Malaysia

· Inflation In December Rose By 2.7% YoY, following a 3.0% increase in the previous month. This is slightly below consensus expectations for a 2.8% rise but in line with ours. As a whole, the consumer price index fell by 0.1% MoM and it averaged at 3.1% YoY for 2014, compared to 2.1% seen in 2013. Similar to many parts of the world, the moderation in the month of December is largely due to a fall in energy prices, which in Malaysia’s case impacted the transportation index. This brought the core inflation (sans food & beverages) to 2.7% YoY (November: 3.1%) or a 0.3% MoM decline when compared to the previous month. For the whole of 2014, core inflation grew by 3.1% compared to 1.4% in 2013. (Please refer to Economic Viewpoint for further comments)

· Malaysia’s Twin Deficits Risk. Fitch Ratings Warned. Malaysia of twin fiscal and current account deficits which would be a `rating sensitivity’. “Such a scenario would risk greater volatility in capital flows to a degree that could become disruptive for the economy.” In a statement released late evening, the sovereign rating agency described Malaysia's external liquidity has already weakened with the international reserves having declined by 12% or US$16b between August and December 2014. The sharp decline in energy prices also is likely to have an impact on Malaysia's external accounts. Commenting on the Prime Minister Najib Razak’s expectations that the current account would remain in surplus, Fitch said the risks to the surplus are to the downside. It also said further consolidation measures might be required to meet the government's target of achieving a balanced budget by 2020. Fitch maintains a 'Negative' outlook on Malaysia's long-term issuer default ratings and said it is `more likely than not to downgrade the ratings’ within the next 12-18 months. (NST)

· Total Vehicle Sales Up 1.6% To 666,465 Units. Total vehicle sales grew 1.6% to 666,465 units in 2014, driven by positive economic growth, the stable employment market and aggressive promotional campaigns by car companies, said the Malaysian Automotive Association (MAA). Passenger vehicle sales grew year-on-year to 588,341 units from 576,657 units while sales of commercial vehicles dipped to 78,124 units from 79,136 units a year earlier. For 2015, MAA expects total industry volume to grow 2% to 680,000 units, driven by the continuation of ETP projects and aggressive promotional campaigns by auto players. (The Star)

Asia

· BOJ Cuts Inflation Forecast, Governor Signals No Rush To Ease. Two years into so-called Abenomics – a mix of aggressive monetary and fiscal policy plus structural reform – the Bank of Japan is struggling to reach an ambitious inflation target and convince Japanese that years of deflation are in the past. On Wednesday, the Bank of Japan (BOJ) sharply cut its inflation forecast and the governor conceded it may take longer than expected to hit 2% inflation, underlining the challenges of meeting the target as oil prices continue to slump. As widely expected, the BOJ maintained its pledge to increase base money at an annual pace of 80 trillion yen ($678b) by buying government bonds and other securities. In a review of its long-term estimates, the BOJ cut next fiscal year's core consumer inflation forecast to 1.0% from 1.7% projected three months ago. But it roughly maintained its forecast that inflation will exceed 2% in fiscal 2016 and revised up its economic growth forecast for next fiscal year, pointing to a rebound in exports and an expected boost from government stimulus measures. (Reuters)

· China's Premier Says Economy Will Continue To Feel Pressure In 2015. Chinese Premier Li Keqiang said on Wednesday that China's slowing economy reflected the broader, global situation and promised that he would forge ahead with major reforms to boost growth prospects. "The Chinese economy will face downward pressures in 2015," Li said, adding that it was not heading "for a hard landing". "China's economy has entered a period of new normal," he said. "The new situation has made structural reform all the more necessary. The (economic) adjustment in China reflects the world economy." Among the reforms he listed were the liberalization of the service sector, protecting intellectual property rights and deepening China's capital markets. (Reuters)

