Economies, Currencies, Rates Daily Breakfast Spread

Transcription

1 Economies, Currencies, Rates Daily Breakfast Spread DBS Group Research 2 August 2013 Economics US Fed expectations Implied fed funds rate Jun13 Dec13 Jun14 Market Current wk ago DBS Source: Bloomberg fed fund futures Notes: Given a FF target rate of 0.25%, an implied FF rate of 0.30 is interpreted roughly as the market pricing in a 20% chance of a Fed hike to 0.50% from 0.25% (30 is 1/5th of the distance to 50 from 25). DBS expectations are presented in discrete blocks of 25bps, i.e., the Fed moves or it does not. See also Policy rate forecasts below. Greater China, Korea KR: Drawing lessons from the 2008 global financial crisis, the Korean authorities have introduced a series of macroprudential measures in recent years to manage capital flows and credit growth. These efforts are paying off. Shortterm external debt has declined sharply. The current account balance has also recovered, in contrast to the deterioration in many Southeast Asian countries (Chart). In June this year when capital outflows from the region intensified amid global market volatility, the KRW depreciated 2% versus the USD, a milder decline compared to 6% in INR and 3-4% in THB and MYR. Meanwhile, unlike other Asian peers, Korea didn t experience a property boom during the post-2008 economic recovery. Housing prices rose only 3% per annual in Bank loan growth was contained at 5.5% in , in line with nominal GDP growth of 5.6%. Mortgage loans in Korea are predominantly comprised of short-term, floating rate loans. Banks 3-month CD rate (a benchmark commonly used to set mortgage lending rates) has remained low and stable in recent months. Although some Asian central banks have tightened domestic monetary policy to curb capital outflows and defend currencies, the Bank of Korea still has the room to keep policy accommodative, as the situation of outflows and currency depreciation is relatively manageable and tolerable. The major risk facing Korea is export deterioration, which could have negative knock-on effects on the labour market and the domestic economy. The household sector and non-bank financial institutions are exposed to the risk of an income shock. While bank lending has been well controlled in recent years, non-bank financial institutions have expanded credit, and the outstanding level of total household debt remains high. The latest data showed that Korea s exports growth remained steady in July (2.6% YoY, vs. 0.8% in 2Q) and the jobless rate stayed stable. Ahead, we expect US demand to maintain a moderate recovery in , and expect Europe to come out of recession next year, which will help to balance the risk of China slowdown. Current account balance (% of GDP), selected Asian countries HK KR TH TW MY ID -5 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1

