28 October - Till The Next Summit - 27 - 10 - 11 - 21 - 51

l Global Research l Economics Weekly | 21:45 GMT 27 October 2011
28 October Till the next summit

EU delivers some answers on Greek debt, banking sector and the EFSF Despite progress, the solutions might prove inadequate US data this week to confirm the economy is avoiding recession China PMI is expected to have moderated slightly
Marios Maratheftis, +971 4 508 3311, Marios.Maratheftis@sc.com
European Union (EU) leaders delivered a package that addresses three key aspects of the European crisis: Greek debt, bank refinancing and the European Financial Support Fund (EFSF). It is positive that at least something is being proposed. But the solutions put forward will probably prove to be insufficient; it is unlikely that this is the last we will hear of problems in the euro area. Europe should remain in the headlines, as the coming week brings significant data releases. Non-farm payrolls and the ISM survey in the US should suggest that while the labour market is far from normalising, the economy is staying clear of another recession. In contrast, in Asia, we expect inflation to remain somewhat elevated, while growth slightly moderates on the back of less favourable global conditions. The main aspects of the EU package include a Greek debt haircut of 50%, the increase of the EFSF to about EUR 1trn (by leveraging the fund) and the recapitalisation of European banks with EUR 106bn. All these will probably fall short of what is needed. The haircut would reduce Greeces debt burden by EUR 100bn. This would decrease the debt/GDP ratio from 162% now to 120% by 2020, assuming that Greece will run primary surpluses by next year. Even though the haircuts will provide some breathing space, Greek debt levels might still prove to be unsustainable.
Contents Main title of the cover essay Investment outlook Key events/data in the week ahead Africa Asia Europe Latin America United States Recent macro publications Summary tables Central bank outlook Rates forecasts Macro forecasts Commodities forecasts FICC on-the-run World Wide Wrap Key data releases/events
SC
1 3 4 6 16 19 22 24 26 27 28 29 30-33 36
Prior
Chart 1: Peripheral bond spreads versus Germany are persistently high

4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Italy-Germany 10Y bond spread Spain-Germany 10Y bond spread
Friday 28 October TH Q4-2011 Inflation Report US U. Mich. Cons. Conf. 57.0 58.0 Sunday 30 October KR Industrial production, %y/y 6.7 4.8 Monday 31 October KR CPI, %y/y 4.2 4.3 TH PCI, % y/y 8.30 5.40 TH Current account, USD mn -100 -697 TW GDP const. prices, % y/y 3 5.02 KR CPI, %y/y 4.2 4.3 EA CPI inflation, % y/y 3.0 3.0 Thursday 27 October KR Exports, %y/y 10.8 18.8 AU RBA cash rate, % 4.75 4.75 TH Headline CPI, % y/y 4.50 4.00 TH Core CPI, % y/y 3.00 2.90 ID Headline CPI, % y/y 4.80 4.60 SG PMI 48 48.3 CN Manufacturing PMI 51.1 51.2 US ISM manufacturing PMI 53 52.2 UK Manufacturing PMI 49.9 51.1 UK Q3 GDP growth, q/q % 0.5 0.1 Wednesday 02 November US FOMC rate decision 0.25 0.25 GE Jobless change, 000s -10 -26 Thursday 03 October EA ECB refi rate, % 1.5 1.5 G20 G20 meeting (Cannes, France) Friday 04 October PH CPI, % y/y 5 4.8 US Non-farm payrolls 95,000 100,000 US Non-farm private payrolls 125,000 125,000
Key central bank policy calls

Now US Euro China India Korea Indonesia Thailand South Africa Brazil 0.25 1.50 6.56 8.25 3.25 6.50 3.50 5.5 11.50 Next Q3-2013 Q4-2011 Q1-2013 Oct-11 Q3-2012 10-Nov-11 Q3-2013 12-May Q4-2011 Chg +25 -25 +25 +25 +25 -25 +25 +50 -50
Source: Bloomberg
Important disclosures can be found in the Disclosures Appendix All rights reserved. Standard Chartered Bank 2011
Source: Standard Chartered Research research.standardchartered.com
Economics Weekly
EU package falls short and is unlikely to solve the problem once and for all
One of the main limitations of the euro area is that governments borrow in what in reality is a foreign currency. Their central banks cannot act as of lenders of last resort to the sovereign (if worse comes to worst), and as a result, solvent countries can face problems of insolvency simply because of liquidity constraints. This is much less likely to occur in the UK or the US, where borrowing is in the countries own currencies, which they control. The leveraging of the EFSF aims to address the problem. The EFSF can effectively fill this gap and ensure that countries can have access to liquidity when needed. The first problem is that EUR 1trn might not be enough to stop contagion from Greece in the rest of Europe and keep Italys and Spains borrowing costs low. There are also several questions on how the EFSF will work in practice. Allowing the European Central Bank (ECB) to purchase Italian and Spanish bonds when needed would have been a much more credible solution.
Inflation in the euro area is part of the answer, not the problem
The recapitalisation of banks can also work against growth. One has to remember that European banks are not at the heart of the problem. This is a sovereign problem. Leading indicators suggest that the euro area is heading into a recession, and a banking sector that is unable to lend will not help. Reducing debt burdens in a low to no-growth environment is even harder. Austerity in the periphery needs to be counterbalanced with fiscal expansion in the core. This looks unlikely. And if the periphery is going through deflation and internal devaluations to regain competitiveness against the core, then higher inflation in the core would go a long way to help. This also looks unlikely, as the ECB has so far failed to slash interest rates to help reflate the economy. And it might fail yet again to cut policy rates this coming week, delaying rate cuts to year-end. We anticipate relatively good news from the US. A satisfactory payroll number could reassure the markets. Even though unemployment is still very high, at least the situation is not getting worse. A pick-up in the ISM should suggest that the US is avoiding a double-dip recession. In Asia, inflation is stabilising, but at elevated levels. Although insulated, the continent should experience some slowdown in its external sector given the problems elsewhere in the world.
Chart 2: Greek debt might still be unsustainable given the magnitude of the recession
2% 1% -1% -2% -3% -4% -5% -6% -7% -8% Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Real GDP y/y Real GDP q/q
Source: Bloomberg
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Investment outlook
Risk-on For now
Callum Henderson, +65 6596 8246
Callum.Henderson@sc.com
Vijaykumar Chander, +852 3983 8569

Vijatkumar.chander@sc.com
Global asset markets have rallied sharply, with stocks, credit, commodities and higher yielding currencies gaining in the wake of the EU Council resolutions. Nearterm, this rally may extend on market positioning, with shorts continuing to cover. Further out, none of the EU resolutions deal with growth. As such, we expect cyclical concerns in Europe to continue heading into Q1-2012. As the EU Council meetings approached, we reiterated our framework that markets would not rally on a sustained basis until investors were short, all data negatives were in the price, and policy makers took decisive action. Of these three factors, we reckoned that 1.0-1.5 were present before the EU meetings; after, 1.5-2.0. In short, this risk rally may continue near-term, though not decisively. Market positioning has played a key role. Ahead of the meetings, short-term traders were short risk in FX and commodities (as reflected by weekly commitments of traders data) and equity derivatives (VIX risk reversals). Near-term, we may see these shorts cut sharply. Real money funds face increasing pressure to add risk as markets rally. To date, there have been only tentative signs of this, as reflected by the EPFR data. The short-term bullishness notwithstanding, there remain several areas of concern within the EU resolutions, involving the leveraging of the European Financial Stability Facility (EFSF), the extent of the Greek debt haircut and the impact of bank deleveraging. Ultimately, none of these resolutions deal with the growth issue, with the euro-area economic cycle continuing to point lower into Q1-2012. As such, we think that this risk rally, powerful as it may be, will be temporary. In this environment, it remains important for investors to be nimble. In FX, we expect option vols to come down, vol curves to steepen and option risk reversals to come back in. We favour selling very short-dated vol and skew rather than taking a spot direction. Strategically, we still think that cyclical concerns will continue to weigh on the euro (EUR) and favour fading this rally. Within emerging-market (EM) regions, the economic rebound in the US suggests that Asia and Mexico should be favoured strongly versus a large Underweight in emerging Europe. In credit, we expect higher-beta assets that have lagged, such as the HY China property and industrials space, to outperform.
Our short-term framework suggests this market rally may extend nearterm on positioning, policy action
The European agreement may buy some time, but there remain longer term concerns not least, growth
Chart 1: Leveraged fund short-covering has led the way EUR-USD vs. IMM leveraged fund positions in EUR-USD
1.50 1.45 1.40 1.35 1.30 1.25 1.20 Jan-11 Mar-11 May-11 Jul-11 Sep-11 EUR lev. fund net (RHS) EUR-USD (LHS) 60,000 40,000 20,000 0 -20,000 -40,000 -60,000
Chart 2: Euro-area growth momentum is fading fast Euro-area manufacturing and services PMIs (from Jan 2010)
60 58 56 54 52 50 48 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Sources: Bloomberg, Standard Chartered Research
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EU PMI manufacturing
EU PMI services
Sources: CEIC, Standard Chartered Research

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Economics Weekly
Key events/data in the week ahead

Africa
Amina Adewusi, +44 20 7885 6593
Amina.adewusi@sc.com
East African central banks are likely to continue tightening liquidity We expect both the CBK and BoU to hike rates by 200bps S. African private sector credit, money supply growth to remain weak Africa week ahead
Economy Key data and event Period Sep Sep Sep Oct Oct GMT 13:00 07:00 07:00 10:00 10:00 Forecast 5.90 6.40 13.00 22.00 Previous -3.7 6.06 6.22 11.00 20.00 50.7 30.00 Monday 31 October South Africa Trade balance, ZAR bn South Africa Private-sector credit extension, % South Africa M3 money supply, % Tuesday 1 November Kenya Central bank rate decision, % Uganda Central bank rate decision, % South Africa PMI final Wednesday 2 November South Africa New vehicle sales, % y/y
Kenya
The Central Bank of Kenya (CBK) is likely to hike the central bank rate (CBR) once again at the next monetary policy committee (MPC) meeting on 1 November. We expect it to raise the policy rate by 200bps, to 13%. This comes after it hiked by 400bps in October, allaying any previous concerns about its tightening intent. However, real interest rates remain deeply negative, given that CPI inflation was 17% y/y in September. There are expectations that we may see a moderation in CPI inflation in October as seasonal food supply comes onto the market. The CBK has been keen to support the Kenyan shilling (KES) via changes in regulation, and the market will look for further insight into its latest policies at the upcoming MPC meeting. A similar pattern can be seen across the region, as central banks increase their regulatory firepower to support their currencies. But the CBKs success in stabilising the FX rate has been mixed. Successive changes to regulation have caused confusion and the latest policy of restricting KES trading to onshore banks has added further uncertainty to an already illiquid market. In keeping with this, Chart 1: Kenya Tight liquidity conditions return in October Borrowing at CBKs overnight discount window (KES bn)
140 120 100 KES bn 80 60 40 20 0
Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11
Sources: CBK, Standard Chartered Research

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borrowing at the CBKs overnight discount window spiked to KES 49.7bn in the week ended 21 October, from KES 4.5bn the previous week, as interbank liquidity dried up. Without clearer guidance on CBK policy, wide spreads and illiquidity could become a continuing theme as US dollar (USD) demand remains strong.
South Africa
Private-sector credit (PSCE) and M3 growth have remained modest compared with previous cycles, reflecting South Africas uneven recovery, as high household debt and elevated unemployment act as drags on faster growth. While corporate lending has picked up in recent months, the weak housing market has curbed growth in mortgage advances, which remains well below pre-crisis levels.
Uganda
The Bank of Uganda (BoU) has clearly stated its tightening intent both via its unexpected 400bps rate hike at the last monetary policy committee (MPC) meeting and also via hawkish MPC statements identifying upside inflationary risks. We expect a continuation of the BoUs rate-hiking cycle and a 200bps increase in the central bank rate (CBR) at the November MPC meeting. The BoU will be watching the USD-UGX rate carefully, as this will be a factor in determining the speed at which inflation falls back towards its 5% core inflation target. Recently, the Ugandan shilling (UGX) has bucked the trend in East Africa, strengthening considerably as BoU tightening takes effect. Most of the move lower has been due to struggling importer demand, as purchasing power has been weighed down by the weaker UGX, paring back expectations of increased consumer spending during the year-end holiday period. Another factor has been the return of foreign investor interest, as rates of 20% and higher have regained attractiveness, particularly as regulations in Kenya and Tanzania make Uganda a more accessible market in the search for yield. A more stable exchange rate will also support Ugandan bonds.
Chart 3: Bank of Uganda to continue MPR increases CPI inflation y/y % and recently introduced central bank rate %
30 25 20 15 10 5 0 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 CPI inflation
Chart 4: South African money supply recovery weak M3 money supply growth y/y %
25 20
CBR
15 10 5 0
2008/01 2008/07 2009/01 2009/07 2010/01 2010/07 2011/01 2011/07 Sources: SARB, Standard Chartered Research
5
Sources: Datastream, Standard Chartered Research

