Economic News Update

Macro and Market Outlook
Overview and Recommendation: US stocks
rebounded some yesterday. Gold hit a new high intraday
near $1,100/oz and crude oil was back above $80/barrel.
The movement of gold price still followed Indian
government’s purchase of gold from the IMF on Monday,
while that market is also speculating that central banks
around the world will resume their diversification out of the
dollar for their forex reserve holding.
The Federal Reserve kept its policy rate stance
unchanged yesterday while making little changes to its
previous statement. In particular, it stated that “the
Committee…anticipate that economic conditions, including
low rates of resource utilization, subdued inflation trends,
and stable inflation expectations, …warrant exceptionally
low levels of federal funds rate for an extended time”. This
particular sentence was one of the main factors that drove
the US dollar weaker yesterday as the market continues
to anticipate that low borrowing cost of the dollar
would continue to fund carry trade.
A new change that the Fed made was the decision to lower
its budget for buying agency debt securities from $200bn to
$175, citing the smaller budget suitable for the current pace
of purchase and the availability of agency debt securities in
the market. It kept, however, its plan to gradually exit from
both mortgage-backed securities and agency debt
purchasing plan at the end of March 2010.

Meanwhile, the ISM non-manufacturing index for
October fell slightly to 50.6 from 50.9 in September,
disappointing the market that had anticipated a climb
above 51 points. This was not in line with the higher-than
expected climb in the ISM manufacturing index released
last week and hence reflecting that a larger portion of
American businesses are seeing a much more gradual
improvement, unlike the manufacturing sector which
benefited from the recovery of world trade.
The ADP national employment survey, a private survey
which encompass roughly 24 million workers in the private
industrial sector, reported a decline in payrolls of 203k in
October, down from September’s 227k job reduction
but still higher than what the market was expecting at 198k.
This small improvement does not bode well for the
upcoming US Labor Department employment report
coming out on Friday.
Meanwhile, European economies saw less of an
improvement in the services sector in October, as
reflected from the PMI services indices released yesterday
(data available on the Pg 6. The eurozone index was
unchanged at 53.o points but Germany and France saw
slight declines of 0.1 – 0.2 points, despite maintaining their
levels above the 50-point level which indicates growth. Yet,
Italy saw its PMI services index rose above 50 points from
48.5 in October, a favorable sign.
US Treasuries
US Treasuries: Benchmark 10-year notes fell for a third
day yesterday after the Fed statement and as the U.S.
announced plans to sell $81 billion in notes and bonds next
week. Benchmark 10-year yields were near the highest
level in a week after the Federal Reserve said economic
activity is picking up. The central bank also repeated that it
will keep interest rates near zero for “an extended period”
to spur growth following the steepest U.S. economic
recession since the 1930s. The difference between rates
on 10-year notes and Treasury Inflation Protected
Securities, or TIPS, spread widened to 2.14 percentage
points yesterday, the most since September 2008.
(Source: Bloomberg)

Economic News Update
Gold price hits record: The price of gold surged
to a record peak of 1,095.80 dollars an ounce in trading
here on Wednesday in the wake of the International
Monetary Fund's massive sale of the precious metal to
India.
Gold had already reached a record high of 1,087.80 dollars
on Tuesday as the IMF said it had sold 200 tonnes of gold
to India's central bank over a two-week period last month
for 6.7 billion dollars to bolster its finances. After spiking to
a new high at 1545 GMT on Wednesday, gold later pulled
back to 1,090 dollars in London.
Gold and other commodity prices have surged in recent
months amid a move away from the dollar, which has been
slumping. The move accelerated last month on a report
that Gulf states may stop using the greenback for oil
trading.
The metal is also winning support from fears over a
possible spike in inflation, as gold is widely regarded by
investors as a safe store of value.
The big sale of gold to India gives credence to the theory
that there are official buyers waiting in the wings for large
amounts of available gold. The question now is, who buys
the rest of the IMF gold?
It may be China, other Asian countries, Russia or even
India again, as they hold relatively little gold relative to their
very large foreign exchange reserves, and may want to
diversify away from US dollars.'
The sale to India was nearly half the 403.3 tonnes of gold
that the IMF has targeted for sale over the coming years.
The Washington-based IMF, which currently holds 3,217
tonnes of gold, is the third-largest official holder of the
precious metal after the United States and Germany.
India is the world's biggest consumer of gold, importing
between 700 and 800 tonnes of the metal every year or 20
percent of global demand. (Source: BangkokPost)
BoT to issue new bank licences: The Bank of
Thailand (BoT) is ready to grant operating permits to new
commercial banks now the cabinet has approved the 2nd
Financial Institution Development Plan (2010-14), BOT
governor Tarisa Wattanagase said on Wednesday.
The central bank governor said the approved plan will help
strengthen financial institutions by cutting operating costs,
reducing non-performing loans, and ensuring easier access
to financial sources for small and medium enterprises.
Mrs Tarisa said the financial institution development plan
has three phases;
1) The first two years will be a period for strengthening
financial institutions, and the merger of small and
medium commercial banks to increase
competitiveness.
2) From 2012-13, the central bank will allow branches of
foreign banks to upgrade to commercial bank status,
on condition that each bank must have first level
capital of no less than 10 billion baht.
3) From 2014 competition will be opened up. The central
bank will grant licences to new commercial banks to
bridge the gap between financial institutions - for
example, in microfinance - because about 10 per cent
of the people now have no access to financial
services. (Source: BangkokPost)

FX Wrap
EUR/USD rose 1.05% to 1.487, rebounded after the
Fed confirmed that it would keep policy rate low for a long
time. The European Central Bank (ECB) is expected to
leave interest rates on hold at a record low of 1 percent
when its decision is announced today with no change
expected until late 2010.
USD/JPY rose 0.37% to 90.66 after the Bank of Japan
(BOJ) decided to put off a decision whether to end
measures to support corporate finance in December after
the government pressed it to consider the economic cost of
its retreat from credit markets.
GBP/USD rose 0.87% to 1.6558 after expectation that the
Bank of England may increase its bond-purchase plan by
50 billion pounds today as central bankers and politicians
scramble to shore up Britain’s banking system and drag the
economy out of recession.
USD/THB fell 0.21% to 33.41. The dollar fell after the
US Federal Reserve (Fed) came out with a decision to
keep benchmark overnight interest rate at 0.25% as
expected. The Fed also decided to reduce the size of its
agency debt purchases to $175 billion from previously
announced $200 billion.
USD/KRW fell 1.51% to 1,173.1 after the South Korea’s
exports to China in October rose 9.7% in October from a
year ago, gaining a second consecutive month.
Department store sales also increased 11.4% in October
from a year earlier after growing 8.6% in September.

KBank Daily Update Nov 5, 2009