Equities broadly higher

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Equities were broadly higher over the week ended Nov 2, 2012 despite US markets being closed on Monday and Tuesday thanks to Superstorm Sandy. Gains by regional markets were led by Asia ex Japan, Global Emerging Markets and Europe, which returned two per cent, 1.7 per cent and 1.2 per cent respectively. Asian countries, in particular, Northeast Asian countries were amongst the best performing single country markets. China, Hong Kong and South Korea were the best performing single country markets with returns of four per cent, 2.9 per cent and 2.2 per cent respectively. Other notable performers included Thailand and Taiwan, who posted two per cent and 1.6 per cent of returns over the course of the week. Malaysia and Singapore were amongst the bottom performing countries, losing minus 0.9 per cent and minus 0.55 per cent respectively.

US: Sandy fails to rain on the US data parade

US economic data continued to post positive surprises in the last week of October to cap a relatively positive month for economic releases. The manufacturing ISM reading rose to 51.7 in October from September’s 51.5, coming in strongly above estimates of 51.0. Crucially, new orders rose from 52.3 in September to 54.2 in October, its strongest level in six months, indicating that there could be a rebound in the offing in corporate investments in fourth quarter of 2012 (4Q12) following the contraction seen in 3Q 2012. In conjunc­tion with the positive ISM manufacturing data, non-farm payrolls showed 171,000 jobs were created during October with the private sector adding 184,000 while the public sector slashed 13,000 jobs. Services continued to power the creation of jobs, with 163,000 jobs created in total by services.

Despite the better than expected job creations, the unemployment rate rose from 7.8 per cent to 7.9 per cent mainly due to a rising par­ticipation rate which increased from 63.6 per cent to 63.8 per cent, signalling that more people in the US are beginning to actively seek employment, which should bode well for future consumption upon their successful job hunt.

US personal spending has continued to grow in strength, with its rise in September beating estimates of a 0.6 per cent growth rate by growing 0.8 per cent for the month on the back of a 0.5 per cent rise in August. Adjusted for inflation, personal spending was 0.4 per cent higher for September, showing strength in growth as compared to a 0.1 per cent increase in August. US consumer spending has risen this year with personal consumption expenditures rising at a two per cent annualised rate in 3Q 2012 based on advanced estimates. A recovering housing and job market (incomes climbed 0.4 per cent in September) together with moderate energy prices have lent support to personal spending in the US.

Southeast Asia: Government subsidies keeps Thai inflation down

In Southeast Asia, inflation figures in Indonesia and Thailand gave investors two different pictures, mainly thanks to government subsidies in the latter. In Indonesia, the Consumer Price Index (CPI) in October increased 4.61 per cent from a year earlier, after recording a 4.31 per cent rise in September.

The acceleration in inflation was due to weakening rupiah which has increased the cost of imports. The October CPI reading was in line with consensus estimates of a 4.59 per cent year-on-year gain. Inflation has gradually picked up since beginning of this year, this has reduced the room for interest rate cuts to counter the weaken­ing exports and support economic growth.

Bank Indonesia views the current policy rate as consistent with inflation and supportive of a stable currency exchange rate.

In Thailand, the Consumer Price Index in October increased 3.32 per cent from a year earlier, slowing mildly from a 3.38 per cent gain in September. The deceleration in inflation was due to government subsidies contained the rising food and fuel prices. Thailand’s gov­ernment has extended a diesel tax cut till the end of October and will continue its fuel subsides for buses and trains until end-March 2013. Furthermore, Thailand Commerce Ministry has also requested manufacturers of key consumer products to halt raising prices until year end. With these measures, inflation is unlikely to post a policy risk heading into year end. The benign inflation provides Bank of Thailand room for further easing to spur growth.

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