Economics Weekly

Asia
Kelvin Lau, +852 3983 8565
Kelvin.KH.Lau@sc.com
More signs of elevated regional inflation and slowing exports Chinas Oct PMI seen at 51.1, reflecting moderating growth momentum RBAs newfound policy flexibility does not mean a cut is imminent Asia week ahead
Economy Friday 28 October Thailand South Korea South Korea South Korea South Korea Singapore Thailand Thailand Thailand Taiwan South Korea South Korea South Korea South Korea South Korea South Korea China Australia Thailand Thailand Indonesia Indonesia Hong Kong Hong Kong Singapore Singapore New Zealand New Zealand Australia Philippines Philippines Malaysia Malaysia Malaysia Release of Inflation Report Industrial production SA, % m/m Industrial production, % y/y Services industry output, % y/y Leading index, % y/y Unemployment rate, % PCI, % y/y MPI, % y/y Current account, USD mn GDP constant prices, % y/y CPI, % m/m CPI, % y/y Core CPI, % y/y Exports, % y/y Imports, % y/y Trade balance, USD bn Manufacturing PMI RBA cash rate, % Headline inflation, % y/y Core inflation, % y/y Headline CPI, % m/m Headline CPI, % y/y Retail sales, value, % y/y Retail sales, volume, % y/y Purchasing Manager Index Electronic Sector Index Unemployment rate, % Participation rate, % Retail sales SA, % m/m CPI, % y/y CPI NSA, % m/m Exports, % y/y Imports, % y/y Trade balance, MYR bn Q4 Sep Sep Sep Sep Q3 P Sep Sep Sep Q3 P Oct Oct Oct Oct Oct Oct Oct 1 Nov Oct Oct Oct Oct Sep Sep Oct Oct Q3 Q3 Sep Oct Oct Sep Sep Sep 07:30 23:00 23:00 23:00 23:00 02:00 07:30 07:30 07:30 09:00 23:00 23:00 23:00 01:00 01:00 01:00 01:00 03:30 05:30 05:30 06:00 06:00 08:30 08:30 13:30 13:30 21:45 21:45 00:30 01:00 01:00 04:01 04:01 04:01 5.9 1.4 6.7 5.5 1.5 2.3 8.3 -3.4 -100 3.00 0.1 4.2 3.9 10.8 16.2 5.0 51.1 4.75 4.5 3.0 0.2 4.8 28.4 19.9 48.0 46.8 6.5 68.3 0.4 5.0 0.1 9.4 5.8 9.1 5.7 -1.9 4.8 4.8 2.0 2.1 5.4 7.0 -697 5.02 0.1 4.3 3.9 18.8 29.3 1.6 51.2 4.75 4.0 2.9 0.3 4.6 29.0 20.7 48.3 47.2 6.5 68.4 0.6 4.8 0.2 10.9 6.9 11.0 Sunday 30 October Key data and events Period GMT Forecast Previous
Monday 31 October
Tuesday 1 November
Wednesday 2 November
Thursday 3 November Friday 4 November
Australia
Kelvin Lau, +852 3983 8565
The Reserve Bank of Australia (RBA) will meet on 1 November to decide its policy rate. The market has been divided on the likely outcome between no change and a 25bps cut. At its last meeting, the RBA said that an improved inflation outlook would increase the scope for monetary policy to provide some support to demand, should that prove necessary. Subsequently, we have seen weaker-than-expected Q3 core inflation numbers and this, in turn, has created sufficient policy flexibility for the
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RBA to respond to external and domestic economic developments, if necessary. However, this newfound flexibility should not be mistaken for an increased urgency to act, in our view. Judging from the latest comments from Deputy Governor Battellino (on 25 October), the RBAs assessment of the economic growth outlook is far from one-sided for example, he said, as yet there have not been signs outside Europe that the rate of growth of economic activity has taken another step down since the recent bout of financial volatility. Moreover, growth elsewhere in the region was seen as remaining solid, and the RBAs central scenario is that global GDP growth will be broadly in line with its long-run average over the period ahead. While it is a closer call than a few weeks ago, we maintain our view that the RBA will keep rates unchanged this time round. Its inflation forecast for 2012 may be lowered, but this alone is unlikely to mean the medium-term outlook is sufficiently benign to warrant an immediate cut. We expect the RBA to acknowledge the need to monitor the fragile global situation closely, and to stress its readiness to act if necessary. This final point is likely to keep the prevailing dovish market sentiment alive for longer. Separately, retail sales for September will be announced on 3 November. Given the volatile and uncertain financial environment, the resulting fall in confidence and loss of wealth could start to weigh on domestic demand. That said, Septembers improved employment numbers should offer some underlying support to consumer spending, warranting a still-decent 0.4% m/m improvement (albeit down from the 0.6% m/m reading in August). Chart 1: A more neutral inflation picture gives the RBA maximum flexibility Policy rate (%) and inflation (% y/y)
8 7 6 5 4 3 2 1 0 Mar-05 Feb-06 Jan-07 Dec-07 Nov-08 Oct-09 Sep-10 Aug-11 RBA trimmed mean CPI RBA Cash Target
Sources: Bloomberg, Standard Chartered Research
China
Lan Shen, +86 21 5918 8261
Lan.Shen@sc.com
Chinas October manufacturing PMI will be released on 1 November. We expect the PMI data to have slipped marginally to 51.1 in October from 51.2 prior, reflecting the economys moderating growth momentum. The sub-index for new export orders likely dipped below 50 again after an unexpected rebound in September, reinforcing fears that China is suffering from weaker demand in Western markets. Meanwhile, production may continue its recent modest pick-up in Q4, as in previous years, and import prices should have slowed given softer
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prices of major commodities. A slightly lower PMI reading would reinforce our view that some policy loosening is likely towards year-end against a more cautious growth backdrop. Chart 2: Chinas growth to show in the manufacturing sector stabilising Official manufacturing PMI (SA)
60 PMI, SA
55
50
Breakeven level
45
40
35 Jan-05 Nov-05 Sep-06 Jul-07 May-08 Mar-09 Jan-10 Nov-10 Sep-11
Hong Kong
Kelvin Lau, +852 3983 8565
We expect Hong Kongs retail sales growth for September (out on 1 November) to come in at a still-strong 19.9% y/y (in volume terms) and 28.4% (in value terms). While slightly lower than Augusts 20.7% and 29.0% readings, respectively, such numbers would still be impressive given that the Hang Seng Index dropped almost 15% over the period, the local property market (another key source of the wealth effect) was in consolidation mode, and global risk aversion was high. Strong tourist arrivals (+16.8% y/y in September) look set to continue to drive components such as jewellery and watches, and a tight labour market should have underpinned the performance of other retail sectors. We expect the gap between retail sales growth by volume and by value to have widened further in September to 8.5ppt, a reflection of ongoing upward price pressure. Chart 3: Gap between Hong Kongs retail sales measures reflects rising inflation Hong Kong retail sales growth (% y/y)
40 30 Export 20 10 0 Difference -10 -20 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sources: Bloomberg, Standard Chartered Research By volume By value
Economics Weekly
Indonesia
Eric Alexander Sugandi, +62 21 2555 0596
Eric.Alexander-Sugandi@sc.com
The Central Agency of Statistics will announce October CPI data on 1 November. We expect m/m headline inflation to have slowed to 0.2% from 0.3% in September, primarily as raw food items (which constitute 19.6% of the CPI basket) continued to stabilise after the end of Ramadan in late August. Owing to the base effect, however, we forecast that y/y headline inflation increased marginally to 4.8% in October from 4.6% in September. The Central Agency of Statistics hinted that October inflation would be below 0.5% m/m, while Bank Indonesia (BI) expects it to be within a range of -0.1% to 0.1%. Meanwhile, we expect core inflation to have slowed from 0.4% m/m (4.9% y/y) in September to 0.2% m/m (4.8% y/y) in October. We expect headline inflation to continue slowing to around 4% y/y by end-2011, resulting in an annual average rate of 5.5% for full-year 2011. Given our belief that inflation will be benign until the end of this year, we expect BI to continue to cut the BI rate from 6.50% currently to 6.00% by end-2011. Chart 4: We estimate benign inflation data for Indonesia in October Estimates are shown in thick lines
10 9 8 7 6 5 4 3 2 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Core inflation (% y/y) Headline inflation (% y/y)
Sources: Central Agency of Statistics, Standard Chartered Research
Malaysia
Edward Lee, +65 6596 8252
Lee.Wee-Kok@sc.com
On Friday 4 November, the Department of Statistics will release external trade data for September. We forecast export growth of 9.4% y/y and import growth of 5.8% y/y, translating into a trade surplus of MYR 9.1bn. The export profile likely remained the same, with commodity exports continuing to offset weakness in electrical and electronics product exports. The latter have been contracting on a y/y basis since September 2010. In 8M-2011, exports of liquefied natural gas, rubber and palm oil (crude and processed) accounted for about 76% of export growth. However, commodity prices were lower in September owing to ongoing global market uncertainty amid the euro-area debt crisis. This will have offset an otherwise
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favourable base effect in September 2010, when exports and imports contracted by 5% and 2% m/m, respectively. Chart 5: Easing commodity prices to affect Malaysias export performance % y/y
120% 100% 80% 60% 40% 20% 0% -20% -40% -60% Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Crude palm oil price (LHS) Exports (RHS) Rubber price (LHS) 50% 40% 30% 20% 10% 0% -10% -20% -30% -40%
New Zealand
Kelvin Lau, +852 3983 8565
On 3 November (local time), New Zealand will release its job-market report for Q32011. We expect the unemployment rate to have held steady at 6.5%, and expect a slight dip in the participation rate to 68.3% from 68.4%. A recent survey suggested that job advertisements fell to a four-month low in September as activity slowed in the main cities amid global uncertainty. Recent business outlook surveys also point to a steady labour picture at best last quarter. The fact that the jobless rate failed to improve significantly and regain the ground lost over the past two years (it was below 4.0% pre-crisis) suggests underlying weakness, which would be exacerbated if the external environment were to deteriorate further.
Chart 6: Employment in New Zealand yet to return to pre-crisis levels New Zealand unemployment rate (%)
12 11 10 9 8 7 6 5 4 3 Mar-90 Sep-93 Mar-97 Sep-00 Mar-04 Sep-07 Mar-11

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Philippines
Betty Rui Wang, +852 3983 8564
Betty-Rui.Wang@sc.com
On 4 November, the Philippines will release inflation data for October. We expect headline CPI inflation to have edged up to 5.0% y/y from 4.8% in September. Typhoons hitting the Philippines in September and October caused some losses to agricultural production, which is one reason for the upward trend in food prices of late; Department of Agriculture statistics indicate large increases in vegetable prices in September. Other than that, we see steady price performance across the board, which should help headline CPI inflation to stabilise within the target range of 3-5% this year. Chart 7: Food prices continue to influence Philippine inflation % y/y
6.5 Food inflation 6.0 5.5 5.0 4.5 4.0 3.5 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Headline CPI
Singapore
Edward Lee, +65 6596 8252
Lee.Wee-Kok@sc.com
On 31 October, the Ministry of Manpower will announce Q3 preliminary employment numbers. We forecast a slight rise in the unemployment rate to 2.3%. As of Q2-2011, the overall unemployment rate was 2.1%, slightly higher than 1.9% in Q1. The resident unemployment rate was 3.0% as of Q2-2011. Although Q3 growth came in at 5.9% y/y, it was largely driven by the volatile pharmaceutical sector, while the Chart 8: Little respite seen for Singapores PMI readings %; y/y
50% 40% 30% 20% 10% 0% -10% -20% -30% -40% Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sources: CEIC, Standard Chartered Research Ex-bio industrial production PMI (RHS) 56 54 52 50 48 46 44 42 40
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broader economy was softer. In addition, higher-frequency job data points to a rise in job seekers in Q3. Despite a potential uptick in unemployment, the overall employment picture is still very firm. On 1 November, the October PMI will be released. We see little respite for this data series, given ongoing market uncertainty due to the euro-area debt crisis. We forecast headline PMI at 48.0, and an electronics-sector PMI reading of 46.8. This sector has continued to contract, as reflected in Septembers electronics production output data, which contracted 26.5% y/y. There was little cheer from the broader manufacturing sector, as ex-bio manufacturing output contracted by 12.5% y/y.
South Korea
Suktae Oh, +82 2 3702 5011
Suktae.Oh@sc.com
We expect industrial production to have rebounded in September after two months of contractions, led by the electronics sector. Growth likely picked up to 1.4% m/m from -1.9% prior; on a y/y basis, growth likely rose to 6.7% from 4.8%. September export data showed a rebound in semiconductors and display panels, which probably boosted electronics-sector production. Among other key sectors, autos and chemicals were likely relatively weak, while steel and machinery should have performed strongly. We do not envisage an abrupt contraction in activity like the one in H2-2008. The likely rebound in September industrial production bodes well for the near-term growth outlook, supporting our forecast that q/q GDP growth should pick up modestly in Q4 after a dip in Q3. The services industry likely continued its recent steady growth, with base effects resulting in higher y/y growth. Meanwhile, the leading index and its y/y growth will probably show significant declines, as most key components including inventories, sentiment, the stock index and interest-rate spreads have been weak recently. A soft leading index would suggest relatively weak growth momentum in 2012; we forecast 2012 GDP growth of 3.5%. Both headline and core inflation should have remained relatively high in October. We expect y/y headline inflation to have declined slightly to 4.2% from 4.3% prior, which is still higher than the Bank of Koreas (BoKs) target range; m/m headline inflation should have remained at 0.1% for the second consecutive month. We forecast core inflation at 3.9% y/y and 0% m/m. A significant rise in energy prices due to Korean won (KRW) weakness was the main driver of higher headline inflation. Increases in housing rents and steady inflation in the personal services sector are likely to have continued in October. Meanwhile, prices of fresh vegetables, pork and gold probably declined, helping to contain both headline and core inflation (pork and gold prices are included in core inflation). Headline inflation may rebound in November due to base effects, but should decline to below 4% (returning to the BoKs target range) in December or January, mainly because of further food price declines. The decline in pork prices and favourable base effects should also reduce core inflation from December. Although we expect a gradual decline in both headline and core inflation, generally high inflation figures should support policy hawks and make it difficult for the BoK to shift its stance towards monetary easing. The trade surplus likely rebounded to USD 5.0bn in October from a rather disappointing USD 0.4bn in August and USD 1.6bn in September. This rebound is likely to result from the normalisation of exports after the summer and Chuseok
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holidays and a decline in imports, which may have been caused by the global financial-market turmoil. We expect exports to have risen to USD 48.0bn from USD 46.8bn prior, and imports to have declined to USD 43.0bn from USD 45.3bn. Yearon-year growth is likely to have declined significantly for both exports (to 10.8% from 18.8%) and imports (to 16.2% from 29.3%). This can be attributed to adverse base effects as well as a genuine slowdown. October trade data may indicate that the global market turmoil has begun to affect trade flows: our forecast assumes a modest slowdown in exports as well as imports. But the market is likely to focus on the likely rise in the trade surplus (bullish for the KRW) and the lack of a post-Lehman-like abrupt decline in trade activity. Chart 9: Likely rebound in Koreas industrial production % m/m, SA
5 4 3 2 1 0 -1 -2 -3 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Forecast
Chart 10: Headline inflation probably peaked in August % y/y