· China Central Banker Says Monetary Policy To Stay Stable. China's central bank should keep monetary policy stable because there is no serious nationwide housing problem despite falling prices in some cities, People's Bank of China chief Zhou Xiaochuan said on Wednesday. "For the central bank, we think basically to keep monetary policy stable because this is not a nationwide serious problem. "Generally, if the average indicator of the Chinese economy is OK, the way for the central bank to have a specific policy targeted to the real estate market is difficult," he said. Zhou said Chinese markets were nervous because of the fall in oil and commodity prices and urged stock market investors to focus on the fundamentals of companies to avoid any potential price bubble. (Reuters)

· China Pumps Cash Into Banks In Bid To Accelerate Growth From 24-Year Low. China's central bank has bolstered support for the cooling Chinese economy by injecting another 50b yuan (8.1b) worth of short-term loans into banks to spur growth from a 24-year low. The People's Bank of China (PBOC) said on Wednesday it issued an additional 50b yuan worth of three-month loans to mid- and small-sized banks while rolling over 269.5b yuan of similar loans that have expired. (Reuters)

North America

· U.S. Single-Family Housing Starts Highest Since Early 2008. Groundbreaking for U.S. single-family homes raced to the highest level in more than 6-1/2 years in December and permits surged, in a hopeful sign for the sluggish housing market recovery. Housing has lagged an acceleration in economic growth, but Wednesday's report hinted at a pick-up in activity. That should help to further strengthen the U.S. economy's fundamentals as it confronts headwinds from slowing global growth. The Commerce Department said on Wednesday that single-family housing starts, the largest part of the market, jumped 7.2% to a seasonally adjusted annual pace of 728,000-units - the highest level since March 2008. (Reuters)

· U.S. Mortgage Applications Rise In Latest Week. Applications for U.S. home mortgages rose last week as mortgage rates continued to slide, bringing activity to a 17-month high for a second straight week, data from an industry group showed on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 14.2% in the week ended Jan. 16. The MBA's seasonally adjusted index of refinancing applications jumped 22.3% to 2,746.1. (Reuters)

· Bank Of Canada Delivers Shock Rate Cut As ECB Gears Up For Quantitative Easing. The Bank of Canada joined the list of "unpredictable" central banks on Wednesday with a shock quarter point rate cut as the European Central Bank prepared a 600b euro ($695b) bond-buying program aimed at lifting Europe out of its economic doldrums. The Canadian move came in response to a sharp drop in oil prices that hit the commodity-dependent economy, expected to grow by just 1.5% in the first half of this year compared with the central bank's previous forecast of 2.4%. The surprise move follows Denmark's rate cut this week and a shock Jan. 15 decision by the Swiss National Bank to drop its cap on the Swiss currency against the euro and cut its rates further, likely in anticipation of the ECB's money printing plan, which appears set to weaken the euro. (Reuters)

· Canada Wholesale Trade Falls In November. Canadian wholesale sales decreased by 0.3% in November, following gains in the previous two months, said Statistics Canada in data released on Wednesday. Analysts had expected a decline of 0.1%. Wholesale trade dropped to C$54.03b ($44.74b) for November, down from a record high of C$54.18b ($44.87b) in October, the federal statistical agency said. (Reuters)

Europe

· U.K. Jobless Rate Falls More Than Forecast As Pay Quickens. U.K. unemployment fell more than economists forecast in the three months through November and pay growth accelerated to its fastest in more than two years as the economy continued to add jobs. Wages excluding bonuses grew 1.8% from a year earlier, up from 1.6% in the quarter through October, the Office for National Statistics said in London today. That’s the biggest increase since the third quarter of 2012. The unemployment rate based on International Labor Organization methods declined to a six-year low of 5.8% from 6%. The median forecast in a Bloomberg News survey was for a drop to 5.9%. (Bloomberg)

· OECD Urges ECB To Launch Unlimited Bond-Buying. The European Central Bank should launch unlimited buying of euro zone government bonds for as long as it takes to raise inflation and revive the economy, the head of the OECD thinktank said on Wednesday. "Let Mario go as far as he can. I don't think he should cap it," Gurria told the World Economic Forum in Davos. "Don't say 500b (euros). Just say 'as far as we can, as far as we need it'." (Reuters)