2 Southeast Asia, India ID: 2Q GDP numbers are due today and moderate growth of 6.0% YoY is expected, unchanged from the preceding quarter. The economy has been facing significant headwinds over the past several quarters as slowing Chinese growth weighed on exports and commodity prices. Notably, the trade balance has been running persistent deficits, placing strains on the current account balance which is expected to reach a deficit of around 3.5% of GDP in 2Q. Policy makers are cognizant of external funding concerns and have taken macroprudential measures to moderate domestic demand growth. More recently, the central bank (BI) has also hiked the policy rate by a cumulative 75bps over the past two months. Trade and inflation data (released yesterday) suggest that these headwinds are likely to persist in the short term. Notably, the trade balance for June remains at a sizable deficit of USD 847mn and headline inflation reached 8.6% YoY in July (consensus 8.0% YoY). In order to restraint price pressures and to ease external funding concerns, the monetary tightening stance is likely to be maintained over the coming months as BI prioritizes economic stability over economic growth. We expect another 75bps worth of monetary tightening, taking the FASBI deposit rate to 5.50% by end-2013 from 4.75% currently. The pace of GDP growth in 2H is likely to be muted by Indonesia s standards, averaging 6.0% YoY. Domestic interest rates have already risen (and are likely to rise further) and we expect credit growth to be more moderate compared to the past two years. Moreover, an extended period of depressed commodity prices is likely to impact investment in related sectors. Notably, investment momentum has already slowed in 1Q. For a revival in investment growth to 2011/2012 levels, a switch in investment interest towards the secondary sector has to take place over the medium term. SG: It is a pleasant surprise that Singapore s overall manufacturing PMI has continued to buck the regional trend. Headline manufacturing PMI (July) was up by 0.1 to This is the fifth consecutive months of expansion. The sub-indices of new orders, new export orders and production had all headed higher in July. This suggests that the manufacturing sector has been resilient against the external headwinds and production activity has been holding up. That said, the headline number and the inventory sub-index appeared to have peaked. Employment index has also moderated substantially. This could imply a more subdued production level in the coming months. However, most recent China PMI has bounced back to expansion mode. While it remains to be seen whether that will be sustainable, China s manufacturing outlook will have significant impact on the that of Singapore s in the next 6-12 months. With the tepid recovery in the US and the recession in Europe, China remains the only pillar that local manufacturers are clinching on. China policymakers are aiming for a slower growth pace. As long as the slowdown is calibrated and measured, it should not lead to a significant decline in Asia consumer demand. Another notable trend in the report is that the electronics PMI has eased. Electronics PMI moderated by 0.9pts to This is consistent with our long held view that the electronics industry is done with its earlier restocking and production should ease with the anticipation of weaker demand ahead. Almost every single sub-index within the electronics PMI is down for the month. G3 US: Holy smokes. You know all that stuff we ve been saying about the data being weak? We may have to take it all back. Or part of it anyway. Last week, durable goods orders surged by 5% in a single month. We didn t pay it much mind because the ex-transport figure was flat as a pancake. Then, out of nowhere, GDP surprises with 1.7% (QoQ, saar) growth in the second quarter. We didn t pay that much mind either because on-year growth is now at its lowest since recovery began (1.4%) and because everything points to a downward revision as well. 2

3 US - ISM survey (prod'n and orders) Index, 50="neutral" (no accel / decel) Prod Orders Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 But now, equally out of the blue, we get a 5 point pop in the ISM the biggest spurt in 18 years and the second biggest in ISM history! Where did that come from? The technical answer is from the production and orders components, which rose by an average of 9 points each production to a stratospheric level of 65 (the highest since May 2004) and orders to (only) 58.3 (chicken feed by comparison but still a half-court shot). The employment component rose by 5.7 points to 54.4, its biggest move since the economy bounced off the bottom in June Where this came from in the bigger sense of the question is a mystery. For now we ll just take it at face value and call it good news. The better news is that after you get 3 or 4 things coming out of the blue, it s not really from the blue anymore. It s a new direction. Hopefully one is taking hold. Payrolls and the unemployment rate are on tap today. If these green shoots or rocket ships in the case of the ISM spill over to the labor market, there s going to be a party at the Fed. And on Pennsylvania Avenue. Wall Street. Marina Bay Currencies FX: The old adage Don t bet against the Fed did not pay off yesterday. Earlier on Wednesday, the US dollar, as measured by the DXY index, fell to , its lowest level since June 20. This came after the FOMC statement turned out to be dovish and disappointed hawks hoping for stronger signals by the Fed to taper asset purchases. Markets were caught wrong-footed when US data came in stronger-thanexpected yesterday. For example, ISM manufacturing bounced to 55.4 in July, above 55 for the first time since June Initial jobless claims fell to their lowest levels in more than five years. This coupled with the 200K print in ADP employment data earlier has increased expectations for tonight s nonfarm payrolls to be stronger than the 185K consensus too. The yield on 10Y US treasuries increased sharply to almost 2.71% yesterday, after falling to just below 2.58% a day earlier from 2.61% on the dovish FOMC statement. The S&P500 index powered to a new record high above And the DXY index had bounced back to the top of its short-term price channel, current located around Essentially, markets decided that it was better to let the data do the talking than to listen to the Fed. 3

