Market Update - 10 Jan 2013

• Both equities & treasuries end up higher in overnight trade with little real news. Initial equity strength put down to a good start from Alcoa reporting. UBS also lifted its rating of Lloyds (+4.9%) & lifted targets for RBS & Barclays to boot. The FTSE hit a new 4 year high ahead of ECB and BOE meetings tonight.

• USDMYR still stuck at 3.0400 and trading range of 3.0200-3.0800 remain intact, expecting little movement in MYR today but keeping a tab on the local news for further election developments that could potentially sway the pair.

• Just to share, in house 2013 Malaysia GDP, OCBC is expecting it to come in at 5.20% slight improvement from last year’s forecast, mainly supported by the domestic demand and also the trickle over from last year’s huge project expenditure and also foreign investments. Last year’s 20% direct investments were a one off and we do not expect that to be sustainable for this year.

• German November Industrial Production +0.2% vs exp +1.0%, prev was revised up from -2.6% to -2%.

• Peripheral spreads pushed out a little more...German/Spain another 7.5pts, German/Portuguese another 5pts. German/Italian steady as news Monti’s Italian deficit is dropping & in particular that revenue growth is beginning to trend higher than spending growth.

• The Yen weakening again, reversing most of its 2 day counter trend move with QE chatter returning & profit taking exhausted. The Japanese Govt told Reuters they would engage in 6 trillion yen (US$69bln) more QE in 1012/13 than originally planned & possibly raise inflation target to 2%.

• US 10yr auction set 20bpts above prev - BTC 2.83 vs 2.95 last, Indirects 28.5% vs 24.2% last. Yield 1.863% vs 1.652% last. Futs -4pts on the result.

• Commodities did more circle work, Gold off 5 bucks while copper & crude almost unchanged.

• Wayne Swan has written to all ministers seeking savings, saying spending would not be increased as Labor tries to pay for its major ­election policies of the National ­Disability Insurance Scheme and an education overhaul. Markets is expecting RBA to cut another 25bps and some expecting 50bps cut for the full 2013, I on the other hand am a little more conservative, 0-25bps cut while we expect markets to gradually recover very very slowly this year.