7 6 5 4 3 2 1 0 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Source: Statistics Korea Core Headline
Sources: Statistics Korea, Standard Chartered Research
Taiwan
Tony Phoo, +886 2 6603 2640
Tony.Phoo@sc.com
Taiwan is scheduled to release preliminary real GDP data for Q3-2011 on Monday (31 October). We expect the economy to have expanded by 3.00% y/y in real terms, down from 5.02% y/y in Q2, implying flat overall growth on a q/q seasonally adjusted basis. We expect the contribution of net trade to remain positive on the back of an improving trade surplus, which rose by more than 25% y/y to USD 7.75bn in Q32011. Relatively buoyant consumer confidence, aided chiefly by a steady job market, Chart 11: Taiwan could see economic activity slow further in Q4-2011 Leading indicators index and real GDP, % y/y
40 30 20 10 0 -10 -20 -30 Jan-04 Sep-04 May-05 Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10 May-11 Sources: Bloomberg, Standard Chartered Research Real GDP (% y/y, RHS) 15
10
Leading indicators index (% y/y, LHS)
-5
-10
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is likely to continue to support private consumption expenditure. This is reflected in rising auto and retail sales, as well growing overseas arrivals. However, as Europes widening debt crisis continues to affect market confidence, local businesses especially export producers may substantially reduce planned capex and hiring, which could further undermine growth prospects in 2012.
Thailand
Usara Wilaipich, +66 2724 8878
Usara.Wilaipich@sc.com
Official economic data for September will be released on 31 October, followed by inflation for October, tentatively scheduled for 1 November. The heavy flooding that began in September likely disrupted manufacturing production during the month, while private consumption likely expanded as people stocked up on necessities such as food and water on fears that the floods would worsen. We estimate that the manufacturing production index fell 3.4% y/y in September, following a 7.0% y/y increase in August. Growth in the private consumption index probably accelerated to 8.3% y/y from 5.4% y/y. On the external front, we expect Thailand to report a USD 100mn current account deficit for September, the second monthly deficit in a row, due to rising demand for imports of raw materials and energy. Inflation probably increased temporarily in October, largely due to the floods. Rice and raw-food prices are likely to have been affected the most. Prices of products such as life vests, rowboats, canned foods, dried foods and other staples are also expected to have increased owing to extra demand. As a result, we expect headline inflation to have risen to 4.5% y/y in October from 4.0% y/y in September, while core inflation likely accelerated to 3.0% y/y from 2.9% y/y. However, we do not expect the Bank of Thailand (BoT) to react to this with rate hikes, as the price increases should be a temporary phenomenon. The Bank of Thailand (BoT) will release its quarterly Inflation Report (Q4-2011) on 28 October. We expect it to downgrade its GDP growth forecasts for 2011 and 2012, to reflect greater-than-expected external growth risks. In its Q3-2011 Inflation Report, the BoT projected that the Thai economy would expand by 4.1% in 2011 and 4.2% in 2012. These compare with our GDP growth forecasts of 3.2% for 2011 and 3.9% for 2012. Additionally, in its Q3 report, the BoT expected growth in G3 economies (the US, Europe and Japan) to be firmer in the second half, despite some risks. Chart 12: Mixed effects from the current flooding in Thailand % y/y
40 30 20 10 0 -10 -20 -30 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Manufacturing production index (LHS) Private consumption index (RHS) 12 10 8 6 4 2 0 -2 -4 -6 -8
Sources: BoT, Standard Chartered Research

Economics Weekly
Domestically, the BoTs had two key concerns negative real (policy) interest rates, and inflation risks that continue to outweigh growth risks. Nonetheless, events in the West in recent weeks have been more serious than the BoTs Q3 assessment. The escalating debt problems in Europe have not only dampened global financial market sentiment, but also undermined domestic consumer confidence and business sentiment. Meanwhile, the severe flooding across Thailand is likely to disrupt the auto and electronics sectors supply chains and logistics, which will not bode well for exports in Q4-2011. Against this backdrop, the BoT is likely to consider cutting its GDP growth forecasts in the Q4-2011 Inflation Report, given greater downside risks to growth. We expect the BoT to pay greater attention to such risks ahead. That said, if growth and inflation consistently surprise on the downside in 2012, then we see risks of policy easing.
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Europe
Sarah Hewin, +44 20 7885 6251
Sarah.Hewin@sc.com
Mario Draghis first ECB rate decision is a close call; high risk of a cut UK Q3 GDP to have posted a technical acceleration Turkeys CPI in focus as CBRT is unhappy with TRY pass-through Europe week ahead
Economy Key data and events Period Sep Sep Sep Sep Oct Sep Oct Oct Sep Oct Oct Q3 Oct Oct Oct Oct Oct Oct Oct Oct 08:30 08:30 08:30 09:00 09:00 06:00 07:00 07:15 07:30 08:30 08:30 07:55 07:55 07:55 08:00 07:00 07:00 07:00 08:30 11:45 06:55 07:00 08:00 08:00 09:00 09:00 GMT Forecast 0.9 (1.5) 0.4 50,700 -3.0 10.0 -0.3 (0.2) --47.9 49.9 0.5 -10 6.9 48.9 47.3 2.1 (6.4) 7.4 1.4 (12.3) 50.5 1.5 52.1 -47.2 47.2 0.3 (5.8) 0.7 Previous -2.9 (2.2) 0.5 52,400 -0.6 3.0 10.0 0.1 (-0.3) 51.5 -1.9 48.2 51.1 0.1 -26 6.9 50.3 48.5 0.75 (6.15) 6.96 1.55 (12.15) 52.9 1.5 49.7 282.4 49.1 48.8 -0.1 (5.9) -1.4
Thomas Costerg, +44 20 7885 8615

Thomas.Costerg@sc.com
Week 31 Oct 2 Nov Germany Retail sales, m/m (y/y) % Monday 31 October UK Net consumer credit, GBP bn UK BoE mortgage approvals, 000 UK M4 money supply, y/y % Euro area CPI inflation estimate, % y/y Euro area Unemployment rate, % Tuesday 1 November UK Nwide house prices, m/m (y/y) % Turkey Manufacturing PMI Switzerland Retail sales (volume), y/y % Switzerland Manufacturing PMI UK Manufacturing PMI UK Q3 GDP, q/q % Wednesday 2 November Germany Unemployment change, 000 Germany Unemployment rate, % Germany Manufacturing PMI final Euro area Manufacturing PMI final Thursday 3 November Turkey CPI inflation, % m/m (y/y) Turkey Core CPI inflation, % Turkey Producer prices, % m/m (y/y) UK Services PMI Euro area ECB refi rate, % Friday 4 November Germany Services PMI final Switzerland Foreign currency reserves, CHF bn Euro area Composite PMI final Euro area Services PMI final Euro area Producer prices, m/m % (y/y) Germany Factory orders, m/m %
Oct Oct Oct Oct Sep Sep
Euro area
Attention will be on the European Central Bank (ECB) rate decision on 3 November, the first chaired by incoming President Mario Draghi (succeeding Jean-Claude Trichet). At the last ECB monthly meeting, Trichet focussed on the ECBs exceptional liquidity operations, aiming at calming rising financial-market stress stemming from escalating euro-area debt issues: Trichet announced two new one-year liquidity facilities, and reinstated the covered bond purchase programme. This time, the focus is more likely to be on growth and activity indicators (Trichet said, a very thorough analysis of all incoming data and developments over the period ahead is warranted), and the subsequent consequence for monetary policy (the refi rate has been at 1.5% since July). We think that the rate decision will be a close call. If a rate cut is avoided at the November meeting, we would nevertheless expect an indication that rates will be eased by year-end, given that weak survey data point to the risk of a sharp slowdown in activity in Q4. The economic releases preceding the ECB meeting will be crucial. We expect the October euro-area CPI inflation estimate to have remained at 3.0%, while the September unemployment rate could have stayed at 10%. We expect the final euroGR11SE | 28 October 2011 16
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area manufacturing PMI to confirm the preliminary decline to 47.3 from 48.5. In Germany, we expect the labour market to have lost some shine as economic activity slowed, though unemployment likely continued to decline (we expect the change in the number of unemployed to have decelerated to -10,000, from -26,000 in August). After the ECB meeting, investors are likely to keep an eye on German September factory orders, a leading indicator of manufacturing activity. After falling 1.4% m/m in August (after -2.6% in July), we expect orders to have rebounded 0.7%. Euro-area producer price data should confirm that inflationary pressures are low at the company level, as commodity prices have been range-trading in the past weeks: Brent oil averaged EUR 82.2/bbl in September, up from EUR 77.2/bbl in August, but broadly in line with Julys EUR 81.9/bbl. Attention will also be on further developments following the euro-area summit decisions on 26 October. Of particular importance will be to agree on the details behind the broad package announced by the euro-area Heads of State, in particular on the voluntary haircut on Greek debt (private-sector involvement plan), the details of the banking-sector recapitalisation and the EFSF leveraging (EFSF to be used as a credit enhancer for peripheral bond issuance).
UK
We expect the preliminary Q3 GDP growth estimate by the Office for National Statistics to have accelerated to 0.5% q/q, from 0.1% q/q in Q2, mostly owing to technical factors (such as inventories) and a reversal of one-off events that depressed the Q2 reading (in particular, the extra holiday due to the Royal Wedding). The market will scrutinise the more forward-looking data, particularly the October PMI surveys. We expect the manufacturing gauge to have dropped to 49.9 from 51.1 in September, as decelerating global trade, growing euro-area debt worries and stillfragile conditions at home affect the industrial sector. We think that for similar reasons, the services gauge could erode to 51.5, from 52.9 in September. We think that Bank of England credit data will show still-limited appetite for credit.
Chart 1: EUR-USD Redolent of oil? EUR-USD and Brent oil price (USD/bbl)
130 125 120 115 110 105 100 95 90 85 Dec-10 Mar-11 Jun-11 Sep-11 1.25 Brent price (LHS) EUR-USD rate (RHS) 1.50 1.45 1.40 1.35 1.30
Chart 2: The euro-area PMI surveys signal a weak Q4 GDP print, raising the probability of an upcoming ECB rate cut
65 60 55 50 45 40 35 30 Mar-06 Jan-07 Nov-07 Sep-08 Jul-09 May-10 Mar-11 Services PMI Mfg PMI


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Turkey
The central bank (CBRT) has been increasingly worried about the slippage of CPI inflation against its targets, as it indicated in its most recent quarterly inflation report. The bank revised up its year-end 2011 CPI inflation forecast to 8.3% from 6.9% in the July report and kept the year-end 2012 target unchanged (5.2%). Among the reasons the CBRT cited for the slippage this year were a higher-thanexpected hike in administered prices and the impact of Turkish lira (TRY) depreciation (contributing 2.2ppts to the slide). The bank is particularly displeased with the level of the TRY, which it still sees as undervalued, hence the tightening using the overnight corridor (reflected in short-dated bond yields). Against this backdrop, a further acceleration in October CPI inflation is widely flagged. The extent of the acceleration will reveal the extent of the pass-through from a weak TRY, and could indicate the magnitude of the upcoming monetary tightening. Of interest will be the October manufacturing PMI survey. A strong reading would give more leeway to the CBRT, and support its hawkish stance. The September PMI was 51.5, suggesting expanding manufacturing production ahead. However, the October gauge could have been impacted by escalating euro-area debt worries and decelerating global activity.
Chart 3: TRY regaining some colour as the CBRT flexes its muscles, being unhappy with the undervaluation
5.1 4.9 4.7 4.5 4.3 4.1 3.9 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 TRY-HUF (RHS) 160 150 140 130 120 110 100
Chart 4: Turkish CPI inflation: all roads lead to tightening CPI inflation, y/y %
11 10 9 8 7 6 5 4 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 F'cast
TRY-ZAR (LHS)


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Latin America
Bret Rosen, +1 212 667 0386
Bret.Rosen@sc.com
Four more years of Kirchnerismo in Argentina COPOM minutes suggest more rate cuts ahead BanRep in Colombia should stay on hold Region week ahead
Economy Key data and event Period GMT 14:00 Oct 28 11:30 Sep 15:00 Oct Oct Oct Oct 7:00 18:00 18:00 -1.0% -1.0% -0.2% -0.2% 4.5 4.5 Forecast Previous Friday 28 October Mexico Central bank monetary policy minutes Colombia Central bank overnight lending rate,% Monday 31 October Brazil Central bank weekly economist survey Tuesday 1 November Brazil Industrial production m/m Mexico Central bank economist survey Wednesday 2 November Peru CPI, % m/m (y/y) Thursday 3 November Brazil FIPE CPI, % m/m Mexico IMEF manufacturing index Mexico IMEF non-manufacturing
Italo Lombardi, +1 212 667 0564

