PP 7767/09/2010(025354)

Economic Highlights
Global

MARKET DATELINE

21 June 2010

1 China Indicated A More Flexible Renminbi

2 Euro Gained Most Since May 2009 As European Debt

Concern Eases

3 Japans Government Raised Its Assessment Of The

Economy

Tracking The World Economy...

Todays Highlight

China Indicated A More Flexible Renminbi

Chinas signal of an end to the renminbis fixed rate to the US dollar will help accelerate a shift toward domestic demand
as the prime driver of growth and ease strain with other nations caused by its long reliance on exports. The Peoples
Bank of China two days ago indicated that it is abandoning the RMB6.83 peg to the US dollar adopted during the global
crisis in July 2008 to shield exporters. Before the exchange rate was explicitly re-pegged in July 2008, China had allowed
a 21% appreciation of the renminbi vis--vis the US dollar over three years. Despite indicating its intention to increase
the flexibility of the exchange rate, the Peoples Bank of China said that there is no basis for large scale moves in the
currency.

The central bank has yet to provide the details of the change but has hinted that the currencies of Chinas major partners
will play a greater role in determining the renminbis level, opening the way for more volatility of the renminbi against
the US dollar. In July 2005, China ended the renminbis 11-year de facto peg to the US dollar with a one-time revaluation,
after which it referenced the currency to a basket of currencies. China never disclosed the exact composition of the
basket, saying only that it was heavily weighted towards the US dollar, yen and euro and included the currencies of more
than 20 of China trading partners. In practice, however, the regime more closely resembled a crawling peg to the US
dollar.

Meanwhile, the renminbis appreciation will likely be limited to 2-3% against the US dollar for the rest of this year as
the currency has already strengthened 16.5% against the euro this year, eroding the competitiveness of Chinese
exporters in the European Union, the nations largest export market. As it stands, the six-month non-deliverable forward
contract on 18 June suggests that investors expect the renminbi to gain 1.0% to RMB6.7596/US$, from the spot rate of
6.8262.

The Euroland Economy

Euro Gained Most Since May 2009 As European Debt Concern Eases

The euro rose the most this week against the US dollar in more than a year, as an easing in concern
over Europes debt crisis spurred traders to end bets that the euro would decline. An increase in demand at a
Spanish bond sale and an agreement by European Union leaders to disclose how banks perform on stress tests
also boosted investors confidence about the regions financial system. Spain sold 3bn (US$3.7bn) of 10-year debt
on 17 June at an average yield of 4.864%, less than the 5.04% that the bonds traded at before the sale. Part

Peck Boon Soon

(603) 9280 2163
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 21 June 2010

of the euros gain was due to short covering as well. As it stands, the difference in the number of wagers by
hedge funds and other large speculators on a decline in the euro compared with those on a gain so-called net
shorts was 62,360 on 15 June, after dropping 44% from 111,945 a week earlier.

Asian Economies

Japans Government Raised Its Assessment Of The Economy

The Japanese government raised its assessment of the economy for the first time in three months
amid signs that the nations recovery is becoming sustainable. Rebounds in exports and production have helped
sustained the countrys economic recovery from recession even as Europes sovereign-debt crisis clouds the
outlook for global growth. The rebound will continue on improvements in economies abroad as well as boosts from
domestic stimulus measures, the government said. Separately, the Bank of Japan unveiled a 3 trn (US$33bn)
programme to boost the countrys long-term growth prospects and beat deflation. Similarly, the government
pledged in its medium-term growth strategy by lowering its corporate tax to 25%.

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