Market Snapshot. Non-farm Payrolls Impress, Sending US Equities Up. Monday, 11 November 2013

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1 Market Snapshot Monday, 11 November 2013 Non-farm Payrolls Impress, Sending US Equities Up WHAT S NEWS US non-farm payrolls rose 204,000 in October, handily beating forecasts. This sent US equities and the USD up. S&P took its France credit rating down a notch to AA. China economic data was good news as leaders headed into the Third Plenum that started over the weekend. THE DAY AHEAD Malaysia industrial production likely grew 2% on-year in September. India reports October trade figures. EQUITY MARKETS S&P 500 DJ Euro Stoxx 600 Nikkei-225 MSCI Asia ex-japan MSCI Emerging Markets -0.2% -1.0% -0.9% -1.5% 1.3% DEVELOPED MARKET EQUITIES Nonfarm Payrolls Impress, but S&P Downgrades France US stocks rose after a government report said jobs growth accelerated in October. The Labor Department said companies added 204,000 to their headcount, easily beating a Reuters survey for 125,000. A separate report showed personal income grew 0.5% in September. These came a day after the Commerce Department said the economy grew 2.8% in 3Q-13, the fastest pace in four years. All three major US equity indexes rallied over 1%. This week promises a line-up of Federal Reserve speeches. Atlanta Fed President Dennis Lockhart speaks on the economy on Tuesday, and Fed Vice Chair Janet Yellen faces the US Senate Banking Committee on Thursday as the formal process to replace Chairman Ben Bernanke kicks off. Yellen s nomination is widely expected to be confirmed. Europe equities tumbled after ratings agency Standard & Poor's took France's credit rating a notch lower to AA from AA+. S&P is not impressed by France s reforms, believing the economy to be facing a deeper structural problem while the government sees the problem as a cyclical one. Industrial production and trade data also disappointed. But losses on the Stoxx 600 were muted as Germany exported much more than it imported. France said on Sunday it will borrow EUR4.5 billion to settle collapsed bank Credit Lyonnais' debt as borrowing costs are at historical lows despite S&P's rating downgrade. The former state-owned lender was bailed out in the mid 1990s, and subsequently taken over by French bank Credit Agricole. Shown in local currency terms, as of the last business day. US TREASURY YIELD CURVE 1M 3M 6M 1YR 2YR 3YR 5YR 7YR 10YR 30YR 1M 3M 6M 1YR 2YR 3YR 5YR 7YR 10YR 30YR One year ago Last Close 5.0% 5.0% 4.0% 4.0% 3.0% 3.0% 2.0% 2.0% 1.0% 1.0% 0.0% 0.0% The curve shows the yield to maturity of current US bills, notes and bonds. All data is as of the close of the last business day. CALENDAR Event Period Survey Prior MA Industrial Production YoY Sep 2.00% 2.30% IN Imports YoY Oct % IN Exports YoY Oct % Source: Bloomberg, DBS Group Research

