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South Asia Weekly Outlook and Strategy - 12 - 16 Nov 2007

Kwok Yung Chua, [email protected],

Ph: 65-6236 0385

Leslie Khoo, [email protected],

Ph: 65-6236 0394

Vishnu Varathan, [email protected].

Ph: 65-6236 0396

Week Ahead: In US, there are plenty of significant data releases. We expect Tue's Sep pending home sales report to correct higher by 1.5% after 2 very steep declines. However, on Wed, signs of slowing activity will be visible in a flat Oct retail sales figure, +0.1% ex autos. The retail sector, specifically autos should restrain an otherwise strong Sep inventories report on Wed to a 0.3% rise. Thu's Oct CPI should be acceptable subdued with a 0.2% rise in the core rate, even before rounding, with only a modest boost from energy to the headline with a 0.3% rise. On Wed, Oct core PPI should also rise by 0.2%, but the headline should be strong at +0.6%. Fri's Oct industrial production report should not be very impressive with a 0.1% gain, with manufacturing falling by 0.1%. Nov's surveys from the Empire State and Philly Fed should slip, the former to a still strong 20.0 from 28.75, and the more useful latter survey to a subdued 3.5 from 6.8. Weekly jobless claims on Thu should correct higher by 8k to 325k, while Fri's Sep TICs report should rebound from an Aug decline with a rise of $49.0 bln. Meanwhile, Fed speakers include Kroszner on Tue, Fisher on Bernanke on Wed, Evans and Hoenig on Thu and Lockhart on Fri. Hoenig will be watched for his reasons for voting against the Oct easing. Dallas Fed's Fisher may also be hawkish as his region did not request a discount rate cut in Oct. Back in Asia, BSP is the only central bank which meets to review monetary policy this week. We expect the Philippine central bank to keep the overnight borrowing rate unchanged at 5.75%. On the data front, China will roll out a slew of economic indicators for Oct, including trade, production, CPI, FAI, M2 and retail sales. Philippine data also occupies a large portion of the Asian calendar with focus on Sep OFW remittances and Oct government budget. Indonesia, Hong Kong and Singapore are scheduled to release their Q3 GDP while Singapore will also push out its Oct non-oil domestic exports.

* USD/SGD: MAS fears to sterlize weak USD

MAS was up early in the session, putting in bids near the 1.4380-90 levels initially and then another round of intervention to send the USD/SGD up to session highs of 1.4433. The pairing remained well offered as it consolidated after the MAS inspired surge, pulled down by USD weakness and negative stock sentiments on rumours of further writedowns from JP Morgan's subprime exposure and then Mizuho's possible losses of JPY 100 bln ($888 mln). The STI was mired in negative territory throughout most of Friday's session. USD weakness is still set to dominate the coming session with expectations of a Fed rate cut after the US economy showed further signs of weakness. Investors are all very nervy at the moment with markets wary of further write down from financials stemming from the US subprime woes. MAS is here to stay though and is likely to keep market forces at bay if bears gets too chummy with the upper end NEER limit. USD/CNY's been heavily weighed in recent sessions and should the effect is also likely to spill over to the USD/SGD. All said, USD/SGD should see action continuing inside 1.435-1.445 for the interim term. Numbers for retail sales, GDP and NODX will feature for the week ah ead.

* USD/PHP: BSP meeting is the focus

USD/PHP extended losses on Friday from previous session, dragged down by continued dollar sales by the corporates. The currency pair went down to as low as 42.67 before rebounding to close at 42.795, lower than previous session's 43.305 close. BSP was present at 42.70 but not aggressive, thereby encouraging more selling in USD/PHP. On the equity, the benchmark PSI rose 0.31% to finish at 3703.66, adding more fuel to the southbound momentum of the currency pair. Moving forward, USD/PHP will continue to be surrounded by the bearish dollar sentiment. Selling on rally will continue to be the strategy used by the market. Current support is expected at 42.65 and breaking this level will open the gateway towards the next and stronger support at the 42.50 mark. We do not expect USD/PHP to be pushed over the cliff amid fears of central bank intervention. On the topside, rise in the currency pair will surface the present resistance at the 43.20 mark. Meanwhile, market focus is on BSP meeting on Thursday. We expect the central bank to keep interest rates unchanged. On data, major releases include OFW remittances, government budget and BOP.

* USD/THB: On track towards 33.80-33.90 support region

USD/THB extended losses in the onshore market on Friday, as the impact of the bearish dollar tone and weak regional counterparts deepened. Rise in the local bourse added more fuel. In the sessions ahead, USD/THB will continue to be clouded by the bearish dollar tone. At this juncture, there is low probability that the greenback will turn 180 degree as market expects the Fed to cut interest rates further in the December meeting so as to relief some of pain felt by the US credit market. As such, with the present market momentum, USD/THB is likely to remain on track towards the 33.80-33.90 support region. At this point, excessive gain in THB is not likely to be tolerated by the central bank, even though that may help contain the rising inflation pressure. On Thailand's context, maintaining the momentum of the trade-driven Thai economy may carry relatively more weight than inflation risk at this stage.

* USD/IDR: Rising risk of falling towards 9100

USD/IDR remained under pressure, weighed by the generally weak dollar, but trades were steady. Rise in the stock market added to the momentum. The equity benchmark JKSE jumped 1.1% to close at 2707.667 on Friday. In coming sessions, the bearish dollar tone will continue to play an important role, dictating market sentiment. Adding more to the momentum is the low probability of capital outflows as foreigners are not likely to be shifting out of Asian currencies and moving into USD amid the weakening value of the greenback. Given all these factors, the downside risk facing, USD/IDR remains intact. We are seeing rising probability of the currency pair reaching the 9100 handle. Meanwhile, on the topside, we see resistance barriers continue to stay at the 9180-9190 region. Data wise, Q3 GDP will be rolled out. On the news front, Malaysian power producer, Tenaga Nasional Bhd, and Indonesia's state utility, PT Perusahaan Listrik Negara have plans of building a power network that will link both countries and increase each other's energy securities. The project will cost some $350 mln.

* USD/MYR: The 3.30 handle is now closer

USD/MYR was pulled down to a low of 3.3205 by the bearish dollar sentiment on Friday. Putting more fuel to the downward momentum was the fall in USD/SGD. However, losses in USD/MYR were limited by the fall in the local bourse with the equity benchmark KLCI having ended 0.82% down. Going forward, downward pressure will remain on top of USD/MYR, as the sustained weakness in the greenback discourages market to hold long position. The downside potential is making the 3.30 level increasingly within reach. Based on our technical analysis, this support is likely to be a tough nut to crack. Meanwhile, we do not expect market to aggressively chase USD/MYR lower, as