PP 7767/09/2010(025354)

Economic Highlights
Global
•MARKET DATELINE

11 June 2010

1 ECB Kept Its Key Policy Rate Unchanged As Pressure

Mounts Over Bond Purchases

2 US Exports Fell M-o-m And Trade Deficit Widened In

April

3 China’s Exports Picked Up And Property Prices Moderated

In May

4 Japan’s Consumer Confidence Improved In May

Tracking The World Economy...

Today’s Highlight

ECB Kept Its Key Policy Rate Unchanged As Pressure Mounts Over Bond Purchases

The European Central Bank (ECB) left its key policy rate unchanged at a record low of 1.0% since May 2009, as austerity
measures may curb the region’s economic growth. The ECB indicated that interest rates are at appropriate levels,
signaling that it sees no immediate need to cut borrowing costs any time soon. Furthermore, the ECB believes that
inflationary pressures over the medium term remain contained and inflation expectations remain firmly anchored,
suggesting that price stability will likely be maintained over the medium term.

The ECB, on the other hand, is buying sovereign debt as part of a European Union strategy to stop Greece debt crisis
from spreading. Critics say the purchases could be seen as bailing out indebted governments and fuel inflation, breaching
two of the ECB’s founding principles and undermining its credibility. The bond purchases also split the ECB Governing
Council. Earlier, the ECB was also forced to reverse its withdrawal of emergency stimulus measures, as part of its move
to contain the sovereign debt crisis. As a result, the ECB said that it will give banks access to unlimited funds over three
months at a fixed rate in July, August and September. The ECB has used the measure as one of its key tools to bolster
financial markets since the collapse of Lehman Brothers Holdings Inc. in September 2007. The ECB’s move prompted
economists to push back forecasts for higher interest rates until 2Q 2011.

Meanwhile, the ECB said that it will keep buying government bonds as it tries to fight the European debt crisis. The ECB,
however, refused to be drawn on the duration of the bond plan, saying that it would be temporary.

The US Economy

Exports Fell M-o-m And Trade Deficit Widened In April

◆ The US exports fell by 0.7% mom in April, compared with +3.8% in March. This was the second month of
decline in three months, indicating that global demand for the US exports is beginning to soften. The decline was
due to a slowdown in the exports of capital goods, industrial supplies and automotives as well as a decline in the
exports of consumer goods. The slowdown in the exports of capital goods was on the back of a decline in the
exports of telecommunication equipment and a slowdown in the exports of semiconductors. These were, however,

Peck Boon Soon

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offset partially by a pick-up in the exports of computers & parts and civilian aircraft. Yoy, the US exports inched
up to 19.9% in April, from +18.9% in March. Similarly, imports contracted by 0.4% mom in April, compared
with +2.9% in March, due to declines in the imports of consumer goods, automobiles and food & beverages as
well as a slowdown in the imports of industrial supplies. These were, however, mitigated by a pick-up in the
exports of capital goods such as semiconductors, computers & parts and telecommunication equipment. Yoy,
imports strengthened to 23.9% in April, from +23.3% in March. Meanwhile, the US trade deficit widened to
US$40.3bn in April, from a deficit of US$40.0bn in March. In the first four months of 2010, the US trade deficit
grew by 30.8% to US$155.5bn, from a deficit of US$118.9bn in the corresponding period of 2009. The deterioration
in trade deficit, coupled with a huge fiscal deficit, will likely hurt the US dollar going forward.

Asian Economies

China’s Exports Picked Up And Property Prices Moderated In May

◆ China’s exports grew at a stronger pace of 48.5% yoy in May, compared with +30.5% in April. This was
the strongest growth since the exports returned to a positive growth in December, indicating that the country’s
exports remained resilient despite a deepening sovereign debt crisis in Europe. This was driven by stronger growth
in exports to European Union and the US, the two largest export markets for China, which strengthened to 49.7%
and 44.3% yoy respectively in May, from the corresponding rates of +28.5% and +19.1% in April. Stronger growth
in exports to Hong Kong, Japan, South Korea, Taiwan, India, Asean, Russia and South Africa also helped. China’s
imports, however, moderated to 48.3% yoy in May, from +49.7% in April and +66.0% in March. As a result,
China recorded a larger trade surplus of US$19.5bn in May, compared with a surplus of US$1.7bn in April and the
first deficit of US$7.2bn in six years in March. As a whole, stronger export growth would provide a support to
the Chinese economic growth in the 2Q.

◆ Chinese home prices in 70 major cities moderated to 12.4% yoy in May, after rising to a record high of
+12.7% in April. This was the first easing after prices started to increase in June, indicating that the tightening
measures undertaken by the authorities have yielded some results. The slowdown was attributed to a slower
increase in prices of resale residential property, which grew by 9.2% yoy in May, compared with +10.5% in April.
Similarly, prices of new property moderated to 15.1% yoy in May, from +15.4% in April. China has announced
a series of measures to control the property market after a rapid rise in prices and loan growth. Consequently,
property sales eased to 38.4% yoy in the first five months of 2010, from 55.4% in the first three months of the
year and 75.5% in 2009.

Japan’s Consumer Confidence Improved In May

◆ Japan’s consumer sentiment rose to 42.7 in May, from 42.0 in April. This was the fifth straight month of
improving and the highest level in more than two years, suggesting that consumers are feeling more upbeat, as
exports led recovery continued to spread to households. As a result, consumers expect job market to improve
and income to rise. However, consumers have turned less willing in buying durable goods during the month. As
a whole, an improvement in consumer confidence will help to support the country’s consumer spending.

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