Italo.Lombardi@sc.com
0.13(4.00) 0.33(3.73) 0.33 0.25 50.0 49.6
Argentina
As expected, Cristina Kirchner has decisively won in the presidential election. Her vote total was 54%; Hermes Binner finished second, with just 17%, which is the largest margin of victory in the history of the countrys presidential elections. Cristina delivered a relatively conciliatory victory speech, but she has a very strong mandate in her second term; the local press has suggested that she will enjoy the greatest concentration of power since democracy was re-established in Argentina in 1983. Daniel Scioli, her partys candidate for governor of BA province (the countrys most populous and economically important), also sailed to an easy victory, with over 57% of the votes; all but one of the gubernatorial elections went her way; and Kirchneraligned representatives will give her control of both houses of congress. Kirchners party, Frente para la Victoria, will control the gubernatorial posts in 14 of the countrys 23 provinces and 38 of 72 senatorial seats; the election reverses Nestor Kirchners 2009 defeat, when the Frente para la Victoria lost control of congress. The 54% vote total exceeds hers in the 2007 elections, and surpasses by more than 30% Nestor Kirchners in the prior presidential vote, when he was elected. In the next several weeks, look for the key Cabinet positions to be defined, with the Minister of Economy slot the most important from the markets standpoint. Also Note that central bank president Mercedes Marco del Pont has not yet been ratified for another term. The markets main focus in the upcoming days will be any potential shift in FX policy. Capital flight continues at a rapid rate, with the central bank having sold around USD 1bn into the FX market in the last week alone, and growing reports of authorities frequenting local exchange houses and banks, harassing individuals involved in US dollar (USD) purchases. One rumour suggests a one-off depreciation of the Argentine peso (ARS), in line with the depreciation of the Brazilian real (BRL) over the last few months; i.e. a 15% one-off, to take place in 1Q-2012, after the presidents (re-)inauguration in December. We tend to think that the government will opt for a more gradual approach to FX policy, aiming to increase the pace of depreciation to
Economics Weekly
ARS 0.04-0.06 per month. Reports note that important figures in the industrial sector are pushing for a sharper fall in the ARS to help restore lost competitiveness. With the perception that the ARS is overvalued, and capital flight having accelerated, there is increased pressure on the central bank to keep the Badlar deposit rate high, which has a very negative effect on consumption. Indeed, in recent days, the Badlar rate has hit 20%. There has been talk of a pacto social between industry, labour and government, to try to bring inflation down to a more manageable 18% y/y. This would require cooperation from labour in its negotiation processes as well as the government accommodating a lower inflation rate via fiscal and monetary policy. Given that electricity and energy tariffs may adjust upwards, the government could regulate other prices to negate the inflationary impact from higher energy prices domestically.
Brazil
On 27 October, Brazils monetary policy committee, the COPOM, released the minutes from its prior meeting. These do not damp expectations for another 50bps cut at the last COPOM meeting this year, in our view. The COPOM continues to put pressure on the fiscal-policy side of the equation and looks for an effort on the primary-surplus side next year. The COPOM highlighted that since its previous meeting (end-August), risks for global financial stability have increased...and the risks are high for a period of economic deceleration in emerging market (EM) economies as a result. This suggests that the impact from abroad will be disinflationary for Brazil. The COPOM believes that inflation peaked during the last quarter and that it will move close to its target next year. It signalled that the wedge between aggregate supply and demand is diminishing, and, since the last COPOM meeting, the prospective scenario for inflation has accumulated favourable signs. Nonetheless, the COPOM acknowledged that services inflation remains high, at 0.50% m/m in August and 0.51% m/m in September, putting the 12-month accumulated figure over 9%, its highest since 1997. It recognizes that services inflation will continue to be elevated. There is an economic slowdown in areas such as the services sector, industrial production, and domestic demand. The weak IBC-Br number showed that three-month economic growth from June-August was negative. One scenario (assuming a steady state of the world, FX of 1.75, SELIC of 12% and various adjustments to administered prices) puts inflation above the target of 4.5%, and does not place IPCA at the 4.5% target until 3Q-2013. However, COPOM is still hoping to reach its 4.5% target in 2012, it's so called 'central scenario.' This is the scenario based on central bank (BCB) models that the market will focus on. It noted that the effect of the international environment should help bring inflation toward the target for 2012, and suggested that the impact from the international shock is a quarter of that in 2008-09. However, it believes that the effect on the Brazilian economy from abroad will be more extended than in the previous crisis. They delineate a scenario of more restrictive credit conditions, a moderation in investment capital flow, reduced international commerce, etc. The COPOM used language suggesting that 'moderate' adjustments to the interest rate are consistent with reaching the target in 2012, and noted that inflation in 2011 was hit negatively by domestic and external shocks. It also referred to a strong labour market and the risk that salary adjustments could compromise inflation readings.
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Colombia
We expect BanReps next policy rate decision on 28 October to keep the benchmark rate unchanged at 4.5%, which is also the consensus view. At its last policy meeting on 30 September, BanRep maintained the policy rate at 4.5%, expressing comfort with the balance of risks to inflation. The bank remained upbeat about domestic activity in September, and this should not change in October. The higher frequency indicators such as retail sales and consumer confidence still suggest good growth momentum entering Q3. In fact, favourable base effects may have caused a small acceleration of yearly growth in Q3, despite the slow execution of public spending on civic works. Credit conditions remain expansive, enabling the robust pace of private consumption. BanRep highlights the risk of deteriorating external conditions, which could affect the domestic economy via worsening sentiment and weaker exports and financial flows. Underlying inflation measures remain well behaved. Core inflation excluding food items was 2.98% y/y in September, while excluding food and public prices, it was up by 3.02%. Tradeables inflation stood at 0.15% y/y, while non-tradeables inflation, although higher, remained relatively stable at 3.50%. Inflation expectations remained well anchored within the target range on both a survey and market-implied basis. In all, BanRep is likely to express satisfaction with the current level of rates given the evolution of domestic and external conditions. The international picture has been relatively stable, which will keep BanRep on hold, for now.
Chart 1: Growth momentum remains robust in Colombia Quarterly GDP figures (%)
9 8 7 6 5 4 3 2 1 0 -1 -2 Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 q/q y/y
Sources: DANE, Standard Chartered Research

Economics Weekly

United States
David Semmens, +1 212 667 0452
David.Semmens@sc.com
A critical week for assessing the start to Q4 Payroll data is unlikely to lower unemployment Activity growth should show a firmer beginning US week ahead
Economy Friday 28 October United States United States United States United States Monday 31 October United States Tuesday 1 November United States Key data and event Personal income, % m/m Personal spending, % m/m PCE core, % m/m(y/y) Univ. of Mich consumer confidence Chicago purchasing manager ISM Manufacturing Period GMT Sep Sep Sep Oct F Oct Oct Oct Nov 2 12:30 12:30 12:30 13:55 13:45 14:00 12:15 16:30 18:15 Forecast 0.3 1.0 0.2(1.8) 57.0 58.8 53.0 95,000 Previous -0.1 0.2 0.1(1.6) 57.5 60.4 51.6 91,000
Sophii Weng, +1 212 667 0472

Jing-Jing.Weng@sc.com
David Mann, +1 646 845 1279

David.Mann@sc.com
Wednesday 2 November United States ADP employment change United States FOMC rate decision United States Bernanke speaks at Fed press conf. Thursday 3 November United States United States Friday 4 November United States United States United States United States United States Initial jobless claims ISM non-manufacturing composite Change in nonfarm payrolls Change in private payrolls Unemployment rate, % Average hourly earnings, % m/m (y/y) Average weekly hours
Oct 28 12:30 Oct 14:00 Oct Oct Oct Oct Oct 12:30 12:30 12:30 12:30 12:30
400,000 53.8 95,000 125,000 9.1 0.2 (1.7) 34.3
402,000 53.0 103,000 137,000 9.1 0.2 (1.9) 34.3
We anticipate that Octobers US private non-farm payrolls rose 95,000, essentially in line with the current consensus expectation of 100,000, and only 8,000 below the better-than-expected September print. We expect that the headline number continued to be weighed down by public-sector cuts as state and local governments continue to trim payrolls to balance stretched budgets. We expect average hourly earnings to have risen 0.2% m/m, which translates into a 1.7% y/y increase, down from 1.9% y/y in September. Unemployment likely stayed at 9.1%. Average hours worked probably remained at 34.3; however, a rise of 0.1 in hours worked would equate to a rise in total income equivalent to 400,000 new jobs. Despite the pickup in activity data, so far Octobers labour-market data paints a picture of only modest expansion. The Philly Fed regional PMI employment subcomponent remains marginally expansionary, while the Empire State PMI employment sub-component recovered just into expansionary territory after last months foray into negative territory its weakest point since September 2009. Initial jobless claims (IJC) continue to edge towards a break below 400,000. The temporary nature of the move higher in Septembers IJC does give us some comfort, but hiring remains elusive. Ultimately, these figures are still far from the levels needed to meaningfully reduce unemployment. We expect Octobers ISM manufacturing PMI to have ticked up to 53.0. While the Empire State survey stayed contractionary, the Philly Fed PMI saw the strongest pick-up since October 1980. We feel that this warrants further, but guarded, optimism that we will see Q4 start on a stronger footing. It is worth noting that the regional
Economics Weekly
surveys are significantly more volatile than the national PMIs, but they tend to be a reliable leading indicator overall. Interestingly, last month saw a pick-up in the employment sub-component, but new orders remain marginally negative for the third straight month. We would need improvement in both sub-components to feel more comfortable about Q4. The second-to-last FOMC meeting of the year is likely to acknowledge that there is still much work to be done, despite the recent firming of data. While economic activity has finished Q3 on a stronger trajectory, the continued deleveraging of the US consumer will keep growth from gaining any true momentum. The FOMC will want to see further evidence that inflationary pressures have peaked before enacting a third round of quantitative easing (QE3). We see little threat from inflation given that the economy still suffers from excess capacity and weak wage growth. We maintain our view that further QE will happen during Q1-2012. We would look to this meeting to lay out the conditions for further action, but we remain firm that it is when, not if. We expect the final release of the October University of Michigan Consumer Sentiment Index to show a slight tick down from the preliminary figure. Our concerns stem from the significantly weaker-than-expected Conference Board release. While we are not seeing a strong resumption of hiring, we take some comfort from the fact that aggressive firing does not appear to be on the current corporate agenda. We see confidence to remaining comparatively low; any significant improvement from present levels will only come as lower energy prices feed into gasoline prices or when we see definite progress in the labour market. We expect Septembers personal income and outlay report to show personal expenditure up by 1.0% m/m and personal income up by 0.3% m/m. A surprisingly strong retail sales report in September has boosted optimism that we will see a reassuring end to Q3s consumption data. We expect spending to show a strong finish to the year as the decline in oil price continues to feed into gasoline, boosting consumers real income. Septembers household survey showed that hours worked, hourly earnings and the number of people employed rose, all positive for earned income which should reverse last months decline.
Chart 1: The disconnected labour market

12 10 8 6 4 Inverse of JOLT openings (RHS) 2 0 Jan-01 Jul-02 Jan-04 Jul-05 Jan-07 Jul-08 Jan-10 Jul-11 0.2 0.1 Unemployment (%, LHS) 0.7 0.6 0.5 0.4 0.3
Chart 2: Turning the corner

80 70 60 50 40 30 20 Jan-00 May-01 Sep-02 Jan-04 May-05 Sep-06 Jan-08 May-09 Sep-10 Sources: Bloomberg, Standard Chartered Research
23
ISM manufacturing new orders
ISM manufacturing PMI

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Recent macro publications 20-26 October 2011

On the Ground reports
On the Ground, South Africa Establishing fiscal rules for long-term growth, 26 October
Razia Khan https://research.standardchartered.com/ResearchDocuments/Pages/ResearchArticle.aspx?R=86320 Medium-term budget forecasts widening of deficits, in line with weaker growth and revenue projections Eventual consolidation is still expected; South Africa targets a primary surplus by FY15 External economic outlook and domestic politics remain key points of uncertainty
On the Ground, Thailand Update on flood disaster, 26 October

Danny Suwanapruti | Tai Hui | Thomas Harr | Usara Wilaipich https://research.standardchartered.com/researchdocuments/Pages/ResearchArticle.aspx?&R=86308 Ongoing flooding threatens central Bangkok, and this is hitting business confidence We see potential for a strong economic recovery in H1-2012 on the back of government measures BoT is likely to prefer temporary liquidity measures over policy interest rate cuts THB to weaken near-term on growth, trade; recovery to follow in H1-2012 as economy rebounds Thai insurance companies likely to sell front-end bonds to meet policy payouts; limited impact seen
On the Ground, Taiwan Survival of the fittest for mainland exporters, 26 October
Tony Phoo https://research.standardchartered.com/ResearchDocuments/Pages/ResearchArticle.aspx?R=86311 The mood among Taiwanese export producers in Guangdong province is generally downbeat Worsening credit crunch and rising costs add to worries about dwindling overseas orders Taiwanese SME producers in the region appear to be less severely affected than local manufacturers
On the Ground, South Africa Establishing fiscal rules for long-term growth, 26 October
Razia Khan https://research.standardchartered.com/ResearchDocuments/Pages/ResearchArticle.aspx?R=86320 Medium-term budget forecasts widening of deficits, in line with weaker growth and revenue projections Eventual consolidation is still expected; South Africa targets a primary surplus by FY15 External economic outlook and domestic politics remain key points of uncertainty
On the Ground, India Bold guidance, 25 October