4 Economic calendar Event Consensus Actual Previous Jul 29 (Mon) US: pending home sales (Jun) -1.0% m/m sa -0.4% m/m sa 6.7% m/m sa Jul 30 (Tue) KR: industrial production (Jun) -1.1% y/y -2.6% y/y -1.3% y/y JP: jobless rate (Jun) 4.0% 3.9% 4.1% JP: industrial production (Jun) -1.5% m/m sa -3.3% m/m sa 1.9% m/m sa US: consumer confidence (Jul) Jul 31 (Wed) TW: GDP (2Q P) 2.1% y/y 2.27% y/y 1.67% y/y TH: current account bal (Jun) -USD785mn -USD664mn -USD1051mn EZ: CPI (Jul) 1.6% y/y 1.6% y/y 1.6% y/y US: GDP (2Q A) 1.0% q/q saar 1.7% q/q saar 1.1% q/q saar Aug 1 (Thur) KR: CPI (Jul) 1.4% y/y 1.4% y/y 1.0% y/y KR: trade balance (Jul) USD 4924mn USD 2713mn USD 5994mn -- exports 2.1% y/y 2.6% y/y -1.0% y/y -- imports -1.2% y/y 2.7% y/y -3.0% y/y TH: CPI (Jul) 2.10% y/y 2.25% y/y ID: CPI (Jul) 8.04% y/y 8.61% y/y 5.9% y/y ID: trade balance (Jun) -USD789mn -USD847mn -USD590mn -- exports 1.0% y/y -4.5% y/y -4.5% y/y -- imports -0.1% y/y -6.8% y/y -2.2% y/y HK: retail sales (Jun) 11.7% y/y 14.7% y/y 12.8% y/y US: ISM manufacturing (Jul) Aug 2 (Fri) US: nonfarm payrolls (Jul) 185K 195k ID: GDP (2Q) 5.9% y/y 6.0% y/y Central bank policy calendar Policy Date Country Rate Current Consensus DBS Actual This week 30-Jul IN o/n repo 7.25% 7.25% 7.25% 7.25% 1-Aug US FDTR 0.25% 0.25% 0.25% 0.25% 1-Aug Ezone 7-day refi rate 0.50% 0.50% 0.50% 0.50% Next week 8-Aug JP o/n call rate 0.10% 0.10% 8-Aug KR 7 day repo rate 2.50% 2.50% 2.50% Last week 25-Jul PH o/n rev repo 3.50% 3.50% 3.50% 3.50% 4

5 GDP & inflation forecasts GDP growth, % YoY CPI inflation, % YoY f 2014f f 2014f US Japan Eurozone Indonesia Malaysia Philippines Singapore Thailand Vietnam China Hong Kong Taiwan Korea India* * India data & forecasts refer to fiscal years beginning April; inflation is WPI Source: CEIC and DBS Research Policy & exchange rate forecasts Policy interest rates, eop Exchange rates, eop current 3Q13 4Q13 1Q14 2Q14 current 3Q13 4Q13 1Q14 2Q14 US Japan Eurozone Indonesia ,271 9,850 9,800 9,750 9,700 Malaysia Philippines Singapore n.a. n.a. n.a. n.a. n.a Thailand Vietnam^ ,160 21,100 21,200 21,300 21,400 China* Hong Kong n.a. n.a. n.a. n.a. n.a Taiwan Korea India ^ prime rate; * 1-yr lending rate Market prices Policy rate 10Y bond yield FX Equities Current Current 1wk chg Current 1wk chg Index Current 1wk chg (%) (%) (bps) (%) (%) US S&P 500 1, Japan Topix 1, Eurozone Eurostoxx 2, Indonesia JCI 4, Malaysia KLCI 1, Philippines PCI 6, Singapore Ccy policy FSSTI 3, Thailand SET 1, China S'hai Comp 2, Hong Kong Ccy policy HSI 22, Taiwan TWSE 8, Korea Kospi 1, India Sensex 19, Source: Bloomberg 5