· Merkel Says ECB Should Avoid Sending Wrong Signals With QE. German Chancellor Angela Merkel reiterated on Wednesday that the ECB is independent in its decision-making but said it is important nevertheless for the central bank to avoid sending any signals that could undermine the need for structural reforms. "The ECB hasn't made any decisions yet," Merkel said at a news conference in Berlin, asked about expectations the European Central Bank will announce a government bond-buying program on Thursday. "There's been a lot of speculation (about that). "Secondly, the ECB is independent. I can only repeat what I said on Monday evening that ... it's important for me, as a politician, that all signals have to be avoided that could be perceived as weakening the necessity for structural changes and closer economic-political cooperation in euro zone countries." (Reuters)

Currencies

· Swiss SNB Says Inks Pact For Renminbi Clearing With PBOC. Switzerland's central bank said on Wednesday it had agreed with the People's Bank of China (PBOC) to establish clearing arrangements in Switzerland for renminbi trading and extend a pilot scheme for clients of Swiss banks. "It (the arrangement) will promote the use of the renminbi by enterprises and financial institutions in cross-border transactions, and promote facilitation of bilateral trade and investment," the Swiss National Bank said in a statement. Alongside the pact, the PBOC will extend a pilot scheme for foreign investors to clients of Swiss banks, with a quota of up to 50b yuan ($8b). (Reuters)

· ECB Report Sparks Wild Swings In Euro’s Value. The euro is seeing wild swings in Wednesday trading following reports that the European Central Bank’s executive board has developed a proposal calling for roughly €50b a month in sovereign bond purchases. The euro recorded a session high of $1.1680, essentially erasing four sessions’ worth of losses after the report was published, before moving lower to around $1.1591, slightly above its Tuesday afternoon level of $1.1547. Meanwhile, the ICE U.S. Dollar Index, a measure of the dollar’s strength against a trade-weighted basket of six currencies, fell 0.12% to 92.9200, dragged lower by a slightly stronger euro. The pound traded at $1.5133 and €1.3055, compared to $1.1547 and €1.3112 Tuesday. The U.S. dollar rose to 1.2285 Canadian dollars Wednesday after the Bank of Canada cut its overnight interest rate by 25 basis points to 0.75%, saying that falling crude-oil prices are “unambiguously negative” for its economy. The dollar traded at 1.2112 loonies Tuesday afternoon. The dollar traded at ¥117.8320, compared to ¥118.6430 Tuesday afternoon. (Marketwatch)

Commodities

· Brent Crude Oil Rises Above $48.50, But Outlook Remains Weak. Oil prices edged up on Wednesday in a further sign of support around current levels, but analysts said the outlook for the next six months remained bleak due to oversupply. Brent spent most of Asia's trading hours below $48.50 but rose to $48.54 by 0810 GMT, up more than half a dollar, while U.S. crude was up 53 cents at $47 a barrel. (Reuters)

· Gold Falls From $1,300/Oz On Reports Of ECB, Profit-Taking. Gold pared gains on Wednesday, after climbing above $1,300 an ounce for the first time since August, as profit-taking entered the market following reports of a proposed bond buying program for the European Central Bank (ECB). The ECB's executive board has proposed a program that would enable the bank to buy 50b euros ($58b) in bonds per month starting in March, a euro zone source said. Spot gold hit its highest level since Aug. 15 at $1,305 an ounce in early trade and was up 0.1% at $1,294.61 at 2:41 p.m. EST (1941 GMT). Among other precious metals, spot silver jumped 1.6% to its highest since Sept. 19 at $18.48 an ounce and later pared gains and was up 1.5% at $18.20. Palladium turned down 0.8% to $765.50 an ounce, while platinum was down 0.4% at$1,269.50 an ounce. (Reuters)