Anubhuti Sahay | Samiran Chakraborty https://research.standardchartered.com/ResearchDocuments/Pages/ResearchArticle.aspx?R=86248 The RBI raises policy rates by 25bps but indicates no further rate hikes Its guidance is conditional on inflation moderating and is likely to cause a supply response Continued supply pressure in the GoISec market to counteract stable policy rates; we prefer 1/5Y steepeners on the OIS curve
On the Ground, Mexico A weak MXN could keep Banxico on hold, 21 October
Bret Rosen https://research.standardchartered.com/ResearchDocuments/Pages/ResearchArticle.aspx?R=86133 The pass-through impact of MXN depreciation on inflation appears to be quite limited Volatile conditions in the FX market are expected to impact Banxicos monetary policy stance Authorities are clearly reluctant to intervene in the FX market
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On the Ground, India RBI expected to hike again, 21 October

Anubhuti Sahay https://research.standardchartered.com/ResearchDocuments/Pages/ResearchArticle.aspx?R=86103 We expect another 25bps increase in the repo rate when the RBI meets next week Growth risks are likely to be highlighted, but the focus will remain on containing inflation We expect no explicit indication of a pause in the hiking cycle or liquidity enhancement measures
On the Ground, Cameroon More of the same, 20 October

Victor Lopes https://research.standardchartered.com/ResearchDocuments/Pages/ResearchArticle.aspx?R=85994 Election results have confirmed ruling President Biya as the winner As the president approaches his third decade in power, the succession issue is a source of uncertainty Economic growth might pick up but is likely to remain unimpressive Fiscal consolidation will be needed but fuel subsidies are likely to continue, to prevent social tension
On the Ground, China Our M2+ proposal, 20 October

Li Wei | Stephen Green https://research.standardchartered.com/researchdocuments/Pages/ResearchArticle.aspx?&R=85967 We explain why official M2 growth underestimates monetary supply, and how to calculate M2+ M2+ grew by 17.3% y/y in September, based on our calculation, compared with official M2 growth of 13% M2+ is a better indicator of CPI inflation outlook; inflation is expected to fall to 2.5% y/y by July 2012
On the Ground, Vietnam Confronting the same old problems, 20 October

