Malaysia

Reduction In Fuel Subsidy. The subsidies for RON 95 petrol and diesel have been reduced by 20 sen from today, making the price of RON 95 at RM2.30 per litre and diesel at RM2.20 per litre. The Domestic Trade Cooperatives and Consumerism Ministry said despite the subsidy reduction, the government would still be spending more than RM21b this year on subsidies for the two types of fuel, as well as for Liquified Petroleum Gas. The current market price for RON 95 is RM2.58 per litre whereas diesel cost RM 2.52 per litre. (NST)

Comments: This move is in hopes that the Government will be able to hit their 2014 budget deficit of 3.5%. However, considering that it was only implemented at the tail-end of the year, and the last price hikes (for electricity and gas) were in early 1Q14 and 2Q14, we still think that they won’t quite be able to make it. They had also requested for a supplementary budget of RM4.1b for development expenditure, of which RM1.0b was to be used for petrol, liquefied petroleum gas and diesel subsidies. At the same time, some money had to be supplied for the logistics surrounding the MH17 and MH370 tragedy. This may be minimal in the bigger scheme of overall spending but that small addition may further push spending past their allocated budget for the year. Keeping all this into consideration, we are still looking at a budget deficit of 3.7% for 2014. Similarly, as we had already expected the possibility of another subsidy rationalization in the 4Q14, we are also keeping to our 2014 CPI average of 3.3%.

Global

IMF Urges More Oversight Of $70 Trillion Shadow Banks. The International Monetary Fund urged regulators to pay closer attention to a shadow banking system that has grown to more than $70 trillion worldwide to help prevent risks from building outside the bounds of traditional financial oversight. “Shadow banking tends to take off when strict banking regulations are in place, which leads to circumvention of regulations,” Gaston Gelos, chief of the IMF’s global financial analysis division, said in a statement. Shadow banks include money-market mutual funds, hedge funds, finance companies and broker-dealers. They pose a risk to the broader financial system because they rely on short-term funding, “which can lead to forced asset sales and downward price spirals when investors want their money back at short notice.” (Bloomberg)

Asia

Asia Factory Activity Drops In Sept. Factory activity stumbled across much of Asia last month, with slowdowns in India, Japan and Taiwan and an outright decline in South Korea delivering a setback to hopes for a pick in world growth this year. Beijing has for some time now found it can no longer rely on exports and manufacturing as an engine for growth. The official Purchasing Managers’ Index (PMI) of activity stayed stuck at 51.1 last month, only modestly above the 50 level that separates growth from contraction. In Japan, the economy is still struggling to get over a hike in the sale taxes that took effect five months ago. The final Markit/JMMA Japan PMI eased to 51.7 last month from 52.2 in August. Indian factory activity expanded at slowest pace in nine months with an index reading of 51.0 last month, down from 52.4 in August. Faring even worse was South Korea, where the HSBC/Markit PMI slid to a three-month trough of 48.8 in September, indicating activity contracted. (Reuters)

Japan Manufacturing Confidence Rebounds After Sales Tax. Japanese large manufacturers' confidence improved in the three months to September, according to a closely-watched central bank survey. The Bank of Japan's quarterly Tankan headline index rose by one point to plus-13 in September, outperforming market forecasts for a plus-10 reading. A positive reading means optimists outnumber pessimists. However, sentiment in the services sector worsened due to the effects of a sales tax increase in April. It tumbled by 6 points to plus-13 in the second quarter, marking the sharpest decline since 2011. (BBC)

Thai Inflation Slows To 1.75% In Sept, US$3b Stimulus Approved. Thailand's annual inflation slowed to a 9-month low of 1.75% in September, and the core rate eased to 1.73%, giving the central bank room to keep interest rates low in order to help the economy recover from months of political unrest. The figures released by the Commerce Ministry on Wednesday were below market expectations. The median forecast from a Reuters poll was for the headline inflation rate to slow to 2% in September from 2.09% in August. The core rate – which strips out fresh food and energy prices – slowed from 1.83% in August. The military government has approved stimulus measures worth more than 100b baht (US$3bil) to boost the country's stuttering economy, the prime minister said on Wednesday. General Prayuth Chan-ocha, who led a coup in May to end months of unrest, told reporters that the measures were aimed at creating jobs and helping farmers. (Reuters)

Indonesia’s Trade Balance Swings Back Into Deficit. Indonesia’s trade balance swung back into deficit in August, contrary to expectations and a reminder of the economic challenges President-elect Joko Widodo (Jokowi) faces when he takes office this month. The statistics bureau reported a US$318 million deficit in August yesterday, compared with the median forecast in a Reuters poll for a US$170 million surplus and to July’s revised surplus of US$42.2 million. Exports grew 10.6% in August from a year earlier — better than forecast — but imports soared 13.7%, more than twice as much as the poll had projected. Indonesia used to routinely have trade surpluses, but now that it is a large oil importer and exports have been weak, it has been running trade deficits. (Reuters)

