Over the week ended 8 November 2013, equity markets around the world represented by the MSCI AC World index declined -0.44% in USD terms. Though, due to currency gains, the index rose slightly by 0.06% in MYR terms. Developed markets were the only gainers over the week. The US equity market (as represented by the S&P 500 index) was the top performer, rallying by 1.02%. Emerging and Asian markets recorded losses with the MSCI Emerging Markets index declining by -2.68% and the MSCI Asia Ex Japan index declining by -1.91%. Indonesia was the only emerging market under our coverage that recorded gains, rallying by 0.76% and rebounding from its plunge the previous week. Brazil and India were the worst performers over the week, with the BOVESPA and SENSEX indexes plunging by -3.27% and -2.50% in local currency terms, and by -5.25% and -3.77% in MYR terms. The appreciation of the Malaysian Ringgit against both the Brazilian Real and the Indian Rupee contributed partially to the results.
Among the Asian markets, North Asian equity markets like Korea and China were the bottom performers. Korean equities (as represented by the KOSPI index) declined by -2.52% and the local Chinese equity market (as represented by the Shenzhen CSI 300 index) recorded a loss of -2.60%.
[All returns in MYR terms unless otherwise stated]
Investors may refer to Market Valuations as of 8 November 2013 for more details.
US: OCTOBER UNEMPLOYMENT RATE AT 7.3%
The October change in Nonfarm Payrolls increased to 204,000, beating consensus estimates of 120,000 and up from a revised gain of 163,000 previously. While the jobs data seems positive, we would like to highlight that there always have been revisions to prior released numbers. The increase in the amount of jobs created surprised economists' projections as the United States weathered a sixteen day shutdown of its federal government in October. More workers were employed as hirers stepped up their hiring following the shutdown and for preparation ahead of the year-end holiday season. Payrolls increased at manufacturers by the most since February this year, while leisure and hospitality employment came in strongest in six months. The unemployment rate in October met consensus estimates, increasing to 7.3% from a prior 7.2%. The amount of workers actively seeking employment forms a component of the unemployment rate, and an increase in the number of people actively looking for jobs could contribute to the increase in the unemployment rate.
EUROZONE: ECB CUTS RATES, ITALIAN MANUFACTURING PMI SIGNALS A DECELERATING EXPANSION
The European Central Bank surprised markets and economists last week by announcing a cut in their main refinancing rate by 25bps to 0.25%. With the Euro-area CPI readings decreasing for the past four months since July this year, many were expecting some form of easing action. However, economists and analysts expected the ECB to wait for further inflation data that would be released in December before any potential changes in monetary policy. With inflation cooling to the slowest in almost four years in October, the latest readings are moving further away from the ECB's policy targets. While ECB president Mario Draghi announced that the ECB would "continue to monitor closely money-market conditions and is ready to consider all available instruments," the ECB chose not to implement a new round of long term refinancing operation (LTRO). The 25bps cut in the main refinancing rate brings it close to 0%, increasing the probability of the implementation of non-traditional forms of monetary easing should prices continue to decelerate.
Italian Manufacturing recorded a fourth month of expansion, with the manufacturing PMI posting a reading of 50.7 in the month of October, rising from a prior level of 50.8 in September although it came in slightly below expectations of a 51.0 reading. Following 23 readings indicating contraction, the Italian manufacturing has only recently posted its first reading of expansion in its sector back in July 2013. Despite marking the second month of a deceleration in the expansion of manufacturing activity, the latest reading of the manufacturing PMI continues to point to improvement in the Italian economy. Moving forward, the rise in new orders (albeit slower increase) should be able to hold off a faster rate of backlog completion, with a sustained improvement needed in new orders in order for the PMIs to continue to move higher.
CHINA: EXPORTS ROSE IN OCTOBER, TRADE BALANCE IMPROVES
Chinese exports in October gained year-on-year by 5.6%, beating consensus estimates of a gain by 1.7% and up from a prior -0.3% year-on-year. Imports also rose slightly, increasing by 7.6% year-on-year and up from a prior gain of 7.4%. The combined effect of both the large increase in exports and imports have led the trade surplus to widen to its biggest amount this year, increasing to USD 31.10 billion from a prior USD 15.21 billion and beating economists' estimates of an a surplus of USD 24.80 billion. General trade, leasing trade, customs trade and contracting projects increased the most since October 2012. The latest round of data indicates some form of an improvement in global demand, as the developed economies start to show signs of a pickup in economic growth.
THAILAND: CONSUMER CONFIDENCE CONTINUES TO FALL
Consumer confidence in Thailand fell in October, recording a reading of 76.6 and down from a prior 77.9 in September. Consumer economic confidence also fell in October, with a reading of 66.6 down from a prior reading of 67.9 in September. Thailand's latest October data marks a continuation of declining consumer confidence for the seventh month in a row since the end of March this year. The results revealed that Thai consumers are still worried over economic conditions, employment and future income. Economic sentiment fell in October after the Thai central bank lowered its economic growth forecasts and on concerns of political instability in the country.
INDONESIA: 3Q 13 GDP GROWTH SLOWS
Indonesia's 3Q 13 GDP grew by 5.62% year-on-year, beating consensus estimates of 5.60% but down from a revised reading of 5.83% year-on-year. On a quarter-on-quarter basis, 3Q 13 GDP grew by 2.96%, up from a prior gain of 2.61% but missing estimates of a 3.01% gain. Out of all the various GDP components, the transport sector contributed the most to annual economic growth, growing by 10.46% year-on-year. Government spending and financial services also contributed greatly to 3Q 13 GDP, increasing by 8.83% and 8.09% year-on-year respectively. On a quarterly basis, the agriculture sector contributed the most to quarterly GDP growth, increasing by 6.16%, with the help of an increase in palm oil prices. Going forward, the continued tightening of government spending to ease pressure on the current account deficit could mean that local economic growth might be expected to decelerate in 4Q and perhaps into 2014.
TAIWAN: OCTOBER CPI SLOWS
Taiwan's October consumer price index rose by 0.64% year-on-year, lower than consensus estimates of a 1.05% gain and down from a revised increase of 0.83%. Food prices last year were affected due to the typhoon, and inflation of food prices, though partially subdued by the high base effect, still increased by 2.92% year-on-year, contributing to the overall increase in inflation. Additionally, since Taiwan imports most of its oil and with the decline in global oil prices the previous month, transport prices fell by -1.17% year-on-year, dragging down the latest inflation data in Taiwan.