Jennifer Kusuma | Tai Hui | Thomas Harr https://research.standardchartered.com/researchdocuments/Pages/ResearchArticle.aspx?&R=85949 Headline growth has held up despite higher lending rates; inflation has peaked, as expected VND depreciation pressure requires central bank to keep monetary policy tight Tight bank liquidity is preventing local government bonds from benefiting from lower inflation
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Summary tables
Central bank outlook
Current 1Y change Benchm ark rate Majors US Euro area UK Japan Canada Australia New Zealand Sw itzerland Asia China Hong Kong Taiw an Korea Philippines Malaysia Indonesia Thailand India Pakistan Sri Lanka Vietnam One-Year Lending Rate Base Rate Discount Rate Base Rate Reverse Repo Rate O/N Policy Rate BI Rate 1D Repo Repo Rate Discount Rate Repo Rate Refi Rate 6.56 0.50 1.88 3.25 4.50 3.00 6.50 3.50 8.50 12.00 7.00 15.00 +125 0 +50 +100 +50 +75 0 225 250 -50 0 700 N/A 2-Nov-11 Q4-2011 10-Nov-11 1-Dec-11 11-Nov-11 10-Nov-11 30-Nov-11 16-Dec-11 Nov -11 Nov -11 N/A Q1-2013 Q3-2013 Q1-2013 Q3-2012 Q1-2013 on hold 10-Nov-11 Q3-2013 Q2-2012 on hold Q3-2012 Q2-2012 +25bps +25bps +12.5bps +25bps +25bps --25bps +25bps -25bps -+25bps -100bps 6-Jul-11 16-Dec-08 +25bps -100bps Fed Funds Target Rate Refi Rate Bank Rate O/N Call Rate O/N Lending Rate Cash Rate Cash Rate 3 month Libor Target 0.25 1.50 0.50 0.0 - 0.1 1.00 4.75 2.50 0.0 0 50 0 0 0 25 -50 0 2-Nov-11 3-Nov-11 10-Nov-11 7-Oct-11 6-Dec-11 1-Nov-11 8-Dec-11 15-Dec-11 Q3-2013 Q4-2011 Q1-2013 Q3-2013 Q3-2012 Q1-2013 Q3-2012 Q3-2012 +25bps -25bps +25bps +10bps +25bps +25bps +25bps +25bps 15-Dec-08 7-Jul-11 5-Mar-09 19-Dec-08 9-Sep-10 2-Nov-10 10-Mar-11 3-Aug-11 -75bps +25bps -50bps -20bps +25bps +25bps -50bps -25bps (%) (bps) Next Meeting Forecast next change Date SC forecast Last change Date Action
30-Jun-11 +12.5bps 10-Jun-11 5-May-11 5-May-11 11-Oct-11 24-Aug-11 25-Oct-11 8-Oct-11 11-Jan-11 7-Oct-11 +25bps +25bps +25bps -25bps +25bps +25bps -150bps -25bps +100bps
Other Em erging Markets South Africa Kenya Nigeria Ghana Botsw ana Brazil Chile Colombia Mexico Peru Turkey UAE Saudi Arabia Repo Rate Central Bank Rate Monetary Policy Rate Prime Rate Bank Rate Selic Rate Overnight Rate Min. Reverse Repo Rate TdF Rate Reference Rate One-w eek repo Overnight Repo Rate Reverse Repo Rate 5.50 11.00 12.00 12.50 9.50 11.50 5.25 4.50 4.50 4.25 5.75 1.00 0.25 -50 500 575 -150 -50 125 375 150 0 0 -125 -50 -50 10-Nov-11 Nov-11 22-Nov-11 Nov -11 Dec-11 30-Nov-11 15-Nov-11 28-Oct-11 2-Dec-11 7-Dec-11 23-Nov-11 N/A N/A May-12 Nov -11 Nov-11 Q1-2012 Apr-12 Q4-2011 Q4-2011 on hold Q1-2012 on hold Q3-2012 N/A N/A +50bps +25bps +25bps +50bps +200bps +100bps +100bps +50bps -50bps -25bps --25bps 19-Nov-10 5-Oct-11 -50bps +400bps
20-Sep-11 +275bps 6-Jul-11 15-Dec-10 19-Oct-11 14-Jun-11 17-Jun-11 17-Jul-09 9-Jun-11 4-Aug-11 19-Dec-08 16-Jun-09 -50bps -50bps -50bps +25bps +25bps -25bps +25bps -50bps -25bps -25bps
Bold, underlined: Change in forecast since last Economics Weekly
Source: Standard Chartered Research
26
Economics Weekly
Rates forecasts
Forecasts in BLUE (RED) indicate upward (downward) revision
Current % United States Policy rate 3M LIBOR 10Y bond yield Euro area Policy rate 3M LIBOR 10Y bond yield United Kingdom Policy rate 3M LIBOR 10Y bond yield Australia Policy rate 3M money 10Y bond yield China Policy rate 7D repo rate 10Y bond yield Hong Kong India 3M HIBOR 10Y bond yield Policy rate Money market rate 10Y bond yield Indonesia Policy rate JIBOR 3M 10Y bond yield Malaysia Policy rate 3M KLIBOR 10Y bond yield Philippines Policy rate 3M PDST-F 10Y bond yield Singapore South Korea 3M SGD SIBOR 10Y bond yield Policy rate Money market rate 10Y bond yield Taiwan Policy rate 3M TAIBOR 10Y bond yield Thailand Policy rate BIBOR 3M 10Y bond yield Vietnam Policy rate (Refi rate) Overnight VNIBOR 2Y bond yield Ghana Policy rate 91-day T-bill rate 3Y bond yield Kenya Policy rate 91-day T-bill rate 10Y bond yield Nigeria Policy rate 91-day T-bill rate 10Y bond yield South Africa Policy rate 91-day T-bill rate 10Y bond yield 0-0.25 0.39 2.17 1.50 1.52 2.18 0.50 0.99 2.59 4.75 4.81 4.47 6.56 5.01 3.75 0.28 1.40 8.50 8.70 8.73 6.50 5.82 6.31 3.00 3.26 3.71 4.50 3.00 6.01 0.38 1.67 3.25 3.58 3.85 1.88 0.89 1.32 3.50 3.56 3.46 15.00 12.30 12.70 12.50 9.37 14.30 11.00 14.84 18.00 9.25 10.50 14.71 5.50 5.58 8.14 Q4-11 % 0-0.25 0.45 1.90 1.25 1.20 1.70 0.50 0.85 2.15 4.75 4.85 5.85 6.56 4.50 3.70 0.30 1.30 8.50 8.50 8.50 6.00 5.70 7.00 3.00 3.25 3.70 4.50 3.50 6.30 0.35 1.55 3.25 3.60 4.00 1.88 0.90 1.40 3.50 3.65 3.90 15.00 13.00 12.50 12.50 9.66 15.00 14.00 16.50 19.00 10.25 11.50 15.00 5.50 5.68 8.20 Q1-12 % 0-0.25 0.35 2.00 1.00 1.05 1.80 0.50 0.85 2.20 4.75 4.85 6.05 6.56 4.00 3.60 0.30 1.35 8.50 8.25 8.25 6.00 5.50 6.75 3.00 3.25 3.70 4.50 3.70 6.40 0.35 1.60 3.25 3.60 4.10 1.88 0.90 1.60 3.50 3.65 3.90 15.00 13.00 12.00 13.50 10.40 15.25 15.00 15.90 17.00 11.75 12.50 14.50 5.50 5.72 8.30 Q2-12 % 0-0.25 0.25 2.10 1.00 1.10 2.00 0.50 0.90 2.30 4.75 4.90 6.10 6.56 3.50 3.50 0.30 1.40 8.25 8.00 8.00 6.00 5.40 6.75 3.00 3.25 3.80 4.50 3.90 6.50 0.35 1.70 3.25 3.60 4.20 1.88 0.90 1.80 3.50 3.70 4.00 14.00 12.00 11.00 14.00 10.90 15.00 16.00 14.48 16.80 12.25 13.50 14.00 6.00 6.24 8.10 Q3-12 % 0-0.25 0.25 2.20 1.00 1.25 2.25 0.50 0.95 2.40 4.75 5.00 6.25 6.56 3.00 3.50 0.30 1.50 7.75 7.75 7.75 6.00 5.20 6.50 3.00 3.25 3.85 4.50 4.30 6.50 0.35 1.80 3.50 3.80 4.30 1.88 0.90 2.00 3.50 3.75 4.00 12.00 10.00 11.00 14.00 11.40 14.50 16.00 13.40 16.50 13.25 13.30 13.80 6.50 6.62 7.90 Q4-12 % 0-0.25 0.25 2.30 1.25 1.50 2.35 0.50 1.00 2.50 4.75 5.20 6.30 6.56 3.00 3.50 0.30 1.60 7.25 7.25 7.50 6.00 5.20 6.50 3.00 3.35 3.85 4.50 4.50 6.50 0.35 1.90 3.75 4.05 4.30 1.88 0.90 1.90 3.50 3.80 4.00 11.00 10.00 11.00 14,50 11.90 13.50 14.00 12.85 15.50 13.25 13.20 13.50 7.00 7.10 7.80 Q1-13 % 0-0.25 0.45 2.40 1.50 1.75 2.45 0.75 1.25 2.60 5.00 5.40 6.35 6.81 3.50 3.60 0.45 1.70 7.00 7.00 7.25 6.00 5.20 6.50 3.00 3.35 3.85 4.75 4.80 6.50 0.35 1.90 4.00 4.30 4.30 2.00 0.95 1.90 3.50 3.85 4.00 11.00 10.00 11.00 15.00 12.40 12.80 14.00 11.20 15.00 13.25 12.90 13.00 7.50 7.54 7.70
27
Economics Weekly
Macro forecasts
Country Majors US^ Euro area Japan UK Canada Sw itzerland Australia New Zealand Asia Bangladesh* China Hong Kong India* Indonesia Malaysia Pakistan* Philippines Singapore South Korea Sri Lanka Taiw an Thailand Vietnam Africa Angola Botsw ana Cameroon Cte d'lvoire The Gambia Ghana Kenya Nigeria Sierra Leone South Africa Tanzania Uganda 2.5 7.2 2.6 2.4 5.7 6.5 5.2 6.6 4.5 2.8 6.5 6.4 4.0 4.9 3.5 -7.0 5.5 12.3 5.8 8.5 5.2 3.4 6.7 6.8 6.5 4.8 4.0 5.0 5.5 8.0 6.3 7.8 6.0 3.6 7.5 7.5 6.4 4.5 4.5 2.0 4.0 4.0 5.0 4.7 4.7 6.3 4.0 4.5 4.0 4.5 4.0 3.0 4.8 5.0 3.5 4.5 6.5 5.2 5.0 6.0 6.0 6.8 6.8 7.2 6.0 4.2 7.3 7.0 6.9 5.0 5.0 3.0 4.4 4.5 5.5 5.0 4.6 5.2 4.5 5.5 5.0 4.5 4.0 4.9 5.0 4.5 4.0 5.0 13.3 6.9 3.0 1.4 5.0 10.9 3.8 13.8 16.5 4.3 6.9 5.2 8.9 5.0 2.5 11.3 5.0 4.0 5.0 1.0 3.2 -5.0 5.5 4.4 8.6 0.9 10.5 5.0 1.4 2.0 4.2 2.1 11.0 8.2 3.5 2.5 6.0 10.2 12.8 12.5 9.7 5.3 9.3 14.1 10.5 4.5 1.0 11.3 4.6 5.0 6.0 2.5 4.0 2.0 6.5 4.0 6.7 2.5 9.2 6.5 3.6 3.2 3.7 3.2 10.5 6.7 2.5 2.5 5.0 12.7 8.5 8.4 8.7 5.8 7.7 7.3 7.8 4.0 3.5 11.5 4.2 4.5 5.4 2.8 4.0 3.5 5.8 4.0 6.0 2.5 11.0 5.5 3.0 3.3 3.8 2.5 9.0 6.5 2.5 2.5 5.0 11.3 4.8 9.2 8.5 5.2 5.0 4.5 7.7 3.5 4.0 11.0 4.5 4.0 5.5 3.0 4.5 3.5 5.2 3.5 6.0 2.8 12.0 4.5 3.0 3.3 3.8 2.5 2.0 -0.5 1.6 6.8 -11.1 -7.2 -7.9 6.4 -9.3 -3.2 -8.6 -9.9 3.8 1.9 5.0 -0.5 -5.0 30.0 -22.0 -3.5 6.5 16.0 8.5 -1.6 -6.5 8.0 1.0 -2.3 1.9 -3.3 -0.5 -1.5 1.5 -1.5 1.3 2.5 -10.8 -6.8 -9.3 14.6 -9.5 -4.2 -9.5 -10.6 5.9 11.0 3.0 -1.6 -5.5 38.0 -29.0 -7.5 10.0 32.0 18.0 -11.0 -9.5 9.0 0.4 -2.4 0.4 -3.4 -1.0 -0.6 3.0 3.5 1.4 1.0 -10.3 -5.2 -7.9 13.3 -9.5 -4.9 -10.6 -9.2 3.3 12.0 3.0 -1.9 -5.1 40.0 -23.0 -3.0 9.0 30.0 12.0 -5.0 -5.9 9.0 -0.5 -2.6 0.1 -2.8 -1.5 -0.3 4.0 3.3 1.2 -0.5 -10.0 -4.0 -6.0 11.1 -9.3 -4.8 -10.0 -6.8 3.4 10.0 3.0 -0.5 -4.6 41.0 -20.0 -2.0 8.0 30.0 8.0 -1.0 -5.0 8.0 -0.8 -2.7 0.0 -2.7 -1.5 -1.0 93.00 7.82 512.5 512.5 28.50 1.68 102.00 167.0 4,350 9.00 1,670 2,840 5,400 75.00 0.38 5.98 0.71 0.29 1,500 7.75 0.39 3.64 3.75 1.37 1.92 3.67 4.38 1.85 500 1,875 13.80 2.74 92.50 8.00 504.6 504.6 29.00 1.64 96.00 165.0 4,370 9.20 1,660 2,780 5,500 74.80 0.38 5.98 0.71 0.29 1,500 7.80 0.39 3.64 3.75 1.39 1.86 3.67 4.48 1.90 530 1,930 14.20 2.77 92.50 8.05 485.9 485.9 29.50 1.59 88.00 164.0 4,390 9.10 1,640 2,690 5,200 74.30 0.38 5.98 0.71 0.28 1,500 8.00 0.39 3.64 3.75 1.43 1.74 3.67 4.60 1.80 480 1,860 13.00 2.75 92.00 7.85 475.3 475.3 30.00 1.57 87.00 162.0 4,450 8.80 1,680 2,680 4,900 74.00 0.40 5.97 0.71 0.28 1,500 8.12 0.39 3.64 3.75 1.44 1.69 3.67 4.68 1.75 470 1,810 12.50 2.73 91.50 8.05 461.9 461.9 30.50 1.62 94.00 160.0 4,460 9.10 1,700 2,660 4,800 73.60 0.40 5.95 0.71 0.28 1,500 8.28 0.39 3.64 3.75 1.45 1.63 3.67 4.75 1.65 465 1,780 11.80 2.72 91.50 7.83 452.4 452.4 30.70 1.60 92.00 159.0 4,470 8.70 1,720 2,640 4,700 73.30 0.40 5.90 0.71 0.28 1,500 8.40 0.39 3.64 3.75 1.46 1.59 3.67 4.75 1.55 455 1,750 11.50 2.68 6.7 10.3 7.0 8.5 6.1 7.2 4.1 7.6 14.5 6.2 8.0 10.5 7.8 6.8 6.2 9.2 5.0 7.4 6.5 4.2 2.4 4.3 4.8 3.5 8.0 4.6 3.2 5.8 6.4 8.5 3.5 7.8 6.0 3.7 4.0 5.5 3.6 3.5 7.5 3.2 3.9 6.3 6.5 8.5 4.5 8.2 6.5 4.4 4.8 6.0 4.4 4.0 8.0 4.1 5.5 6.5 8.8 3.3 2.4 9.6 5.1 1.7 11.7 3.8 2.8 2.9 6.2 1.0 3.3 9.2 10.5 5.1 5.2 8.6 5.5 3.3 13.9 4.7 4.8 4.2 7.4 1.6 3.7 18.7 9.0 3.2 3.7 6.3 5.5 3.0 14.0 5.4 2.9 3.5 7.7 1.5 3.0 11.3 7.0 5.2 3.0 6.0 5.3 2.5 12.0 5.8 3.6 3.0 8.0 1.8 3.9 8.0 0.9 5.1 6.2 -2.6 0.8 12.0 -2.0 4.2 22.2 2.8 -2.9 9.6 4.6 -8.5 -0.3 3.6 6.5 -2.8 0.5 17.0 0.3 6.1 15.0 2.0 -2.8 7.5 1.5 -10.5 -0.2 2.3 5.5 -2.5 0.1 15.5 -0.5 5.5 16.7 1.5 -2.5 6.5 0.5 -8.5 0.0 2.1 6.5 -2.5 0.1 16.5 -1.2 4.2 15.5 1.0 -2.0 6.0 -0.8 -7.5 76.00 6.31 7.81 51.00 9,500 3.30 89.00 45.00 1.35 1,200 110.6 31.00 32.00 21,000 76.10 6.24 7.79 49.80 9,200 3.20 90.00 44.00 1.32 1,120 109.4 29.30 31.00 21,400 76.50 6.18 7.78 48.50 9,000 3.15 92.00 43.50 1.30 1,075 109.2 28.60 30.50 21,400 77.00 6.12 7.78 47.00 8,800 3.10 93.00 43.00 1.28 1,025 108.0 28.50 30.00 22,000 78.20 6.06 7.78 45.80 8,500 3.00 94.00 42.00 1.24 1,000 107.0 27.90 29.50 22,000 79.00 6.01 7.78 45.00 8,300 2.90 94.50 41.00 1.21 1,000 107.0 27.70 29.00 22,000 3.0 1.7 3.9 1.8 3.2 2.6 2.8 1.5 1.8 1.8 -0.4 0.9 2.2 1.9 1.5 1.9 2.1 1.3 2.5 0.6 2.3 1.6 3.4 2.7 2.5 2.3 2.0 2.1 2.4 2.4 3.5 3.0 1.3 1.6 -0.7 3.3 1.8 0.7 2.8 2.3 1.6 2.6 -0.2 4.4 2.4 0.4 3.4 4.3 1.9 1.9 0.2 2.1 2.5 0.7 3.3 2.4 1.8 1.9 0.7 1.6 2.1 1.1 3.1 2.9 -3.5 -0.7 3.5 -3.2 -2.4 12.5 -3.7 -2.2 -3.6 -0.4 2.2 -1.8 -2.2 11.0 -3.6 -4.0 -3.8 -0.2 2.5 -1.4 -2.0 9.5 -4.0 -5.0 -4.0 -0.4 2.3 -1.8 -1.8 10.8 -4.4 -5.0 N.A. 1.28 76.00 1.48 1.07 0.94 0.91 0.74 N.A. 1.30 76.00 1.51 1.05 0.93 0.94 0.79 N.A. 1.35 75.00 1.55 1.03 0.91 0.96 0.82 N.A. 1.38 74.00 1.60 1.00 0.90 1.00 0.85 N.A. 1.42 74.00 1.65 0.98 0.89 1.05 0.88 N.A. 1.45 74.00 1.70 0.96 0.87 1.08 0.90 Real GDP grow th (%) 2010 2011 2012 2013 Inflation (yearly average %) Current account (% of GDP) 2010 2011 2012 2013 2010 2011 2012 2013 Q4-11 Q1-12 Q2-12 FX Q3-12 Q4-12 Q1-13
Zambia 7.1 6.2 Middle East and North Africa Algeria Bahrain Egypt* Jordan Kuw ait* Lebanon Morocco Oman Qatar Saudi Arabia Tunisia Turkey UAE Latin Am erica Argentina Brazil Chile Colombia Mexico Peru 9.2 7.5 5.2 4.3 5.4 8.8 7.0 3.3 6.4 5.1 3.6 6.5 3.3 4.5 5.1 2.3 3.0 7.5 3.7 4.0 12.5 3.8 3.4 8.2 1.5 4.0 1.6 1.8 3.5 3.5 1.5 4.5 4.5 18.7 6.6 -0.5 6.4 3.8
* Fiscal year starts in April in India and Kuwait, July in Bangladesh, Pakistan, and Egypt ^ Inflation: Core PCE deflator used for US
28
Economics Weekly
Commodities forecasts
Market close
21/03/2011
m/m %
Change YTD %
y/y %
Q4-10 A
Q1-11 F
vs Fwd %
Q2-11 F
vs Fwd %
Q3-11 F
vs Fwd %
Q4-11 F
vs Fwd %
2010 A
2011 F
vs Fwd %
Energy Crude oil (near future, USD/b) NYMEX WTI ICE Brent Dubai spot Refined oil products cracks and spreads Singapore naphtha (USD/b) Singapore jet kerosene (USD/b) Singapore gasoil (USD/b) Singapore regrade (USD/b) Singapore fuel oil 180 (USD/b) Coal (USD/t) API4 API2 globalCOAL NEWC* Metals Base metals (LME 3m, USD/tonne) Aluminium Copper Lead Nickel Tin Zinc Steel** (CRU assessment, USD/t) HRC, US HRC, Europe HRC, Japan HRC, China Precious metals (spot, USD/oz) Gold (spot) Palladium (spot) Platinum (spot) Silver (spot) Agricultural products Softs (near future) NYBOT cocoa, USD/tonne LIFFE coffee, USD/tonne *** NYBOT coffee, USc/lb NYBOT sugar, USc/lb Fibres NYBOT cotton No.2, Usc/lb Grains & oilseeds (nr future) CBOT corn (maize), USc/bushel CBOT Soybeans, USc/bushel CBOT wheat, USc/bushel CBOT rice, USD/cwt Thai B rice 100%, USD/tonne* Edible oils (3m future) Palm oil (MDV,MYR/tonne) Soyoil (CBOT, USc/lb) 3,473 56 -9.53 2.09 -11.35 -4.54 28.31 38.77 3,270 51 3,865 60 4.7% 5.5% 3,915 61 14.0% 8.6% 4,010 63 18.8% 11.2% 4,250 68 27.0% 19.5% 2,719 42 4,010 63 15.8% 11.2% 687 1,363 721 13.8 500 0.40 4.12 -6.23 -4.00 -6.54 8.51 -3.03 -10.01 -2.25 -7.41 84.09 39.55 46.92 6.63 -1.96 562 1,247 707.2 13.8 524 725 1,450 875 15.0 560 8.1% 5.1% 11.5% 5.0% 700 1,550 850 15.0 560 1.4% 13.3% 14.9% 7.2% 715 1,550 800 14.0 550 10.8% 13.9% 0.4% -5.1% 650 1,550 700 14.0 540 6.4% 15.0% -15.6% -7.8% 428 1,049 581.5 12.5 502 698 1,525 806 15.0 553 6.7% 11.8% 2.3% 3.0% 204.4 8.76 41.15 147.79 130 170 -5.6% 165 -14.7% 140 -7.3% 140 12.4% 94 154 -5.0% 3,189 2,575 277 27.5 -12.17 -12.17 1.24 -11.24 5.14 21.90 15.18 -14.45 11.07 104.51 108.27 54.04 2,857 1,859 205 29.1 3,500 2,200 260 32.0 5.7% -3.5% 0.7% 4.8% 3,600 2,150 310 28.0 12.9% -15.9% 11.5% 7.7% 3,800 2,000 275 26.0 19.0% -18.7% -2.1% 7.6% 4,000 1,950 250 23.0 24.8% -21.1% -11.3% -2.6% 2,945 1,553 164 22.3 3,725 2,075 274 27.0 15.5% -15.0% -0.3% 3.7% 1428 748 1,746 36.1 2.19 -7.86 -2.63 9.32 0.63 -7.58 -1.49 16.99 29.71 61.44 8.99 113.08 1,370 681 1,701 26.6 1,380 800 1,800 32.0 -0.6% 1.5% 0.5% 0.6% 1,400 825 1,900 35.0 -1.9% 11.1% 8.7% -2.8% 1,475 840 2,000 35.0 3.2% 13.0% 14.3% -2.8% 1,450 840 2,000 32.0 1.3% 12.8% 14.1% -11.2% 1,227 529 1,613 20.2 1,426 826 1,925 34.0 0.5% 9.5% 9.3% -2.8% 888 855 851 740 13.47 21.45 3.53 3.79 45.17 50.53 22.45 26.93 36.06 59.22 21.57 31.21 614 700 803 662 850 803 821 729 833 787 796 707 837 795 804 721 860 813 815 743 665 685 788 633 845 799 809 725 2,570 9,398 2,645 26,750 29,700 2,280 2.41 -1.28 3.11 -6.93 -5.53 -7.07 4.82 -1.48 3.72 7.73 11.15 -5.70 14.81 26.95 22.16 19.70 70.37 1.62 2,367 8,638 2,406 23,652 25,930 2,333 2,500 9,600 2,500 27,000 29,500 2,400 -0.2% -0.1% -3.4% 0.2% -0.7% 0.5% 2,600 9,750 2,550 26,000 30,000 2,400 1.3% 3.7% -4.0% -2.8% 0.9% 5.4% 2,400 10,000 2,600 24,000 32,000 2,400 -7.3% 6.3% -1.1% -10.1% 7.8% 4.6% 2,350 10,500 2,700 24,000 34,000 2,450 -10.0% 11.6% 3.9% -9.3% 14.6% 6.0% 2,201 7,570 2,172 21,913 20,448 2,188 2,463 9,963 2,588 25,250 31,375 2,413 -4.1% 5.4% -1.1% -5.5% 5.6% 4.1% 121.5 127.9 129.6 2.94 8.47 5.83 -6.14 -1.84 -0.23 45.40 76.15 37.99 105 109 108 120 122 129 -1.1% -1.0% 111 113 121 -9.4% -12.4% 114 115 126 -8.2% -11.6% 119 119 131 -5.2% -8.9% 92 92 103 116 117 127 -6.0% -8.8% -2.8 25.4 23.9 1.4 -8.5 2.21 27.23 33.59 -29.21 106.09 -137.49 62.47 57.04 286.49 -10.12 -172.97 129.18 124.58 248.78 76.84 3.7 14.2 13.0 1.2 -8.3 -1.0 22.0 18.0 4.0 -7.0 -2.0 24.0 20.0 4.0 -5.5 3.0 22.0 21.0 1.0 -5.0 2.0 23.0 22.0 1.0 -4.5 1.2 12.1 11.4 0.6 -5.7 0.5 22.8 20.3 2.5 -5.5 102.3 115.0 108.0 9.06 8.29 4.50 11.68 20.90 21.98 25.60 42.23 41.10 85 87 85 95 105 101 0.7% -0.3% 107 115 111 3.0% 0.3% 110 115 111 4.9% 0.9% 105 110 106 -0.1% -2.7% 80 80 78 104 111 107 2.1% -0.4% -
*weekly quote **monthly average ***10 tonne contract no forward price comparison available cost and freight at Chinas Tianjin port, 62% iron content, Indian origin.
29
Economics Weekly
FICC on-the-run Rates

