PP 7767/09/2010(025354)

Economic Highlights
Global
•MARKET DATELINE

27 September 2010

1 Finding A Safe Haven Currency To Invest In A volatile

Environment Remains A Challenge

2 US New Home Sales Remained Unchanged And Durable

Goods New Orders Declined Mom In August

3 Singapore’s Industrial Production Slowed Down In August

Tracking The World Economy...

Today’s Highlight

Finding A Safe Haven Currency To Invest In A volatile Environment Remains A Challenge

Developed nations’ central banks and governments shifted their policies recently toward a loosening bias in a move to
spur economic activities, as economic growth in these countries are slowing down or just about to slow. The moves tend
to result in weakening currencies, forcing investors to scramble to find the least vulnerable currencies to invest.

The US dollar is likely to remain under pressure to depreciate, threatened by the possibility of a new round of quantitative
easing from the Federal Reserve, after the Fed reiterated that it was prepared to ease monetary policy further if needed
and went a step further to say that asset purchases will likely be the option. However, quantitative easing, which involves
purchasing government bonds or other increase the money supply, is tantamount to money printing and will weaken a
currency’s value. As it stands, the US dollar weakened to as low as US$1.3495/euro, matching the lowest level since
20 April. It reached ¥84.12/US$ on 24 September, the lowest since 15 September. The US Dollar Index, which tracks
the greenback against the currencies of six major US trading partners including the euro, yen and pound, was at 79.34
after touching 79.26, the lowest since 3 February.

Although the US dollar could drop against the yen, strength in the yen will likely be limited by the possibility of further
market intervention from the Bank of Japan. Indeed, the yen dropped against most of its major counterparts as traders
speculated that Japan sold the currency to protect exporters. The yen tumbled 1% in about 10 minutes on 24 September,
reaching a low of ¥85.40/US$, before trading at ¥84.81/US$ as of 2:55 p.m. in Tokyo. The decline was the biggest since
15 September, when Japan broke a six-year policy of refraining from intervention in response to a surge in the currency
to the highest level since 1995.

Investors also moved to a pro-euro tilt for the first time since 1 December 2009. The euro has rebounded strongly from
the four-year low of US$1.1876 hit in early June and reached a high of US$1.3495/euro at one-point on 24 September.
However, the euro has its own trouble as well. Concerns about the fiscal and economic health of some peripheral
Euroland economies such as Ireland, flared up again last week and will likely continue to haunt the euro in the months.

While Asian currencies are a better option, China’s capital account is still closed and other markets such as Malaysia,
Indonesia and Thailand are not deep enough. In essence, it was not easy to find a save haven currency outside the
US dollar in this volatile environment. As a result, many investors are convinced that gold, perhaps, is more reliable,
leading many to believe that it will continue its climb to record-breaking highs in the coming months.

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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The US Economy

New Home Sales Remained Unchanged In August

◆ US new home sales remained unchanged at an annual pace of 288,000 units in August, after falling by
7.7% in July. The sales matched July as the second lowest in data going back to 1963, indicating that new home
sales remained depressed. This suggests that buyers preferred to wait-and-see for further development, following
the expiry of the government’s tax incentive in April. Yoy, new home sales fell by a smaller magnitude of 29.4%
in August, compared with -31.3% in July and -21.8% in June. This was the fourth consecutive month of decline,
after turning around in March-April, pointing to a renewed weakness in the housing. As a result, developers cut
prices, which resulted in median prices of new homes falling for the third straight month, albeit by a smaller
magnitude of 0.6% mom in August, and compared with -5.6% in July. Yoy, median prices of new homes contracted
by a smaller magnitude of 1.2% in August, compared with -3.9% in July, pointing to a weakness in new home
prices. Meanwhile, the supply of new homes for sales moderated to 8.6 months of stocks in August, from 8.7
months of stocks in July and compared with a high of 9.2 months of stocks in May.

Durable Goods New Orders Declined Mom In August

◆ US durable goods new orders, items meant to last at least three years, declined by 1.3% mom in August,
after a rebound to +0.3% in July. This was dragged down by a decline in orders for non-defence aircraft (which
is lumpy and often volatile). Excluding transportation, durable goods new orders rose by 2.0% mom in
August, a rebound from -2.8% in July and compared with +0.2% in June. This was the third month of increase
in four months, suggesting that manufacturing activities are likely to remain resilient in the months ahead,
underpinned by a pick-up in new orders for primary & fabricated metals, computers & electronic products,
machinery and electrical equipment. These were, however, offset partially by a decline in new orders for vehicles
and auto parts. Similarly, new orders for capital goods, excluding defence goods and aircraft, increased by
4.1% mom in August, compared with -5.3% in July. This was the third month of increase in four months,
suggesting that businesses will likely continue to spend going forward. Yoy, total new orders for durable
goods bounced back to increase by 12.2% in August, from +9.1% in July. Similarly, new orders for capital goods,
excluding defence goods and aircraft grew at a faster pace of 22.2% yoy in August, compared with +13.8% in
July, indicating that business spending remains resilient.

Asian Economies

Singapore’s Industrial Production Slowed Down In August

◆ Singapore’s industrial production slowed down to 8.1% yoy in August, from +9.9% in July and a high
of +59.4% in May. This was the slowest growth in nine months, indicating industrial activities are heading south.
The slowdown was due to a sharper decline in the production of biomedical products, which fell by 29.0% yoy in
August, compared with -10.9% in July. This was on account of a sharper drop in the production of pharmaceutical,
which was mitigated by a pick-up in the production of medical technology products. A pick-up in the production
of electronic products, which grew by 32.8% yoy in August, compared with +25.2% in July, however, mitigated the
decline in the production of biomedical products. This was attributed to a stronger increase in the production of
semiconductors, data storage products and information, communication & consumer electronic products as well as
a smaller decline in the production of computer peripherals. Mom, industrial production fell by a seasonally
adjusted rate of 6.3% in August, compared with +1.5% in July and -22.0% in June, indicating that industrial
activities have turned weaker in the 3Q.

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