(A) Uncertainties reign in the larger market

• (A.1) US Federal Reserve cut rate again

On 30 April 2008, the US Federal Reserve once again lowered the US interest rates by a modest quarter percentage point. The interbank rate is now pegged at 2%, the lowest since December 2004. It was the seventh cut in a campaign that has brought the key lending rate down by 3.25 percentage points since mid-September.

The Fed has said that the cut might be the last and this may mean that policy-makers were now willing to sit back to see if the economy is responding to the medicines.

• (A.2) Is the US in recession or is it not?

Are they or are they not in recession? It is anybody’s guess. Why not look at the numbers as they seldom lie.

The consumer confidence in the US has fallen to 62.6 for a third straight month, hitting its weakest point in 26 years. This can be due to heightened worries over inflation and the sagging housing market.

More consumers reported that their personal financial situation was worse than any time since 1982 due to high fuel and food prices, as well as shrinking income gains and widespread reports of declines in home values.

On the other hand, the first quarter economy in the US grew 0.6%. Analysts now believe that with the slight growth, the widely-expected recession will happen in the next quarter.

On the housing front, record-high foreclosures dumped more unsold homes on the market in the first quarter of 2008. This has added builders' headaches as they slashed spending on housing projects by a whopping 26.7%, on an annualised basis, the most in 27 years which sent the economy further down the abyss.

On the spending side, consumers spending rose at just a 1%, down from a 2.3% growth rate and was the slowest since the second quarter of 2001, when the US was in its last recession.

Higher energy and food prices are shrinking people's pocket, curtailing their spending power and the credit crunch also has made it harder for people to finance big-ticket items, such as cars and homes.

• (A.3) IMF paints pessimistic forecast for US economy

According to the International Monetary Fund (IMF), the financial crisis in the US has moved into new phases. But the worst of the US banking and economic crisis may not yet be over, although the risk of a financial meltdown has passed.

Downside risks are still huge from the interaction between the weak financial system and the weakening real economy. The US housing market could get weaker for at least another year while unemployment is rising, as are the risks of corporate defaults.

The IMF forecasts that US GDP growth will slow to 0.5% this year (from 2.2% in 2007) and the economy 'could tip into mild recession' before recovering gradually in 2009. Under this scenario, the IMF estimates that total losses for the US financial system arising from the sub-prime crisis (but including losses in non-sub-prime related areas) would total US$945 billion. Furthermore, the IMF said that if the US recession were deeper and longer, the losses 'could be substantially larger'.

• (A.4) The aftermath of the Bear Stearns collapse

The US Securities and Exchange Commission, responding to the collapse of Bear Stearns, may require Wall Street banks to keep more cash on hand during periods of market stress. The agency is also reviewing whether securities firms should seek new loans to support their 'less-liquid positions'.

However, some analysts noted that any change may crimp Wall Street profits because firms would have to hold more cash and low-yielding securities instead of lending money or making investments.

The agency currently requires that those firms have enough funding to meet expected obligations for at least one year during periods of market turmoil but that requirement did not prevent the 'unprecedented' situation at New York-based Bear Stearns, which could not secure loans even if it offered to put up 'high-quality’ collateral.

[For more details on how the other leading financial institutions in the world fare, see Annex B]

• (A.5) Singapore inflation rises 6.7% in March 2008 - 26-year high

Singapore’s inflation accelerated to 6.7% in March from 2007 to a 26-year high as higher food, transport and housing costs lifted consumer prices.

According to the Department of Statistics, consumer prices in March 2008 rose 0.3% from February after seasonal adjustments. On a three-month moving average, the consumer price index (CPI) was up by 0.6%.

Economists had expected annual consumer prices to rise above January's high of 6.6% - the highest level since 7.5% in March 1982 - due to record energy and food prices.

To fight imported inflation, the Monetary Authority of Singapore (MAS) had again in April strengthened the Singdollar further against the Greenback.