For 3000 Xtra users please click on the URL:

http://ecommerce.data.4castweb.com/reuters/contentredirect.asp?Code=S4SRJIAA10512

South Asia Weekly Outlook and Strategy - 21 Jul - 25 Jul 2008

Vishnu Varathan, [email protected],

Ph: 65-6236 0396

Joanna Tan, [email protected],

Ph: 65-6236-0385

Daniel Soh, [email protected],

Ph: 65-6236-0394

Sue Ann Lee, [email protected],

Ph: 65-6236-0391

Carl Rajoo, [email protected],

Ph: 65-6236-0389

Week Ahead: Focal point for Asia calendar this week will be inflation with Jun's CPI data coming out for Hong Kong on Mon; Malaysia and Singapore at Wed and weekly WPI data for India on Thur instead of the usual Fri. Inflation trend is still pointing to the upside. Malaysia will be having its central bank meet on Fri where a 25 bps to 3.75% is expected to tame price pressures. Taiwan sees a series of data for Jun with rising commercial sales on Mon, slowing unemployment on Tue; softer exports orders at 13.45% y/y and firmer ind pdtn at 6.12% y/y on Wed and money supply on Fri. On Thu, HK's trade data for Jun is expected with a deteriorating deficit to HKD-45.40 bln while Q2 GDP for Korea is likely to dip to 4.90% y/y. Singapore's ind pdtn for Jun is expected on Fri with contraction at 7.7% y/y along with Philippines' May imports and trade balance. On the US side, the data calendar is on the light side but most of it should hint at renewed economic weakness. Mon should see a 0.2% decline in the Jun leading indicator, the first fall in 4 months. Weekly jobless claims on Thu should be inflated by the unwinding of recent negative seasonal adjustment distortions, and we expect a rise of 44k to 410k. We expect new lows in both home sales series for Jun, existing home sales on Thu should decline by 2.8% to 4.85m, new home sales on Fri should fall by 4.3% to 490k. Jun durable goods orders on Fri should be less worrying, a 2nd straight unchanged outcome overall, with a flat outcome ex transport too. We see no large revision to Fri's final Michigan CSI for Jul, at 56.5, 0.1 point below the preliminary, 0.1 point up from Jun.

USD/PHP: looks set to be well supported

Finally. There were signs that the rally in USD/PHP seems to be peaking, at least for now. Two major factors led the plunge: A retreat in oil prices and a larger-than-expected 50bps hike in the benchmark interest rate. Not forgetting, a soggy greenback also contributed to weighing down the pairing. So are we at the end of a bull run? Unlikely. Evidence is mounting that investors' risk appetite has fallen sharply. True. So far global funds were more inspired to sell on rallies in the local bourse. Not surprising. The risk of a wage-price remains at large amid double-digit inflation numbers. Political tension lingers. And Philippines is more vulnerable to external shocks than most of its Asia peers. Thus, a surge in foreign funds outflows is set to propel the pairing higher, or at least provide support amid unwiring long USD/PHP bets. Furthermore, the sustainability of the fall in oil prices is in doubt. That said, the pairing is expected to consolidate lower within the 44.29-44.84 confining band play for now.

USD/INR: down overall on the back of lower oil

Despite all the bad news that seemed to be coming out of India (poor IP numbers, current account, WPI, ratings downgrades) around the beginning of last week and the consensus that the rupee had finally run out of reasons to keep gaining on the dollar, the rupee ended last week little changed over the previous week as the three day back-to-back plunge in oil prices reversed all of the gains the USD/INR saw on Monday and Tuesday. However, after the third plunge in oil on Thursday night, the USD/INR, while opening lower, began a steady appreciation on Friday on the back of lower bond yields. Interestingly, the lower bond yields are attributed to the plunge in oil as inflationary pressures were eased with the cheaper oil, pushing up bond prices. Moving forward, we continue to see gains in the USD/INR pairing as the rupee is as vulnerable to soaring oil prices as it is to falling oil prices. Fundamentally, we see the USD/INR posting further gains as we move into the next week. We see the pairing trade in a broader 42.90-43.50 range for now.

USD/IDR: Consolidative mood remains

Last week saw the pairing trapped in 9120-9150 region with scant interests. Some overselling in the earlier part of the week saw USD/IDR shifted consolidation higher to 9130-9140. Weak sentiments in the stocks and bonds market added to the support in the pairing alongside rally in the greenback late in the week. The previous session was no different as USD/IDR languished in its narrow range of 9140-9160. Some bid bias was seen in the pairing as local stock market printed negatives. Separately, FinMin will be delaying dollar-denominated bond sale from Oct to Nov but will be selling rupiah-denominated Islamic bonds on Aug 28 to raise funds to plug its budget deficit. For the coming session, we do not expect the consolidation story to change much. Investors are unlikely to push the pairing lower unless real selling interests are seen. Range of 9130-9170 expected with resistance seen at 9173. Meanwhile, Indonesia may cut the palm oil export tax in August to 15% (prev: 20%) as palm oil prices ease.

USD/SGD: Consolidation to continue The pairing was mainly in a tight range of 1.3450-1.3540 last week though a bid bias can be gleaned from later part of the week as USD/SGD pushed past the 1.35-handle on the back of the dollar rally on softer oil and better Wall Street sentiments. Last session saw the pairing well supported above 1.35 after being spurred by selling pressures in the euro in the morning. Remaining of the session saw the pairing see-saw within 1.3515-1.3535 as cues off the choppy euro was taken as markets looked to more financial reports in the overnight session. In the coming sessions, the pairing is expected to still see range-plays while directions from the dollar and equities markets are taken. Notably, USD/SGD will be softer than most other regional pairings save for USD/CNY given the inflation focus and lack of political risks. Range of 1.3462-1.3560 is expected with the central bank containing volatility either way.

USD/THB: little lower, but with scope to rise

USD/THB traded in a typically tight band over the week with only two noticeable movements, and both of them were dips. One was a day before the rate decision, where the pairing took a sudden dip to the 33.45 handle after trading in a 33.60-33.70 range for most of the previous week on the back of a weak dollar and suspected intervention by BoT. The other dip was on the last day of the week where the pairing dropped from the 33.45 handle after consolidating there for most of the week (even after the rate hike), to 33.33 as the local bourse reversed some significant losses posted earlier. Despite these gains in the baht, our economists still see weakness in the Thailand economy on the back of political unrest, inflationary woes and outflows from the equity markets. Softer oil towards the middle of the week definitely played a role in weighing on the pairing as well. We see a rebound in the pairing this week as we see USD/THB bets pushing the pairing higher to a 33.45-44.55 consolidated range.

USD/MYR: Political woes ahead

More twists and turns in recent political saga plagued the pairing last week with opposition figure Anwar's arrest spooking investors. Losses in the local bourse were seen as political uncertainties weighed on investors' minds.