PP 7767/09/2010(025354)

Economic Highlights
Global
•
MARKET DATELINE

20 May 2010

1 US Inflation Pressure Easing And The Fed Is In No Hurry

2 Germany’s Ban Of Naked Short-selling Surprised Many

3 Euroland’s Construction Output Picked Up M-o-m In March

Tracking The World Economy...

Today’s Highlight

US Inflation Pressure Easing And The Fed Is In No Hurry To Shrink Its Balance Sheet

US headline inflation fell by 0.1% mom in April, compared with +0.1% in March and after remaining unchanged in
February. This was the first decline in more than a year, indicating that price pressures remain benign in the US. A
pick-up in the costs of recreation was offset by declines in the prices of apparel, the costs of transportation and housing
as well as a moderation in the cost of education. Prices of food & beverages, on the other hand, remained stable during
the month. Excluding food and energy prices, the core inflation rate, on the other hand, remained unchanged for the
second consecutive month in April, after inching up by 0.1% mom in February. Yoy, the headline inflation moderated
to 2.2% in April, from +2.3% in March and a peak of +2.7% in December. Similarly, the core inflation rate eased to
0.9% yoy in April, from +1.1% yoy in March and a peak of +1.8% in December. The readings suggest that price
pressures are easing in the US, in tandem with the US Federal Reserve’s assessment that substantial resource slack would
continue to restrain cost pressures and inflation is likely to be subdued for some time.

As a result, the Fed will likely keep its key policy rate unchanged at between 0-0.25% in the near term, after it has
stopped most of its emergency lending programmes and the quantitative easing in March. Nevertheless, we believe the
Fed will likely use other instruments to soak up liquidity from the system in order to prevent the excess liquidity from
fuelling inflation as economic growth picks up momentum.

Meanwhile, the Fed said in its minutes for the FOMC meeting on 27-28 April that they were in no rush to sell US$1.1
trn of mortgage-backed securities, with a majority preferring to wait until after the central bank starts raising interest
rates. Most policymakers preferred to sell the mortgage securities and federal-agency debt at a gradual pace over about
five years, while a couple said selling the debt over three years would reduce the risk of higher inflation and would not
put undue strain on financial markets. Policymakers, however, unanimously agreed that they need to shrink the Fed’s
assets and banks’ excess cash substantially over time and return the central bank’s holdings to just Treasuries. In the
short term, the Fed will allow maturing agency debt and mortgage-backed securities that get prepaid or to be redeemed
without replacement. However, it plans to continue rolling over its holdings of maturing Treasury securities.

Peck Boon Soon

Page 1 of 2
A comprehensive range of market research reports by award-winning economists and analysts are
exclusively available for download from www.rhbinvest.com
 20 May 2010

The Euroland Economy

Germany’s Ban Of Naked Short-selling Surprised Many Even Within Europe

◆ Germany’s ban of naked short-selling and speculation against European government bonds using credit-
default swaps caught many by surprise even within Europe. France claimed that it was not consulted on
the move and the European Commission said that these measures will be even more efficient if they are coordinated
at the European level. “It is important that member states act together and that it can design a European regime
to avoid regulatory arbitrage and fragmentation both within the EU and globally,” said the European Commission.
Some believe the move was caused by Germany Chancellor’s need to sell a controversial €750bn bailout package
to an unhappy public. It wasn’t clear whether other countries would follow Germany’s move. In UK, the Financial
Services Authority said that Germany’s ban doesn’t cover the branches of German companies in the UK or to
business done outside Germany. German financial regulator BaFin did not provide details on how it will enforce
the ban or whether it would extend to trades outside Germany given that majority of credit-default swap trading
takes place in New York and London.

Construction Output Picked Up M-o-m In March

◆ Euroland’s construction output rose by 7.6% mom in March, a rebound from -7.2% in February. This was
the first increase in three months, suggesting that construction activities improved slightly during the month. The
rebound was due to a pick-up in building construction activities, which rose by 9.5% mom in March, compared with
-7.6% in February and -1.2% in January, indicating that private construction activities have improved somewhat
during the month. This was aided by a rebound in civil engineering construction activities, which inched up slightly
by 1.0% mom in March, compared with -5.3% in February, pointing to a marginal improvement in infrastructure
spending. Yoy, construction output fell by a smaller magnitude of 5.2% in March, compared with -14.8% in
February. This was the smallest decline in three months, indicating that construction activities are improving, albeit
gradually, dragged by the sovereign debt crisis in the region.

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI
and RHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under
such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on
generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to
opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This
report is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not
warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall
give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest
in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual
financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for
all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages
investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an
investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents
accepts any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and
financing activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading,
brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or
otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any
company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding
company and the respective directors, officers, employees and agents of each of them. Investors should assume that the
“Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities
have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been
reviewed by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,”
including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have
received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive
factors and firm revenues.

A comprehensive range of market research reports by award-winning economists and analysts are Page 2 of 2
exclusively available for download from www.rhbinvest.com