PP 7767/09/2011(028730)

Economic Highlights
Global
•
MARKET DATELINE

8 October 2010

1 Euroland Was Left To Shoulder The Burden In A Global

Competitive Devaluation

2 US Consumer Credit Fell By A Smaller Magnitude In

August And Jobless Claims Decreased To A Three-Month
Low

Tracking The World Economy...

Today’s Highlight

Euroland Was Left To Shoulder The Burden In A Global Competitive Devaluation

With the Bank of Japan this week boosting its asset-purchase plan and the US Federal Reserve mulling a new round of
quantitative easing, Euroland is bucking the global push toward easier monetary policy. After keeping its key policy rate
unchanged at 1.0%, the European Central Bank (ECB) said on 7 October that policymakers are in the same mood as
a month ago and for now remain committed to phasing out their unlimited lending programme. The remark pushed the
euro to touch a high US$1.40/euro for the first time since February and leaves the Euroland to shoulder the burden of
efforts by major economies to weaken their exchange rates in a move to boost exports.

While the US’s intention and Japan’s move have stirred up global currency devaluation tensions, many still doubt the US
Fed would be able to buy a bigger improvement in growth, employment or inflation over the next two years through
another around of quantitative easing. Firms with large-scale models of the US economy such as IHS Global Insight,
Moody’s Analytics Inc. and Macroeconomic Advisers LLC project that only a moderate impact from additional Fed asset
purchases. They estimate that the unemployment rate will remain at around 9.0% or higher next year whether the Fed
buys US$500bn or US$2 trn of US Treasuries in a second round of unconventional stimulus. This is because US has kept
its benchmark lending rate near zero for almost two years and it has failed to produce the intended cycle of borrowing
and spending among consumers and businesses. As a result, it remains to be seen whether pumping more money into
the system would help, as consumers are still in deleveraging mood. However, the danger of not doing anything would
be pretty high for the US Fed. Meanwhile, the US is probably hoping that a weakening US dollar and an appreciation
of the renminbi could help shift some of the jobs back to the US. China may be willing to help but on a gradual basis
where the US probably cannot wait for it.

The US Economy

Consumer Credit Fell By A Smaller Magnitude In August

◆ US consumer credit fell by a smaller magnitude of US$3.3bn or at an annual rate of -1.7%, compared
with a decline of US$4.1bn or -2.0% in July. This was the seventh straight month of decline, suggesting that
consumers are still deleveraging given that confidence level remains low on the back of high unemployment. As
it stands, the unemployment rate inched up to 9.6% in August, the first gain in four months and economists expect
it to rise again in September. The smaller drop in consumer credit was attributed to a pick-up in non-revolving
debt, which rose by US$1.7bn in August, compared with +US$0.9bn in July. Non-revolving credit include loans for
automobiles and mobile homes. The Fed’s report does not cover borrowing secured by real estate. Revolving debt
such as credit cards, on the other hand, fell by US$5.0bn in August, the same amount of decline as in July.

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 8 October 2010

Jobless Claims Decreased To A Three-Month Low

◆ US jobless claims unexpectedly fell by 11,000 to 445,000 in the week ended 2 October, the lowest level in three
months. The four-week moving average, a less volatile measure than the weekly figures, dropped by 3,000 to
455,750 last week from 458,750 two weeks ago. It was the sixth consecutive decrease, indicating the labour
market is improving, albeit gradually. The number of people continuing to receive jobless benefits dropped by
48,000 in the week ended 25 September to 4.46 million, the lowest since 26 June. The continuing claims figure
does not include the number of Americans receiving extended and emergency benefits under federal programmes.
Those who have used up their traditional benefits and are now collecting emergency and extended payments
increased by about 257,000 to 5.14 million in the week ended 18 September. As a whole, the US labour market,
though improving, remains weak.

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