Americas

Manufacturing In U.S. Cools As Factories Settle Into More Sustainable Expansion. American factories capped their strongest quarter in more than three years, even with the rate of growth easing in September, as manufacturing helps the U.S. economy withstand slower global markets. While the Institute for Supply Management’s index dropped to 56.6 from 59 in August, the gauge’s average over the past three months was the highest since early 2011, the Tempe, Arizona-based group said today. Readings greater than 50 indicate growth. Other figures showed companies added more than 200,000 workers for a sixth straight month in September, including 35,000 at factories. (Bloomberg)

U.S. Private Sector Creates 213,000 Jobs In September: ADP. U.S. private employers added 213,000 jobs in September, just above economists' expectations, a report by a payrolls processor showed on Wednesday. Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 210,000 jobs. In the ADP report, August private payrolls were revised down to 202,000 from the previously reported 204,000. September was the sixth consecutive month the figure came in above 200,000. (Reuters)

U.S. Construction Spending Posts Surprise Decline In August. U.S. construction spending unexpectedly fell in August, hit by weaker private spending outside the housing sector and a pullback in public investments. Construction spending dropped 0.8% to an annual rate of $960.96b, the Commerce Department said on Wednesday in a report that also revised downward spending estimates for the prior two months. Economists polled by Reuters had forecast construction spending increasing 0.5% in August. The surprise decline was largely due to a 1.4% drop in money spent on private nonresidential construction, although outlays fell across the board with state and local construction down 0.9%. The declines, however, came after a month in which spending in most construction categories had posted strong gains. (Reuters)

Brazil Posts First Trade Deficit In Seven Months. Brazil posted a trade deficit of $939 million in September, its first monthly deficit after six straight positive results this year, government data showed on Wednesday. The median forecast of 12 analysts surveyed by Reuters was for a deficit of $650 million in September. The country posted a surplus of $1.17b in August. So far this year the country has accumulated a trade deficit of $690 million, smaller than the $1.760b gap registered over the same period last year. (Reuters)

Europe

Euro Zone Manufacturing Growth Slows Again In September: Pmi. Manufacturing growth in the euro zone slowed further in September as new orders contracted for the first time in over a year on dwindling demand at home and from abroad, a business survey showed on Wednesday. Markit's final September manufacturing PMI came in at 50.3, the lowest since July last year and below both August's 50.7 and an earlier flash estimate of 50.5. It held above 50 that separates growth from contraction for the 15th month in a row. (Reuters)

UK Manufacturing Growth At 17-Month Low In September. The UK manufacturing sector grew at its slowest pace for 17 months in September as a result of the strong pound and eurozone weakness, a survey has said. The Markit UK Manufacturing Purchasing Managers' Index (PMI) fell to 51.6 in September from 52.2 in August. A figure above 50 indicates growth. Firms reported that growth in new orders was "near stagnation". The current sluggish growth in the Eurozone contributed to exports growing at their slowest pace for 18 months. (BBC)

France To Hit EU Budget Deficit Target In 2017. The French government has said it will reduce its budget deficit to below the EU threshold of 3% of GDP by 2017, two years later than promised. The new forecast indicates the public deficit will fall to 4.3% next year, but to 2.8% by 2017. It was released as Finance Minister Michel Sapin prepared to present his annual budget to cabinet. Mr Sapin said growth would remain weak, projecting that the economy would only grow very slightly this year. (BBC)

Currencies

Dollar Falls Sharply Against Yen After ISM Data. The U.S. dollar turned sharply lower against the yen Wednesday afternoon as a weaker-than-expected U.S. ISM reading led investors to sell U.S. stocks and buy Treasurys, pulling down yields. After briefly topping 110 yen for the first time in more than six years during the Asia trading day, the dollar fell to ¥108.92 Wednesday, its lowest level since August. 26. It traded at ¥109.66 Tuesday. The euro traded at $1.2618 late Wednesday, compared to $1.2629 Tuesday evening. The pound traded at $1.6182, compared to $1.6217 Tuesday evening. The aussie traded at 86.62 cents in the Asia trading day, its lowest level against the dollar since January. (Market Watch)

Commodities

Brent Edges Above $95 On Relief Over China's PMI. Brent oil futures edged up above $95 a barrel on Wednesday as a positive Chinese economic survey helped the crude benchmark start October firmer after it fell to its weakest level since 2012 in the previous session. Brent oil for November delivery was up 34 cents at $95.01 a barrel by 0216 GMT. The contract fell $2.53 to settle at $94.67 on Tuesday, after touching a session low of $94.24, its weakest since June 2012. U.S. November crude gained 28 cents to $91.44 per barrel after sliding $3.41 in the previous session, its biggest daily drop since November 2012. (Reuters)

Gold Rises As U.S. Equities Sell Off On Ebola Fears. Gold rose on Wednesday, rebounding from the previous day's nine-month low near $1,200 an ounce, as disappointing U.S. factory data sparked a selloff on Wall Street and prompted investors to seek a safe haven in the yellow metal. Spot gold was up 0.5% at $1,214.45 an ounce by 2:10 p.m. (1610 GMT), having earlier slipping to within 10 cents of the previous day's nine-month low at $1,204.40. Silver was up 1.4% at $17.18 an ounce, tracking gold's rise. Platinum group metal prices were supported by strong growth in U.S. auto sales led by General Motors and Chrysler. Palladium rose 1% to $776.25 an ounce. (Reuters)