MACRO DATA:

In the US, builder confidence rose to a 6-year high with NAHB homebuilders survey rising 3 pts m-m to register a reading of 40 in Sept. This set of data -along with other recent housing data- suggests that the housing market is turning around the corner, showing resilience amid a global slowdown.

In Germany, investor confidence rose for the first time in 5 months, from -25.5 in August to -18.2 in September, outperforming the marketed expected -20. The improvement reflects positive response to ECB’s earlier announcement of bond purchasing. 

In UK, CPI advanced 2.5% y-y in August, slightly slower than July’s 2.4%. CPI for goods rose by 1.8% y-y, compared to July’s 1.9%, and CPI for services slowed to 3.2%, from July’s 3.4%. Core inflation slowed to 2.1% in August, after July’s 2.3% y-y pace. Though inflation has been stepping down because of weak economy, upside risk still exists because the earlier US drought, which reduces crops, might push up food price towards the end of the year. BOE will review their 375 bn pounds bond-purchase target later today (19 Sep 2012).   

In China, 35 out of the 70 major cities saw increased new residential apartment price in August from a month ago, 16 saw unchanged and 19 saw decreased. This compares to July’s 49 increasing, 12 unchanged and 9 decreasing. The fact that few cities saw housing price increasing somehow relieves the concern that the government’s earlier two interest rate cut might inflate the housing price which could reduce the scope for further monetary loosening. To bolster the economy, the Chinese government has been adding scale to fiscal stimulus, and earlier announced to take more measures to support the nation’s export sector. So far the government has been holding back RRR and benchmark rate cuts, to examine the effects of earlier monetary loosening and fiscal stimulus. We are of the view that the government would have no difficulty to achieve its full year growth target of 7.5%.

In Hong Kong, unemployment rate in the 3 months period ended in August stayed at 3.2% sa, unchanged from the same period ended in July, while the market predicted it would worsen to 3.3%. So far, Hong Kong’s export is still undergoing significant pressure from China’s slowdown, Europe debt crisis and weakened US demand. The recent bond purchase announced by ECB and QE3 announced by FEB could be some positives for Hong Kong’s export outlook. The government has reduced its whole year growth expectation to 1-2%. 

In India, CPI inflation accelerated from 9.9% in July to 10.0% in Aug, owing to higher food costs (+12.0%). Recall the Reserve bank of India stood pat - maintaining the policy repo rate at 8% in Sept (consistent with our expectations). Nonetheless, the RBI slashed the cash reserve ratio by 25 bps to 4.5% in anticipation of expected liquidity tightness. The Indian economy is confronted with headwinds on both the external as well as domestic fronts. Furthermore, we expect inflationary pressures to persist on account of a weak rupee as well as possibly higher food and energy prices. Thus, despite a slowdown in the Indian economy, we opine odds of a rate cut in the near term are low going forth as such a dovish stance would worsen inflationary pressures (which are still elevated), rather than provide a significant boost to growth. However, we opine that if the government succeeds in addressing some of the structural growth constraints and inflationary pressures ease in the coming months, the Reserve Bank of India is likely to review its monetary stance and consider cutting rates to stimulate growth.

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