PP 7767/09/2010(025354)

Economic Highlights
Global
•
MARKET DATELINE

24 June 2010

1 The US Fed Pledged To Keep Interest Rate Low For An

Extended Period

2 US New Home Sales Fell In May

3 Euroland’s Manufacturing Services Activities Moderated

In June

4 Singapore’s Inflation Rate Held Stable In May

Tracking The World Economy...

Today’s Highlight

The US Fed Pledged To Keep Interest Rate Low For An Extended Period

The US Federal Reserve pledged to keep the benchmark interest rate at a record low of 0-0.25% for an extended period,
repeating language from every policy meeting since March 2009, and signaled that Europe’s sovereign debt crisis may
hurt the country’s economic growth. This was because the underlying inflation has trended lower and it is likely to be
subdued for some time given substantial resource slack that would continue to restrain cost pressures. As it stands, the
Fed’s preferred price index, which excludes food and energy costs, moderated to 1.2% yoy in April, the slowest pace
since 2001 and from a high of +1.6% in December last year. On the other hand, the Fed expressed its concern that
financial conditions have become less supportive of economic growth, largely reflecting developments abroad.

Meanwhile, the Fed’s assessment suggests that the economic recovery is proceeding and that the labour market is
improving gradually. Household spending is increasing but remains constrained by high unemployment, modest income
growth, lower housing wealth, and tight credit. It noted that business spending on equipment and software has risen
significantly but investment in non-residential structures continues to be weak and employers remain reluctant to add to
payrolls. Also, housing starts remain at a depressed level. As a whole, this suggests that the US economic recovery
will remain gradual. As a result, economists now expect the Fed would only raise rates in 1Q 2011, a delay when they
expect it to happen in late 2010.

The Fed did not mention what it is going to do with the one other remaining open emergency-lending programme, the
Term Asset-Backed Securities Loan Facility, which has been scheduled to close on 30 June. The programme was designed
to aid the commercial real-estate market by subsidising investor purchases of mortgage-backed securities.

The US Economy

New Home Sales Fell In May

◆ US new home sales fell by 32.7% mom to an annual pace of 300,000 units in May, compared with
+14.7% in April. This was the first decline after two consecutive months of strong pick up, suggesting that buyers
took a pause after a rush to qualify for a government tax incentive in the previous two months. Recall that the

Peck Boon Soon

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 24 June 2010

government offered homebuyer incentive worth as much as US$8,000 for contracts signed by the end-April and
deals to be completed by the end of June. Yoy, new home sales fell by 19.1% in May, after rising by 29.3% in
April, suggesting that a recovery of the housing market remains uneven. As a result, the supply of new homes
for sales jumped to 8.5 months of stocks in May, from a low of 5.8 months of stocks in April. Meanwhile, median
prices of new homes fell by 1.0% mom in May, compared with -10.0% in April. Compared to a year ago, median
prices of new homes fell by 9.6% yoy in May, the sharpest drop in 10 months and compared with -7.4% in April,
suggesting that developers slashed prices to attract buyers.

The Euroland Economy

Manufacturing Services Activities Moderated In June

◆ Based on the preliminary numbers released by the Markit Economics in London, Euroland’s purchasing manager
index (PMI) for the manufacturing sector fell to 55.6 in June, from 55.8 in May. This was the second consecutive
month of slowing down since the sector returned to growth in October last year, indicating that the sector’s activities
have turned weaker following a deepening sovereign debt crisis in the region and a slowdown in global demand.
Similarly, the PMI index for services sector eased to 55.4 in June, from 56.2 in May. This was the first easing
in four months, suggesting that the region’s services activities have shown signs of weakness. As a result, the
composite index for both manufacturing and service industries fell to 56.0 in June, from 56.4 in May
and 57.3 in April. This was the second straight month of moderating after reaching its peak in April, suggesting
that economic activities in the Euroland will likely grow at a more moderate pace in 2Q 2010, after
picking up by 0.2% qoq in the 1Q.

Asian Economies

Singapore’s Inflation Rate Held Stable In May

◆ Singapore’s consumer prices held stable at 3.2% yoy in May, the same rate of increase as in April and
compared with +1.6% in March. This suggests that price pressure has stabilised somewhat. A pick up in prices
of food and clothing & footwear as well as the costs of transport, healthcare prices and recreation services were
offset by a slower increase in the costs of education and housing. The costs of communication, on the other hand,
remained stable. Food prices inched up to 1.3% yoy in May, from +1.2% yoy in April, while the costs of transport
accelerated to 15.0% yoy in May, from +13.4% in April. The costs of housing, on the other hand, eased to 1.6%
yoy in May, from +2.9% in April. Mom, inflation rate moderated to 0.6% in May, from +0.9% in April. Meanwhile,
in responding to a pick-up in inflation and rising property prices on the back of stronger economic growth, the
Monetary Authority of Singapore has shifted its monetary policy stance from zero appreciation to a
gradual and modest appreciation of the country’s currency in April, after allowing a one-off appreciation
of Singapore dollar.

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