The US stock market suffered from another day of sell-off overnight on speculation that the nation's largest mortgage lender, Countrywide Financial, may be forced into bankruptcy. Countrywide was rumored to have trouble in accessing the commercial paper market and face insolvency should creditors force it to sell assets at depressed prices. The sell-off was further aggravated by the fact that yesterday (15 August) was the deadline for many investors in hedge funds to give notice of redemptions for the end of this quarter. The latest market slump has erased all of this year's gains for the S&P 500 and sent the Dow Jones Industrial Average down 1.3 % to close below 13,000 for the first time since April. Negative news from the credit market woes offset the positive economic reports on the tame CPI reading in July, which was up 0.1% MoM and up 0.2% MoM excluding food and energy, the smallest gain in eight months. The benign CPI figures should ease the Federal Reserve's concern over inflation.

Amid the global equity markets sell-off, the MSCI Asia-Pacific Index dropped 2.5% and declined to a three-month low. The non-Japan Asian markets have corrected 11% from historic peak on 24 July, but we believe the latest correction has not yet seen the trough given the ongoing deleveraging and liquidity squeeze in the equity markets. Based on experience of the previous five rounds of bull-market corrections in Asia in the past four years, downside from peak to trough can range from 9% to 21%, implying a potential downside of another 10% from the current levels. Key risk indicators suggested that the correction has not come to an end, as reflected by the elevated levels of VIX at close to 30 for the first time since April 2003 and EMBI spread at above 200 basis points.

The first sign of weakness in commodities this week is evidence that markets have begun to think about economic weakness as a potential consequence of the escalating distress in the world of credit. This makes eminent sense. It would be extraordinary if the credit universe continued to deteriorate and there was no ensuing growth scare, most particularly in a debt-driven economy such as America's.

• The STI has now fallen by 8.1% or 295 pts over the past 4 weeks. Will this be enough to entice bargain hunters in S?pore especially given the resolve of central bankers to try to maintain confidence in global financial. The intervention in money markets by the US Fed last Friday, as well as calming words from the IMF contributed to the Wall Str paring sharp losses. That rebound in US equities last Friday may give Asian investors some confidence to start the week on a positive footing. For the rest of the week, investors will continue to keep their ears to the ground to hear which big name(s) may be the next victim of the current credit worries. If global financial market is relatively calm and the macro news flow is positive, this week could be a window for investors to bargain hunt although the market direction over a longer run is still uncertain.

• On the US macro data release front, there's plenty to watch out: July retail sales data (Monday), producer price index (Tuesday), consumer price index & industrial production index (Wednesday), housing starts (Thursday), and Philly Fed Index & University of Michigan consumer confidence index (Friday). Perhaps, positive macro data, positive earnings from the likes of Hewlett-Packard plus lower crude oil prices may lift investors? mood this week. If so, Singapore equities should also get a lift this week especially if we get companies reporting good numbers during the last week of the current reporting season.

• Apart from apart from watching Wall Street and the slew of earnings (SingTel, Allgreen, City Development, HLA etc..), the other macro data worth keeping an eye is July NODX (Friday), the first significant macro data of 3Q07. After the rather disappointing 1.2% yoy showing in June, we expect July NODX to rise by 6.4% yoy. Tech exports are expected to be a smaller drag on overall NODX if the latest PMI tech readings are anything to go by. The other data release in S?pore this week is June retail sales (Wednesday). That is expected to rise sharply ahead of the 2% pt hike in GST in July. Overall retail sales may rise 15% yoy in July, the strongest in 4 months.

• Elsewhere in Asia, it is still another relatively light week for macro data releases. All eyes again on China. Last week it reported a big jump in July exports (+34.2% yoy) while July money supply (M2) accelerated to 18.5% yoy, the fast pace in 15 mths. Therefore we expect very strong readings for July retail sales, industrial production and fixed asset investments. July CPI is likely to exceed 5% yoy. Finally, it is the turn of Indonesia and HK to report their 2Q GDP this week. Over in HK we expect GDP to surprise on the upside where positive wealth effect from surging equities, rising asset prices and the improved job market are expected to boost domestic demand. Hence we expect 2Q07 GDP to come in between 6.5-7% yoy vs. 1Q07's 5.6%. On a qoq sa basis, we expect the economy to have expanded by between 1.8-2% vs. 1Q07's 0.5%. In Indonesia, 2Q07 GDP is expected to come in a strong 6.1% on the back of strong exports, consumer spending and increased investment.