Malaysia

The 2Q13 GDP expanded by just 4.3% YoY (1Q13: 4.1%), significantly below market expectation of 4.9% and our own estimate of 4.7%.  This is significantly the impact of weak external growth and demand, hitting Malaysian exports to a greater than expected degree despite a stronger buffer that the country’s own domestic economy has in place. In addition to  that,  there was also substantial drawback of public investment post-GE (General Elections), which led to a slight moderation of aggregate demand growth, to 7.3% from 8.2% in the previous quarter. But things could have very well much been worse if it were not for sturdy domestic consumption and investment, from the private as much as the public sectors. (Please refer to Economic Viewpoint for further comments)

The Current Account Balance Surplus Narrowed Further To RM2.6b In The 1Q13 from RM8.7b in the preceding quarter. This is 1.1% of GNI, a further reduction from 3.9% of GNI in the 1Q13. The smaller surplus is due to a lower surplus in the good accounts (2Q13: RM18.7b vs 1Q13: RM24.7b, of which exports fell to RM163.2b from RM169.4b in the 1Q13. This is reflective of the 5.2% contraction in the exports component in the GDP. (Please refer to Economic Viewpoint for further comments)   

Bank Negara Trims Growth Forecast. Bank Negara Malaysia has revised the economic growth forecast to between 4.5 and 5.0 % this year from between five and six % previously. The revision is due to a weak external sector in the first half of the year, which saw a minus 36 % growth in net exports, said governor Tan Sri Dr Zeti Akhtar Aziz. At a media briefing yesterday to announce the second quarter economic figures, she said the economy expanded by 4.3 % against 4.1 % in the first quarter. Zeti said domestic demand remained firm in the second quarter at 7.3 % and expects this to be sustained in the second half, while exports are set to experience a slight improvement. She noted that the services and manufacturing sectors continue to expand, driven by sub-sectors catering to the domestic market, but the agriculture sector moderated due to sharp reduction in natural rubber output and slower growth in crude palm oil production. (Business Times) 

Asia

 BOJ: Sales Tax Increase Won’t Hurt Economy. Bank of Japan governor Haruhiko Kuroda said a government tax-hike plan will not damage the economy, but if it does he “won’t hesitate” to adjust monetary easing.  Prime Minister Shinzo Abe’s government wants to increase incrementally a tax on sales over the next two years.  However, some economists fear the move could risk derailing Japan’s road to economic recovery.  The plan proposes a three-% rise to eight % next year, before a further increase to 10 % in 2015.  “The government said it will proceed with its fiscal structural reforms.  I urge the government to firmly implement the plans,” Kuroda said.  (AFP)

Thailand Keeps Key Interest Rate At 2.5pc. Thailand yesterday left its benchmark interest rate at 2.5 % amid concerns over sluggish growth. The move, which follows a trim to interest rates in May, comes after official figures showed persistent weakness in the economy in the first two quarters of the year. “Continuing with monetary policy easing will support economic growth,” said Paiboon Kittisrikangwan, secretary of the central bank’s Monetary Policy Committee. Thailand has suffered two  consecutive quarterly contractions this year, with figures showing the economy shrank 0.3 % in the three months to June. (AFP)

USA

Sales Of U.S. Existing Homes Rise To Highest Since 2009. Sales of previously owned U.S. homes jumped in July to the second-highest level in more than six years as buyers rushed to lock in mortgage rates before they increased any more. Purchases advanced 6.5 % to a 5.39 million annual rate last month, beating the 5.15 million median forecast of economists surveyed by Bloomberg, figures from the National Association of Realtors showed today in Washington. Sales were the strongest since a government tax credit temporarily boosted demand in November 2009, and second-highest since March 2007. (Bloomberg)

