balance USD Dec bn 2130 US GDP Annualized q/q 4Q A - 2.0% 2130 US Personal Consumption 4Q A - 3.0% 2130 US GDP Price Index 4Q A - 1.3% 2130 US Core PCE q/q 4Q A - 1.4% 2245 US Chicago Purchasing Manager Jan US U. of Mich. Sentiment Jan F - - Wednesday, 20 January P a g e

6 Foreign Exchange Rates (as of 19 Jan 2016) 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 Stock Indices (as of 19 Jan 2016) Indices 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 20 Jan 2016) Assuming 2.0% on each side of the pivot point Lower-End Upper-End Mid-Point Interest Rates Rates Current Next CB Meet UOB s Forecast USD Fed Funds Rate % 26/27 Jan % EUR Refinancing Rate 0.05% 21 Jan 0.05% GBP Repo Rate 0.50% 04 Feb 0.50% AUD Official Cash Rate 2.00% 02 Feb 2.00% NZD Official Cash Rate 2.50% 28 Jan 2.50% JPY Official Cash Rate % 28/29 Jan % SGD 3-Mth SIBOR 1.25% - - MYR O/N Policy Rate 3.25% 21 Jan 3.25% IDR O/N Rate 7.25% 17 Feb 7.00% THB 1-Day Repo 1.50% 3 Feb 1.50% PHP O/N Reverse Repo 4.00% 11 Feb 4.00% INR Repo Rate 6.75% 12 Feb 6.75% TWD Discount Rate 1.63% 31 Mar 1.50% KRW Base Rate 1.50% 16 Feb 1.50% HKD Base Rate 0.50% % CNY 1-Yr Wking Capital 4.35% % Commodities (as of 19 Jan 2016) Commodities Closing % Chg NYMEX Crude (Feb) Comex Gold (Feb) Reuters CRB Index Bond Yields (as of 19 Jan 2016) Bond Yields 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 Holidays Country Date Event MY Jan 25 Thaipusam Day NZ Jan 25 Wellington Anniversary IN Jan 26 Republic Day AU Jan 26 Australia Day Holiday NZ Feb 01 Auckland Anniversary MY Feb 01 Federal Territory CN/TW Feb Lunar New Year SG/MY/ID/PH Feb Lunar New Year SK Feb Lunar New Year NZ Feb 08 Waitangi Day JP Feb 11 National Foundation US Feb 15 Presidents 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. Singapore Company Reg No Z