10Y bond 3-6M Majors United States EU* Asia ex-Japan China Hong Kong India Indonesia Malaysia Pakistan Philippines Singapore South Korea Taiwan Thailand Vietnam 3.76 1.42 8.76 6.41 3.74 12.07 5.98 1.77 3.92 1.36 3.29 12.50 Inflation and GDP growth to moderate in H2 Current levels appear toppish but global risk sentiment dominates Peaking inflation and policy rates to partially offset supply pressure Fiscal and monetary policy supportive of bonds, but market vulnerable to foreign selling BNM has already stopped hiking, although market is vulnerable to foreign selling if risk appetite deteriorates Concerns over higher bond supply to offset softening monetary policy BSP is neutral and rates markets seen trading sideways near-term Short 3Y/5Y/10Y fly 2.21 2.03 H2-2011 growth to pick up following soft patch in H1 Slowing growth outlook, inflation heading lower over 12M Long 2Y/5Y/10Y fly 6M+ Fundamentals Current trades
SGS has benefited from flight to quality, but market is still Short 2Y/5Y/10Y fly vulnerable to foreign selling if USD-SGD spikes BoK seen steady, but market is vulnerable to foreign selling, particularly the front-end Moderating inflation and growth We expect BoT to pause now at 3.50%, while demand/supply dynamics are very favourable Moderating inflation but short-ends to underperform on tight liquidity conditions Short 3Y KTB
Sub-Saharan Africa Ghana** Kenya Nigeria South Africa Zambia 14.99 17.59 14.75 8.20 17.35 Inflation to pick up, global risk aversion Tight liquidity and persistent inflationary pressures Renewed inflationary pressures and slow fiscal progress Impact of slower growth offset by risk of offshore outflows and fiscal concerns Looser monetary policy; supply pressures to ease Long 5Y bond
* German government bond yields; ** 3Y benchmark
30
Economics Weekly
FICC on-the-run Credit

Sector Asia
Sovereigns High-grade High-yield Quasi-sovereigns High-grade Strong Korean names in the 5Y sector offer some value. KORELE 15 KOSEPW 17 KOFCOR 16 EIBKOR 5.125% 15 PLNIJ 20 PETMK 22 KHFC 16 KORGAS 20 Only select names offer value at current levels. Quote tight for their ratings; that said, we prefer Indonesia to the Philippines. MALAYS 15 INDON 14S INDON 19 PHILIP 21 VIETNM 20
3-6M
Rationale
Picks
Pans
High-yield Financials Senior
We prefer some HY quasi-sovereigns given reasonable spread differentials over the sovereign.
We remain defensive in the current market.
DBSSP 15 HLBKMK 16 SHNHAN 16 OCBC 19 UOBSP 49 ICICI 7.25% 49
BOIIN 15 IOBIN 16 SCBTB 16 ICBC 20 WOORIB 21 WOORIB 37
Tier 2 Tier 1 High-grade corporates AA and above corporates Single-A corporates
Less room for compression versus senior. Offers good yield, but could continue to underperform in a weak market. Recent spread widening offers select opportunities. Some room for spread compression in select names.
STECHS 19 HKCGAS 18 LIFUNG 20 KOREAT 15 SINOCH 40 XINAOG 21 RESOUR 15 NOBLSP 15N INRCIN 16 RILIN 20
CNPCCH 21 HKLAND 25 POHANG 21 KERPRO 21 CHMETL 16 CITPAC 49 NTPCIN 16
BBB corporates
BBB corporates offer good risk/reward, since a number of names are quoting wide for their fundamentals.
High-yield corporates China corporates We continue to see volatility in Chinas property sector and expect policy controls to remain in place. Given the evident price declines and the tight liquidity positions of small and medium-sized developers, we expect more headline risks to the sector. The industrial names are also prone to headline risk from Chinas slowing economic growth. Positive industry prospects, supply scarcity and stable cash flow will continue to support bonds from the energy, mining and IPP sectors. Following the recent rally, bonds in the space are less attractive than Chinese HY industrial names. AGILE 17 COGARD 17 LNGFOR 16 FUFENG 16 WESCHI 16 HIDILI15 STAREN 15 PWRLNG 15 TEXTEX 16 GLOPRO 15
Other HY corporates
BTELIJ 15 TPWRIN 71 STATSP 16
Middle East
Sovereigns Abu Dhabi and Qatar sovereigns look less attractive than before as they have outperformed their EM peers in the recent sell-off. However, explicitly government-guaranteed bonds continue to offer value. Spread to sovereign is attractive for selected names. With 5Y/10Y spread curves having flattened recently, shorter dated bonds offer good value. QATAR 15 ADWA 20 ADGB 14
Quasi-sovereigns
MUBAUH 14 QTELQD 19 DPWDU 17 DEWAAE 15 TAQAUH 13 NBADUH 15 QNBK 15
QTELQD 16 TAQAUH 16 EMIRAT 16 DEWAAE 16 COMQAT 19 QIBC 15
Financials
Fundamentals for GCC banks are improving. However, on a relative basis, they are expensive relative to Asia.
31
Economics Weekly
FICC on-the-run FX
Spot Asia ex-Japan CNY HKD KRW TWD IDR MYR PHP SGD THB VND INR PKR 6.36 7.77 1,115 30.06 8,840 3.11 42.82 1.26 30.65 20,991 49.51 86.79 3M 3-12M FX FX Fundamentals rating rating Current trades
CNY still on medium-term appreciation path despite market turmoil No peg change seen; HKD re-pricing reflects USD-AXJ dynamic Downside risks to global economy weigh, but secular positives remain Global growth risks and equity outflows weigh on TWD near-term Growth, external balances should dominate positioning risk Slowing growth, positioning to weigh on MYR short-term Global slowdown to dominate positive seasonals MAS easing to weigh short-term; medium-term positives remain THB to weaken near-term on growth and trade slowdown. BoP dynamics, inflation to push USD-VND gradually higher INR to trade on global cues in Q4; slow growth adds to short-term risk Widening C/A deficit, large external debt payment add pressure on PKR
Sub-Saharan Africa KES NGN BWP ZAR 100.30 160 7.22 7.85 Inflation risks may cause Central Bank of Kenya to tighten further Bond regulation changes to boost foreign inflows Weaker growth, inflation and fiscal adjustment to weigh in 2011 ZAR remains under pressure on euro-area growth concerns, USD gains
Latin America ARS BRL CLP COP MXN PEN Majors EUR JPY AUD NZD CHF GBP CAD 1.40 75.87 1.06 0.81 0.88 1.60 1.00 Sovereign risks, slowing growth and rate spreads point lower for EUR Risk aversion, rate convergence and exporter inflows keep JPY strong Slowing growth, dovish RBA to weigh s/t; growth rebound is positive m/t Reconstruction efforts and rate spreads are supportive going forward EUR-CHF peg likely to reduce CHF's safe-haven appeal Market expectations of further QE will weigh on GBP into year-end CAD supported by central bank diversification, but growth slowing
4.24 1.76 501 1,879 13.26 2.72
ARS to depreciate steadily ahead of October, accelerate after election Rate cut illustrates that growth is prioritised over inflation, hurting BRL Copper-price weakness and global growth slowdown to weigh on CLP Healthy FDI, but COP vulnerable to shift in risk appetite Weak US growth and benign risk environment weakening the MXN PEN is a defensive currency within Latam; fundamentals are strong
32
Economics Weekly
FICC on-the-run Commodities