FOMC Minutes Show Broad Support For Bernanke Taper Timeline. Federal Reserve policy makers were “broadly comfortable” with Chairman Ben S. Bernanke’s plan to start reducing bond buying later this year if the economy improves, with a few saying tapering might be needed soon, minutes of their last meeting show. “A few members emphasized the importance of  being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases,” the minutes show. “Almost all participants confirmed that they  were broadly comfortable” with the committee moderating “the pace of its securities purchases later this year.” (Bloomberg)

Europe

U.K. Posts First July Deficit Since 2010 As Spending Up. Britain posted its first July budget deficit since 2010 as an increase in government spendingoutstripped tax revenue. Net  borrowing excluding temporary support for banks was 488 million pounds ($764 million) compared with a surplus of 823 million pounds a year earlier, the Office for National Statisticssaid in London today. Including coupon cash received from the Bank of England on its holdings of gilts, the deficit was 62 million pounds. Underlying tax receipts rose 3.4 %, lagging behind a 3.7 % increase in spending. (Bloomberg)

Currencies

Bank Negara: Malaysia Can Manage Currency Volatility. Malaysia had the capacity to manage its currency volatility, Bank Negara said, as it brushed off concerns of an Asian contagion risk. “We had demonstrated our ability to handle such a weakness at the height of the global financial crisis in 2008/09, and therefore, would be able to do the same in the current environment,” the central bank governor Tan Sri Dr Zeti Akhtar Aziz said at a press conference. In highlighting Malaysia’s strengths that would enable it to deal with the present volatility, Zeti said: “Firstly, we have strong intermediaries, and a well-developed financial market. “Our bond market is one of the largest in South-East Asia, and we have a strong presence of institutional investors who can absorb any selling of our Malaysian Government securities. In addition, our reserves level currently is at its strongest ever and we have a low level of external indebtedness.” In line with the performance of some regional currencies, Malaysia’s ringgit has weakened against the currencies of major economies in recent months. (The Star) 

Dollar Up As Fed Reaffirms Slowing Purchases. The U.S. dollar rose against most key rivals Wednesday as minutes from the Federal Reserve’s July meeting showed almost all officials support a slowing of bond buys later this year, depending on the data. The ICE dollar index, which measures the U.S. unit against six rivals, rose to 81.268 from 80.901 late Tuesday. The dollar index was at 81.181 in the minutes before the release. Among key pairs, the dollar ground against the  Japanese yen, buying ¥97.84 compared with ¥97.30 late Tuesday. The euro fell below $1.34, buying $1.3367 in recent trade compared to $1.3424 late Tuesday. Meanwhile, the British pound traded at $1.5678, near $1.5679 late Tuesday and the Australian dollar fell to 90.01 U.S. cents from 90.84 U.S. cents. The rupee plunged to yet another record low earlier Wednesday as the dollar traded at 64.70 rupees, according to FactSet data. The intraday record was 64.625 rupees, according to BMO’s Gallo. The greenback bought 64.03 Indian rupees in recent trade, up from 63.28 rupees late Tuesday. (Market Watch) 

Commodities

Oil Slips, WTI Leads Decline As Crude Flows Back To Cushing. Global oil prices fell on Wednesday as heavier losses in U.S. crude widened the trans-Atlantic spread for a second day amid signs Libyan exports might resume and indications oil was flowing into the depleted Cushing storage hub. Brent futures for October fell 34 cents to settle at $109.81 a barrel. U.S. October  oil fell $1.26 to $103.85 barrel, off a session low $103.50. The spread between the two stood at $5.96 at the close after earlier widening to $6.23. (Reuters)

Gold Prices Flat As Fed Minutes Show Few Tapering Clues. Gold was largely flat on Wednesday as traders digested the minutes from the latest Federal Reserve policy meeting which showed few clues about the timing to scale back its bond-buying stimulus. Spot gold eased 25 cents to $1,370.42 an ounce by 3:24 p.m. EDT (1924 GMT). Among other precious metals, silver was last up 0.4% at $23.09 an ounce. Platinum edged up 0.1 % to $1,514.49 an ounce, while palladium eased 0.2 % at $745.22 an ounce. (Reuters)