2 Market Snapshot 11 November Japan equities slid 1% ahead of a key US jobs report. A weaker dollar during Asian trading hours saw exporters such as Suzuki Motors and other automakers trek lower. Nikon fell 3.6% as its profit was hurt by weakness in the semiconductor market and a shrinking compact digital camera market. ASIA EQUITIES Asia Down On China Plenary, Early Taper Jitters China and Hong Kong stocks fell on jitters as top leaders head into a once-a-decade meeting, called the Third Plenum. Bank stocks continued to be dogged by fears of interest rate reforms. Property stocks also fell after the Shanghai housing bureau followed Shenzhen in raising the minimum downpayment for second-home buyers. The SHCOMP was down 1.1%, while the Hang Seng fell 0.6%. But October economic data was good news as Chinese politico headed into the Third Plenum. Industrial production rose 10.3% onyear. Exports rebounded 5.6% on-year after turning in a 0.3% decline in September. Consumer prices rose a lesser-than-expected 3.2%, while producer prices fell 1.5%. Retail sales jumped 13.3%. And fixed asset investment in urban areas was up 20.1% on year. Southeast Asia stocks fell as the fastest pace of US economic growth in 3Q-13 could mean December taper is back on the table. Once the Fed taps the brakes on its stimulus efforts, US yields would pick up, becoming a more demanding benchmark for Asian equities to match up to. Singapore s STI fell 0.8%, Malaysia s KLCI was down 0.1%, and Indonesia s JCI eased 0.2% lower. India's Sensex fell a fourth straight session as investors cashed in on profits. Since reopening on Monday after holidays, the Sensex has fallen 2.7%. The rupee rose against the dollar Friday, but weakened this week as India's central bank has eased one of its forex trading restrictions. State-owned oil companies, the largest source of dollar demand, can now start buying dollars directly from the market. The RBI introduced this in August to stop the rupee's free-fall. FIXED INCOME US Treasuries saw the largest one-day fall since July as an impressive nonfarm payrolls number fuelled speculation the Fed may start to taper as early as December. The Fed s USD85 billion a month purchases has been a key support for USTs. The benchmark 10-year yield rose to 2.75%. COMMODITIES West Texas Intermediate crude rose as demand could be picking up, and as talks between Iran and the five permanent members of the United Nations Security Council ended without a deal. An agreement on Iran s nuclear programme would have loosened Iran oil curbs, a negative for oil prices already facing a supply glut. Separately, US Energy Information Administration data showed demand could be picking up, as the nation consumed over 20 million barrels of oil a day for the second straight week. The US is the world s largest oil consumer. Gold on the Comex tumbled as an impressive non-farm payrolls number raised speculation that the Fed could tap the brake on its stimulus efforts earlier than expected. Source: Bloomberg, DBS Group Research and Vickers (DBS), Dow Jones Newswires, Reuters, Agence France-Presse Equity Markets Returns of equity indexes around the world, in local currency terms. Index Close Overnight YTD US DJIA % 20.28% S&P % 24.15% NASDAQ % 29.80% Europe Euro Stoxx % 15.39% Germany DAX % 19.26% France CAC % 17.01% UK FTSE % 13.74% Asia MSCI AxJ % -0.84% Japan Nikkei % 35.51% China SHCOMP % -7.18% Hong Kong Hang Seng % 0.39% Taiwan TWSE % 6.88% South Korea Kospi % -0.61% Indonesia JCI % 3.71% Malaysia KLCI % 6.84% Singapore STI % 0.32% India Sensex % 6.38% Emerg. Mkt MSCI EM % -5.68% Government Bonds Benchmark yields of major 10-year government bonds. Latest yield Previous yield Change (bps) US 2.75% 2.60% Germany 1.76% 1.68% 7.30 Japan 0.59% 0.60% China 4.25% 4.22% 3.00 Taiwan 1.69% 1.70% South Korea 3.49% 3.52% Indonesia 7.95% 7.90% 4.60 Singapore 2.21% 2.24% India 8.99% 8.85% Commodity futures Prices of one-month futures contracts, grouped by commodity type. Close 1-day change 1-yr high 1-yr low WTI crude ($/bbl) % Gold ($/oz.) % Copper ($/ton) % Corn (cents/bu.) % Soybean (cents/bu.) % Wheat (cents/bu.) % Coffee (cents/lb) % Sugar (cents/lb) % Source: Bloomberg, as at the close of the last business day. O/N refers to overnight. YTD refers to year-to-date returns.

3 Market Snapshot 11 November CURRENCIES The USD rose after jobs were created faster in October, raising speculation that the Federal Reserve may reduce its stimulus before the year ends. Before the latest string of data, the USD was weak as it looked like the Fed could taper only next year. The EUR fell as S&P took France's credit rating down a notch, adding to negative sentiment after the European Central Bank shocked markets with a rate cut on Thursday. A lower policy rate reduces the EUR's yield advantage over other major currencies. The Aussie rose earlier with a good China industrial production read, but fell later as US nonfarm payrolls thundered past forecasts in October. Source: Bloomberg, DBS Group Research and Vickers (DBS), Dow Jones Newswires, Reuters, Agence France-Presse FX Round-up Currencies as of New York close. Last Overnight change Day high Day low EUR/USD % GBP/USD % USD/JPY % AUD/USD % NZD/USD % USD/CAD % USD/SGD % AUD/SGD % NZD/SGD % GBP/SGD % EUR/SGD % EUR/AUD % AUD/NZD % XAU/USD % Source: Bloomberg. SGD Against Major Currencies USD/SGD AUD/SGD NZD/SGD GBP/SGD EUR/SGD 86 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 USD Against Major Currencies EUR/USD GBP/USD USD/JPY AUD/USD NZD/USD 86 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Source: Bloomberg. Technical Summary Short-term technical readings with a two-week horizon. All figures are as of the last business day. Currency Short term Direction Support 1 Support 2 Resistance 1 Resistance 2 EUR/USD Range GBP/USD Range USD/JPY Range AUD/USD Range NZD/USD Range USD/CAD Range USD/SGD Range AUD/SGD Range NZD/SGD Range GBP/SGD Range EUR/SGD Bearish EUR/AUD Range AUD/NZD Range XAU/USD Bearish Source: DBS CIO Office. Note: These are short-term technical readings with a two-week horizon. All figures are as of last business day.