Exchange 3-6M Fundamentals Energy Oil WTI NYMEX
While we are bearish near-term given poor market sentiment, we expect the prospect of OPEC action to provide a floor and strong fundamentals to reassert themselves on a 3-6 month view. Power-plant stockpiling across Asia, particularly in China, India and South Korea, will keep Newcastle coal demand supported. On the supply side, possible Australian floods may further tighten balances.
Coal globalCOAL
NEWC*
Agriculture Softs Cocoa (USD/t) Coffee (USc/lb) Sugar (USc/lb) Fibres (USc/lb) Cotton NYBOT NYBOT NYBOT
Prices have collapsed, mainly due to a large supply balance. We look for prices to gradually inch higher from current levels. The market has slumped on increased stockpiles in importing countries and better weather in Brazil. Bearish pressure remains. Sugar remains one of the more resilient commodities amid the sell-off in agricultural markets, and will be supported by tight supply in Brazil. We now look for prices to inch higher, as the sharp decline in the market will trigger significant commercial interest. Corn prices have slumped, partly on better-than-expected inventories in the US. Demand from China will help lift prices. The market has slumped on risk aversion but will be lifted by strong commercial demand. Investor sentiment has soured considerably given the improvement in global surpluses. Wheat will be supported by corn in H1-2012.
NYBOT
Grains & oilseeds (USc/bu) Corn CBOT Soybeans Wheat Metals Base metals (USD/tonne) Aluminium Copper Lead Nickel Tin Zinc Precious metals Gold Palladium Platinum Silver LME LME LME LME LME LME CBOT CBOT
Strong demand growth, high cost base and tightly held LME stocks will keep the market well supported, despite long-term fundamental problems. We are bullish from a medium-term perspective. Underlying fundamentals are holding up well and Chinas imports are strong. A hot summer in the US has drawn down battery inventories. Demand from China is recovering after the government crackdown. Fundamentals are weak, but the recent sharp drop in prices has been overdone and high-cost producers are struggling. Prices should rally as base metals sentiment improves. While fundamentals are soft, the recent drop has been overdone and prices should recover once sentiment improves. Panic about the global economic outlook has been overdone, creating some downside risks to prices, but Chinas demand remains very strong. The automotive sector is growing but investors are selling, limiting the upside. Risks are skewed to the upside. Auto-sector recovery is combining with concerns about South African supply. Still looks expensive relative to gold, and the market is likely to struggle during periods of USD strength.
Spot Spot Spot Spot
33
Economics Weekly
Disclosures Appendix
Recommendations structure Standard Chartered terminology Issuer Positive Stable Negative Impact Improve Remain stable Deteriorate Definition We expect the fundamental credit profile of the issuer to <Impact> over the next 12 months
Apart from trade ideas described below, Standard Chartered Research no longer offers specific bond and CDS recommendations. Any previously offered recommendations on instruments are withdrawn forthwith and should not be relied upon. Standard Chartered Research offers trade ideas with outright Buy or Sell recommendations on bonds as well as pair trade recommendations among bonds and/or CDS. In Trading Recommendations/Ideas/Notes, the time horizon is dependent on prevailing market conditions and may or may not include price targets. Credit trend distribution (as at 26 Oct 2011) Coverage total (IB%) Positive Stable Negative Total (IB%) 15 (6.7%) 180 (20.6%) 29 (20.7%) 224 (19.6%)
Credit trend history (past 12 months) Company Date Credit outlook -
Please see the individual company reports for other credit trend history
Regulatory Disclosure:
Subject companies: -- Abu Dhabi National Energy Co., Agile Property Holdings Ltd., Bank of India, China National Petroleum Corp., China Resources Power Holdings Co. Ltd., CITIC Pacific Ltd., Commercial Bank of Qatar, Country Garden Holdings Co. Ltd., DBS Bank Ltd., DP World Ltd., Dubai Electricity & Water Authority, Emirate of Abu Dhabi, Emirates Airline, ENN Energy Holdings, Ltd., Export Import Bank of Korea, Federation of Malaysia, Fufeng Group Ltd., Glorious Property Holdings Ltd., Hidili Industry International Development Ltd., Hong Kong & China Gas Co. Ltd., Hong Leong Bank Bhd., Hongkong Land Holdings Ltd., ICICI Bank Ltd., Indian Overseas Bank, Indian Railway Finance Corp., Industrial & Commercial Bank of China, Kerry Properties Ltd., Korea Electric Power Corp., Korea Finance Corp., Korea Gas Corp., Korea Housing Finance Corp., Korea South-East Power Co. Ltd., KT Corp., Li & Fung Ltd., Longfor Properties Co. Ltd., MCC Holding Hong Kong Corp. Ltd., Mubadala Development Co., National Bank of Abu Dhabi PJSC, Noble Group, NTPC Ltd., Oversea-Chinese Banking Corp., Ltd., Petroliam Nasional Bhd., POSCO, Powerlong Real Estate Holdings Ltd., PT Bakrie Telecom Tbk., PT Perusahaan Listrik Negara, Qatar Islamic Bank, Qatar National Bank, Qatar Telecom QSC, Reliance Industries Ltd., Republic of Indonesia, Republic of the Philippines, Shinhan Bank, Siam Commercial Bank PCL, Singapore Technologies Engineering Ltd., Sinochem Hong Kong (Group) Co. Ltd., Socialist Republic of Vietnam, Star Energy Geothermal (Wayang Windu) Ltd., State of Qatar, STATS ChipPAC Ltd., Tata Power Co. Ltd., Texhong Textile Group Ltd., United Overseas Bank Ltd., Waha Capital PJSC, West China Cement Ltd., Woori Bank SCB and/or its affiliates have received compensation for the provision of investment banking or financial advisory services within the past one year: -- Abu Dhabi National Energy Co., Agile Property Holdings Ltd., Bank of India, CITIC Pacific Ltd., Dubai Electricity & Water Authority, Export Import Bank of Korea, Hongkong Land Holdings Ltd., Industrial & Commercial Bank of China, Longfor Properties Co. Ltd., Mubadala Development Co., Noble Group, NTPC Ltd., Qatar National Bank, Reliance Industries Ltd., Shinhan Bank, Siam Commercial Bank PCL, Sinochem Hong Kong (Group) Co. Ltd., Woori Bank SCB has managed or co managed a public offering for this company with the past 12 months, for which it received fees: -- Bank of India, Glorious Property Holdings Ltd., Hong Leong Bank Bhd. SCB was a lead manager of a public offering for this company within the past 12 months, for which it received fees: -- Longfor Properties Co. Ltd. SCB makes a market in securities issued by this company: -- Industrial & Commercial Bank of China SCB expects to receive or intends to receive compensation for investment banking services from this company: -- Korea Housing Finance Corp. Korea Electric Power Corp. (KEPCO) - SCSK is a liquidity provider for the equity-linked warrants of this company and beneficially owned 13,972,680 call warrants as of 27 October 2011. KT Corp. SCSK is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,453,820 call warrants as of 27 October 2011. POSCO SCSK is a liquidity provider for the equity-linked warrants of this company and beneficially owned 16,254,360 call warrants as of 27 October 2011.
34
Economics Weekly
Analyst Certification Disclosure: The research analyst or analysts responsible for the content of this research report certify that: (1) the views expressed and
attributed to the research analyst or analysts in the research report accurately reflect their personal opinion(s) about the subject securities and issuers and/or other subject matter as appropriate; and, (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this research report. On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts.
Global Disclaimer: Standard Chartered Bank and or its affiliates ("SCB) makes no representation or warranty of any kind, express, implied or statutory regarding this document or any information contained or referred to on the document. The information in this document is provided for information purposes only. It does not constitute any offer, recommendation or solicitation to any person to enter into any transaction or adopt any hedging, trading or investment strategy, nor does it constitute any prediction of likely future movements in rates or prices, or represent that any such future movements will not exceed those shown in any illustration. The stated price of the securities mentioned herein, if any, is as of the date indicated and is not any representation that any transaction can be effected at this price. While all reasonable care has been taken in preparing this document, no responsibility or liability is accepted for errors of fact or for any opinion expressed herein. 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Document approved by
Data available as of
Document is released at
David Mann Regional Head of Research, the Americas
21:45 GMT 27 October 2011
21:45 GMT 27 October 2011
35
Economics Weekly
World Wide Wrap

Focus issues for next 3 months One year ahead outlook We expect a recession to be avoided and growth to pick up by yearend as the oil shock fades, disruptions from Japans earthquake recede, and China relaxes policy slightly. But the risks have risen. The ECB is likely to ease soon, while new QE is expected from the Fed by Q1-2012. Emerging central banks are likely to be on hold or easing, depending on how the European crisis plays out. We forecast 9.2% GDP growth in 2011. Growth has continued to slow, but is likely to pick up after the government moves to an accommodative stance. The demand side is firmly underpinned by new investments under the 12th Five-Year Plan and scheduled construction of 10mn social housing units in 2011. We expect no more interest rate hikes from China this year. We expect Indias FY12 growth to slow to 7.4% on high inflation, tighter rates and ongoing governance risk. Firm commodity prices have raised fiscal concerns as the subsidy burden increases we expect a fiscal deficit/GDP ratio of 5.4%, versus the governments budgeted 4.6%. The market will watch for further slippage. Any moves to advance the reform process will also be closely watched. Weak growth in the West and rapid lending growth locally present central banks with a dilemma in terms of their monetary policy stance. Strong fundamentals are likely to attract capital inflows, and central banks can either allow currency appreciation or consider capital flow management. We expect steady growth to continue in 2012, though there will be a mild negative impact from weaker growth in developed countries. Steady credit growth will support domestic demand, though household debt remains a key risk. Inflation will return to the central banks target range as food and energy prices stabilise. The BoK is likely to resume its rate-hiking cycle in H2-2012. Expansionary fiscal policy, driven by higher oil prices, will support growth in oil-producing countries. Global uncertainties and potentially lower oil prices pose downside risks to government revenues and fiscal balances. But the build-up of reserves in GCC states should allow spending to proceed. We expect positive growth in 2012 for economies in political transition. Given new concerns about the outlook for mature economies, the sustainability of Africas domestic growth momentum will be even more important. Having eased both fiscal and monetary policy in the wake of the crisis, African policy makers will now feel greater pressure for fiscal consolidation. The region is better positioned to confront a global economic slowdown than in 2008. FX reserve positions are robust and banking systems well capitalised. However, most countries remain too dependent on commodity prices, so growth is vulnerable to a slowdown in Asia and the US. Argentina is fighting capital flight, while Brazils BRL has slipped in recent weeks. We expect activity to gather pace through end-2011, but given the end of the investment tax credit, we see a slowdown in business investment in H1-2012. Consumers will continue to deleverage, containing consumption growth. Housing prices will likely remain weak. There is significant slack in the economy, which should ease inflationary pressures particularly as base effects fade in H1-2012. Euro-area and UK economies face headwinds to growth from fiscal tightening and concerns about the impact of the sovereign crisis on banking systems. We do not expect the crisis to be resolved quickly, but we expect that officials will eventually be forced to do enough to calm nerves and avoid a new recession. Core inflation is likely to stay under control; we expect the ECB to cut rates soon. We expect a V-shaped recovery from the March earthquake and tsunami, mainly driven by reconstruction activity. However, the pace is likely to be slower than previously expected due to sharp JPY appreciation and elevated fiscal pressure.
Global
Attention will focus on the European crisis as officials try to underpin problem sovereigns, and banks. Activity data will be scrutinised for the expected H2 pick-up, but with fears of a slide into recession. Policy initiatives on the fiscal side and from the Fed will be watched closely. In emerging markets, attention will remain on industrial and export data and the extent of Chinas slowdown, so far moderate. Inflation worries are giving way to concerns about the faltering global economic recovery. There is a good chance that China will move quietly to loosen monetary policy soon, taking the form of a less restrictive loan quota and increased budgetary spending. If Beijing wanted to make headlines and boost confidence, a cut in the RRR would be a relatively cost-free move. After 13 repo-rate hikes, the RBI has indicated a shift in its stance from fighting inflation to supporting growth, unless price pressures surge again. We expect no change in the repo rate when the RBI meets in December, and we will keep a close eye on the next two months inflation prints. Policy makers focus has returned to easing growth momentum as confidence in DM growth wanes. A correction in global oil prices will also help to reduce inflation concerns. Local consumer confidence is moderating, which should allow central banks to take a less hawkish approach to monetary policy. We expect steady near-term growth. Exports should be boosted by EM demand, and consumption supported by the strong labour market and relatively resilient sentiment. Headline inflation declined significantly in September thanks to base effects. This, along with the lingering impact of global market turmoil, will lead to a pause in the BoKs rate-hiking cycle for the time being. GCC policy makers are focused on spending, while Tunisia and Egypt remain in political transition. Higher spending by GCC states has translated into increased spending and inflationary pressure. But more importantly, it has helped to suppress further contagion from political unrest. FX trends are likely to dominate in East Africa as the BoU and CBK grapple with currencies at all-time lows versus the USD. New policy appointments in Zambia will be watched following the election of a more populist government. Continued global uncertainty suggests that African currencies will remain under pressure, but far-reaching policy measures (in Nigeria, for example) could break the trend. Brazils central bank is expected to cut rates again soon against a worsening global backdrop. Brazils inflation is at the top end of the tolerance band. Argentina holds presidential elections in October, with President Kirchner favoured to win. Mexicos central bank should stay on hold nearterm, although chances that it will cut rates are rising. How quickly business and consumer sentiment recovers will largely dictate how the US finishes the year. We are encouraged by Q3 GDP, which was a solid 2.5%, up from 1.3% in Q2 and 0.4% in Q1. While employment growth is too weak to bring down the unemployment rate, core retail sales growth should continue to benefit from lower gasoline prices. The housing market remains dismal. The focus is on three areas: (1) The euro-area crisis, including Greeces progress in cutting its deficit, contagion risks and peripheral/German politics; (2) ECB actions, including liquidity provision and a possible rate cut amid increasing concerns about funding and capital for banks; and (3) confidence and activity data, particularly signs of weak growth in the UK and core Europe. Despite previous signs of a revival in manufacturing activity and a rebound in business and consumer confidence, the strong JPY has started to dampen the export-oriented economy, acting as a drag on the post-earthquake recovery. Lingering external uncertainties will also delay businesses capital expenditure plans.
Greater China
South Asia
South East Asia
South Korea
MENA
Sub-Saharan Africa
Latin America
United States
Europe
Japan
Important disclosures can be found in the Disclosures Appendix
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l Global Research l Economics Weekly | 21:45 GMT 27 October 2011

28 October Till the next summit

Chart 1: Peripheral bond spreads versus Germany are persistently high

Key central bank policy calls

Source: Standard Chartered Research research.standardchartered.com

Vijaykumar Chander, +852 3983 8569

Sources: CEIC, Standard Chartered Research

Key events/data in the week ahead

Sources: CBK, Standard Chartered Research

Sources: Datastream, Standard Chartered Research

Key events/data in the week ahead

Thursday 3 November Friday 4 November

GR11SE | 28 October 2011

Sources: Bloomberg, Standard Chartered Research

GR11SE | 28 October 2011

35 Jan-05 Nov-05 Sep-06 Jul-07 May-08 Mar-09 Jan-10 Nov-10 Sep-11

Sources: CEIC, Standard Chartered Research

GR11SE | 28 October 2011

Sources: Central Agency of Statistics, Standard Chartered Research

GR11SE | 28 October 2011

Sources: CEIC, Standard Chartered Research

Sources: Bloomberg, Standard Chartered Research

Sources: CEIC, Standard Chartered Research

GR11SE | 28 October 2011

GR11SE | 28 October 2011

Chart 10: Headline inflation probably peaked in August % y/y

Sources: Statistics Korea, Standard Chartered Research

Leading indicators index (% y/y, LHS)

GR11SE | 28 October 2011

Sources: BoT, Standard Chartered Research

GR11SE | 28 October 2011

Key events/data in the week ahead

Thomas Costerg, +44 20 7885 8615

Oct Oct Oct Oct Sep Sep

Sources: Bloomberg, Standard Chartered Research

Sources: Bloomberg, Standard Chartered Research

Sources: Bloomberg, Standard Chartered Research

Sources: Bloomberg, Standard Chartered Research

Key events/data in the week ahead

Italo Lombardi, +1 212 667 0564

0.13(4.00) 0.33(3.73) 0.33 0.25 50.0 49.6

GR11SE | 28 October 2011

Sources: DANE, Standard Chartered Research

Key events/data in the week ahead

Sophii Weng, +1 212 667 0472

David Mann, +1 646 845 1279

400,000 53.8 95,000 125,000 9.1 0.2 (1.7) 34.3

402,000 53.0 103,000 137,000 9.1 0.2 (1.9) 34.3

Chart 1: The disconnected labour market

Chart 2: Turning the corner

ISM manufacturing new orders

ISM manufacturing PMI

Sources: Bloomberg, Standard Chartered Research

Recent macro publications 20-26 October 2011

On the Ground, Thailand Update on flood disaster, 26 October

On the Ground, India Bold guidance, 25 October

GR11SE | 28 October 2011

On the Ground, India RBI expected to hike again, 21 October

On the Ground, Cameroon More of the same, 20 October

On the Ground, China Our M2+ proposal, 20 October

On the Ground, Vietnam Confronting the same old problems, 20 October

GR11SE | 28 October 2011