Warrants Highlight

Finally, a solution to the Euro crisis?

Trading volumes remained low after Ben Bernanke’s speech in Jackson Hole, Wyoming with the Federal Reserve Chairman leaving doors open for more monetary easing but failed to announce details. During his speech, he specified that “some recent policy proposals in Europe have been quite constructive” and he urged the European Central Bank (ECB) to “press ahead with policy initiatives to resolve the crisis”.

Outright Monetary Transactions
In July, markets rallied with the European Central Bank President (ECB) Mario Draghi's pledge to do whatever it takes to keep the Euro together. However, early August, he disappointed investors by merely proposing a bond purchase program without any details to substantiate it. In a bid to keep borrowing costs low, the ECB finally announced that they will launch a new and potentially unlimited bond-buying program termed "Outright Monetary Transactions" (OMTs). This scheme will focus on the acquiring of government bonds of maturities up to three years.

No seniority
Bonds purchased by the ECB will be pari passu, meaning that the bonds purchased by the central bank will not have a seniority status and will be treated equally with private creditors in the case of a default. The equal treatment helps to allay fears of government bond holders, who were initially worried about sliding down the debt repayment hierarchy resulting from ECB bond purchases.

Transparency
Weekly, the positions from the OMTs and their market value will be published and the average duration of the OMTs and the breakdown by companies will be published monthly. This provides more transparency to creditors as well as investors.

Targeted liquidity
In the previous two monetary easings, the ECB carried out a "Long Term Refinancing Operation" whereby the central bank pumped liquidity into the markets by lending out low-interest loans to banks. This time, the liquidity provided will be fully "sterilized", meaning that money will be drained from other parts of the financial system so as to neutralize the money supply in the Eurozone. This targeted liquidity will help the credit crisis by directly lowering borrowing costs for countries like Spain and Italy. In turn, this will reduce the risk of contagion as widely expected.

With the details of the OTMs released, Europe and the US equity markets celebrated. One may expect it to have an effect on equity markets in Asia with the correlation between global markets these days. Macquarie has warrants listed over the major Asian indices:

Key Macro Data next week
Below are the dates for key macro data released next week.

Mon 10 Sep: China exports (Aug)
Tue 11 Sep: US IBD/TIPP Economic Optimism
Wed 12 Sep: Hongkong Industrial Production (2Q), Eurozone Industrial Production (Jul)
Thu 13 Sep: US Producer Price Index (Aug)
Fri 14 Sep: FOMC rate decision, US Consumer Price Index (Aug), Eurozone Consumer Price Index (Aug)

Singapore Market Wrap

STI Dipped on ‘Wait & See' Attitude

Other than the surprised tumble of the Malaysian stock index, other Asian indices remained muted yesterday as traders waited for Thursday's ECB decision on their bond purchase programme. The STI dipped to an intra-day low of 2,977.64 before closing at 2,989.26 (-0.2% day-on-day). The Hang Seng Index outperformed STI, gaining 0.3% to 19,209.30.

STI 3100MBeCW121031 (Q1AW) exercise level 3,100.*
STI 2950MBePW121031 (Q0ZW) exercise level 2,950.*

HSI19400MBeCW121030 (Q7KW) exercise level 19,400.*
HSI19000MBePW121030 (Q7LW) exercise level 19,000.*

No love for Genting
Genting Singapore was one of the worst performers in the STI yesterday, falling 1.1% to $1.33. Similar weakness was seen across the Macau gaming stocks, with Galaxy Entertainment and Wynn Macau both tumbling almost 5%.

Call warrant Q7TW was actively traded yesterday with more than 5mn warrants changing hands. The warrant debuted on Tuesday and was trading around $0.06.

Call warrant GentingSMBeCW130107 (Q3KW) exercise price $1.30.*
Call warrant GentingSMBeCW121105 (QK7W) exercise price $1.50.*
Put warrant GentingSMBePW130103 (QZ2W) exercise price $1.30.*

Ezion to sell perpetual bonds
Ezion (+4.7%, $1.11) announced on Tuesday that it has appointed ANZ and DBS as the joint lead managers and bookrunners for its $125bn 7.8% subordinated perpetual bonds. According to its SGX announcement, the net proceeds of the issue are expected to be used for general corporate purposes, including the financing of investments in offshore and marine assets and general working capital.

Call warrant Ezion MBeCW130301 (Q5SW) exercise price $1.20.*

Overnight Market Wrap

Finally, the long awaited OTMs

Yesterday, the European Central Bank President Mario Draghi announced details of an unlimited bond purchase program, one which he proposed more than a month ago. The new plan, "Outright Monetary Transactions" (OTMs) will come with attached conditions which will be overseen by the International Monetary Fund. Transactions will be focusing on the short term yield curve, meaning bonds with one to three years of maturities.

The bond purchases under the OTMs will be unlimited but liquidity pumped into the debt markets will be taken from somewhere else in the financial system, thus keeping money supply stable. The government will give up seniority status, so bonds purchased by the government will be of the same status as bonds purchased by private investors. Also, there will be more transparency involved. Weekly, the aggregate OTMs holdings and market value will be published while duration of holdings and breakdown by countries will be published monthly.

Equity markets participants celebrated the plan which claims to "have a fully effective backstop" under appropriate conditions. The S&P added more than 2%, closing at 1432.12.

Overnight Markets

Indices	Last	Change
STI	2989.26	-0.2%
HSI	19209.30	0.3%
DJIA	13292.00	1.9%
S&P 500	1432.12	2.0%
Nasdaq	3135.81	2.2%
China A50	7033.89	0.7%

Corporate News

Corporate Announcements

Ezra won a contract to install power cables for a gas platform in the North Sea.

Ex-dividend dates:
Wed 26 Sep: SGX ($0.15)
Tue 6 Nov: Olam ($0.05)