4 Market Snapshot 11 November Insights Feature Indonesia: 6% GDP Growth Still Possible in 2014 Indonesia s GDP growth slowed to 5.6% on-year in the quarter of this year. In sequential terms, it is now running at 5.2% on-quarter, seasonally adjusted annual rate, below the 6% average seen for the past three years. At its current pace, GDP growth may fall short of our current estimate of 5.8% on-year for Were this pace to hold steady throughout 2014, GDP growth would fall to 5.5% onyear. Little wonder there have been plenty of downward revisions to 2014 GDP growth forecasts. The International Monetary Fund, for example, recently lowered its Indonesia forecast to 5.5% from 6.4% projected in April. Are the days of 6% GDP growth gone? Not necessarily. We think that 6% is still on the cards for The main reason why GDP growth momentum has been sluggish this year is the faster than expected moderation in investment. A combination of lacklustre export growth and negative impact from a weaker Rupiah were the key factors that led to a slower investment growth in Demand of capital goods imports was also below trend for the most part of this year. Recent monetary policy tightening and prevailing uncertainties on the Rupiah may sustain the cautious outlook going into intended aim is of course to bring down domestic consumption. The current account deficit situation may continue to linger for some time. And it will continue to haunt sentiment in the markets if fears of capital outflows were to return to the market. It s not a bad idea to address the current account problem. In fact, it may be necessary. But sustaining GDP growth momentum is also crucial. The last thing the government would want to see is a sharp plunge in consumer confidence that could potentially be even harder to revive. This is where things are going to be trickier to predict. A new government will be in place by August It s not completely irrational to state that the new government could step up spending should the pace of GDP growth were to be way below the 6% target for next year. The relatively low budget deficit target for next year would provide some policy room for the government if necessary. The bottom line is that there is room for some policy tweaking if growth momentum were to falter even further in This is not the baseline scenario though we still envision 6% growth in Indonesia: GDP Growth Momentum A combination of slowing GDP growth and moderating CPI inflation makes it very tempting to call for interest rates to be lower going forward. The150 basis point rate hike this year has got to do with boosting confidence in the financial markets more than anything. Some portfolio flows have returned and the Rupiah seems to be more stable (and stronger) than it was 2-3 months ago. Bank Indonesia is unlikely to reverse its monetary policy stance anytime soon. Don t expect any huge fiscal package as any significant tinkering of the 2013 budget will have to be approved by the parliament and there is little time for that to happen before the year ends. Besides, by targeting a lower budget deficit of 1.7% of GDP in 2014, the government has clearly signalled that it will tolerate a slower pace of GDP growth going forward. Total fiscal spending is targeted to grow only 6.7% in This is well below the double-digit growth that has been typically the case in recent years. Bulk of the cost savings will come from goods & material expenditures, set to be about 2.5% lower in The Source report: DBS Group Research. Economics: Indonesia 6% growth in 2014 still on the cards. 7 November Summarised by DBS Group Wealth Management /CIO Office. Bond risk rating changes Effective Bond Name Issuer New Risk rating Existing Reason 05/11/2013 VZ 8 3/4 11/01/18 VERIZON COMMUNICATIONS 3 4 Tenor reduction 05/11/2013 JPM 4 1/4 11/02/18 JPMORGAN CHASE & CO 2 3 Tenor reduction Information updated as of 5 November 2013.

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