Malaysia

Fuel Subsidy Rationalisation Scheme To Be In 3 Tiers. The fuel subsidy rationalisation scheme to be implemented next year will be divided into three tiers depending on the monthly income, said Second Finance Minister, Datuk Seri Ahmad Husni Hanadzlah. He said the mechanism was still being studied in detail by the Domestic Trade, Cooperatives and Consumerism Ministry. "The first tier (with individual salary below RM5,000) would be fully supported with 100% subsidy, tier two for those with low- to middle-income will get a partial subsidy and the tier three (those earning above RM10,000) will not get the subsidy. "The implementation would be based on an individual's salary, unlike BR1M which was based on household income," he told reporters. (NST)

Comments: Though it was about time that the government reviewed their subsidy programme, we expect it would be received with mixed reaction especially from the middle income group. We reckon that these changes can only be implemented towards the second half of 2015 as the logistics of it will take some time to implement. However, there was little else mentioned; nothing about subsidies towards SMEs (who are already struggling with higher costs) or details on what ‘partial subsidy’ is. However, it’s likely that the petrol subsidy will only be given towards one car per MyKad. Though this will definitely help with government coffers, there is always the question on how this system can be enforced. We also feel that this is going to be yet another hole in the belt, burdening consumers further as these subsidy rationalizations (inclusive of electricity tariff and gas prices) in addition to GST would dampen private consumption, which account for about 53% of GDP. There is only so much that the exports and construction sector can do to boost the GDP; the strength of the economy largely depend on domestic strength, which is being pinched over and over again. These subsidy rationalizations and reviews should have been done a long time ago, to lessen the burden on the Rakyat and make 2020 more of something to look forward to rather than something to dread.

Asia

Singapore, China In Direct Currency Deal. China will begin trading the yuan against the Singapore dollar today to help boost their usage in trade and investment, the central bank said. The People’s Bank of China has authorised the nation’s interbank foreign exchange market to launch the trading, the central bank said in a statement on its website, confirming an earlier Reuters story. The step would help promote the use of the yuan and Singapore dollar in bilateral trade and investment and lower currency trading costs, the central bank said. China has already launched direct yuan trading with major currencies, including the euro, sterling, yen and the Australian dollar. (Reuters)

USA

US Services Sector Activity Growth Slows In October: Markit. The pace of growth in the U.S. services sector slowed in October compared with the previous month to its lowest level in six months, a survey showed on Monday. The flash services sector Purchasing Managers Index compiled by information services company Markit slipped to 57.3 in October from 58.9 in September, hitting its lowest rate since April. A Reuters poll forecast the October reading at 58.0. A reading above 50 signals expansion in economic activity. "The weakened growth of new orders and downturn in business optimism suggest that growth and hiring could slow further in the coming months," said Chris Williamson, chief economist at Markit. (Reuters)

Pending Home Sales In U.S. Increase Less Than Forecast. The number of contracts to buy existing homes rose less than forecast in September, signaling demand will probably plateau heading into the end of 2014. The pending home sales index increased 0.3% after dropping 1% in August, the National Association of Realtors said today in Washington. The median projection in a Bloomberg survey of economists called for a 1% gain. (Bloomberg)

Europe

German Business Confidence Falls Again, Ifo Says. German business confidence has fallen to its lowest level in almost two years, a survey suggests, raising concerns about the strength of Europe's largest economy. The Ifo think tank's closelywatched Business Climate Index fell to 103.2 in October, down from 104.7 in the previous month. "The outlook for the German economy deteriorated once again," Ifo said. The country's economy contracted by 0.2% between April and June this year. There are growing concerns about Germany's ability to bounce back in the second half of the year. (BBC)

France In New Pledge To Cut Budget Deficit. France's finance minister says the country plans to cut its budget deficit by €3.6-3.7bn ($4.6bn) next year in a bid to meet European Union rules. The minister, Michel Sapin, made the promise in a letter to the European Commission. The plan is an update on the country's original draft budget for 2015. The Commission has until Wednesday to decide whether or not to accept the proposal. Mr Sapin said he had found the money because of lower-than-expected costs on interest payments, as well as lower contributions to the EU's budget. He said France had also gained income through higher tax income, which it pulled in by being tougher on fraud and ending some company tax allowances. The country has missed a number of budget deficit targets and has struggled with high unemployment and low growth. (BBC)

Euro Zone Lending Slows More Gradually But No Speedy Upturn Seen. Lending to euro zone households and companies contracted at a slower pace in September and money supply grew faster than expected, suggesting a cycle of tightening credit conditions in the bloc is gradually coming to an end. Data released by the European Central Bank on Monday showed loans to the private sector fell by 1.2% in September from the same month a year earlier, after a contraction of 1.5% in August. (Reuters)

· ECB Says 1.7b Euros Of Covered Bonds Bought Last Week. The European Central Bank said it settled 1.704b euros ($2.2b) of covered-bond purchases last week as it started its latest effort to revive the euro-area economy. The Frankfurtbased institution began purchases on Oct. 20, returning to the market for a third time in six years as part of a renewed attempt to stave off deflation and pump life into a moribund recovery. (Bloomberg)

Currencies

Dollar Falls Against Yen Ahead Of Central Bank Meetings. The dollar slipped against the Japanese yen Monday, ahead of crucial policy meetings of the Federal Open Market Committee and the Bank of Japan. The dollar weakened to ¥107.77 from ¥108.16 late Friday in New York. Meanwhile, the euro was at $1.2701, from $1.2672. The shared currency was at ¥136.87, down from ¥137.02. The British pound rose to $1.6123 from $1.6087 on Friday. The U.S. Dollar index slipped to 85.548 from 85.701. (Market Watch)

Commodities

Oil Drops Below $85 After Goldman Cuts Forecasts. Brent crude oil fell below $85 a barrel on Monday after Goldman Sachs slashed its price forecasts, citing abundant supply and lacklustre demand despite a pick-up in global economic growth. Brent for December fell to a low of $84.75, down $1.38 a barrel, and was trading at around $84.80 by 1250 GMT. U.S. crude for December was down $1.00 at $80.01 a barrel. (Reuters)

Gold Falls On Oil Drop; Fed Meeting In Focus. Gold dropped on Monday as crude oil prices tumbled, but losses were limited by recovering physical demand and expectations the Federal Reserve will wait before hiking interest rates. Spot gold was down 0.1% at $1,229.23 an ounce by 2:10 p.m. EDT (1810 GMT), having moved in a narrow range of less than $6. Among other precious metals, silver edged up 0.1% to $17.14 an ounce. Platinum rose 0.8% to $1,250.50 an ounce and palladium was up 0.8% at $782 an ounce. (Reuters)