6 Contributors: Economics David Carbon Singapore (65) Irvin Seah Singapore (65) Tieying Ma Singapore (65) Radhika Rao Singapore (65) Eugene Leow Singapore (65) Chris Leung Hong Kong (852) Currencies / Fixed Income Philip Wee Singapore (65) Jens Lauschke Singapore (65) Nathan Chow Hong Kong (65) Administrative support Violet Lee Singapore (65) Please direct distribution queries to Violet Lee on Client Contacts Singapore DBS Bank (65) DBS Nominees (Pte) Ltd (65) DBS Vickers Securities (65) The Islamic Bank of Asia (65) China DBS Beijing (86 10) DBS Dongguan (86 769) DBS Guangzhou (86 20) DBS Hangzhou (86 571) DBS Shanghai (86 21) DBS Shenzhen (86 755) DBS Suzhou (86 512) DBS Tianjin (86 22) Hong Kong DBS Hong Kong (852) DBS Asia Capital (852) India DBS Chennai (91 44) DBS New Delhi (91 11) DBS Mumbai (91 22) Indonesia DBS Jakarta (62 21) /8 DBS Medan (62 61) DBS Surabaya (62 21) Japan DBS Tokyo (81 3) Korea DBS Seoul (82 2) Malaysia DBS Kuala Lumpur (6 03) DBS Labuan (6 08) Hwang-DBS Penang (6 04) Philippines DBS Manila (63 2) Taiwan DBS Changhua (886 4) DBS Kaohsiung (886 7) DBS Taichung (886 4) DBS Tainan (886 6) DBS Taipei (886 2) DBS Taoyuan (886 3) Thailand DBS Bangkok (66 2) United Kingdom DBS London (44 20) UAE DBS Dubai (97 1) USA DBS Los Angeles (1 213) Vietnam DBS Hanoi Rep Office (844) Ho Chi Minh City (84 8)

7 Recent Research CNH: Key messages from the Sino-US Dialogue 30 Jul 13 CNH: PBoC relaxes rules for RMB crossborder 12 Jul 13 activities TW: Less vulnerable than most 9 Jul 13 US Fed: Three up, three down 8 Jul 13 Asia cyclical dashboard: grinding it out 3 Jul 13 IN: Fretting over Fed QE 28 Jun 13 US Fed: too hot to trot? 24 Jun 13 VN: At easing s end 21 Jun 13 TH, ID, PH: Roadmap to Jun 13 Qtrly: Economics-Markets-Strategy 3Q13 13 Jun 13 Asia property: How high the moon? 4 Jun 13 CN: Sino-South Korean economic 29 May 13 relationship CNH: Qianhai to offer CNH trust products 16 May 13 KR&TW: Examining the yen s impact 7 May 13 CN: Sino-Australian relationship reaching new highs 29 Apr 13 JP: Abenomics - one achievement, three challenges 17 Apr 13 CNH: RQFII will not deplete offshore liquidity 21 Mar 13 Qtrly: Economics-Markets-Strategy 2Q13 24 Mar 13 CN: A global RMB: Inventing the necessary 11 Mar 13 CN: Interest rates must rise 8 Mar 13 IN: Pragmatic budget, tough to meet 1 Mar 13 TH: Keeping an eye on excesses 27 Feb 13 SG budget: Another push on restructuring 26 Feb 13 CN: The new push for urbanization 22 Feb 13 CNH: Singapore and Taiwan style 19 Feb 13 The fall and fall of Japanese FDI into Asia 19 Feb 13 SG budget: Focusing on the longer-term 18 Feb 13 Asia: cyclical dashboard 14 Feb 13 IN: Exception to the rule 6 Feb 13 CNH: Eclipsing the NDF market 4 Feb 13 JP: USD/JPY to go triple-digit 31 Jan 13 Asia: Weaker JPY does not imply weaker AXJ 30 Jan 13 US unemployment: Which trend is your friend? 29 Jan 13 CN: Deepening economic ties with Russia 9 Apr 13 MY: Sing-Iskandar: Creating synergies 8 Apr 13 SGD policy - a balancing act 5 Apr 13 IN: Where to inflation? 4 Apr 13 PH: Harnessing liquidity 3 Apr 13 US Treasuries: Expensive 1 Apr 13 TW: Is Taiwan exiting China 27 Mar 13 ID: Fuel price pressures Asia: towards a better 2013 SG: Lowering property market risk KR/TW: Is yen depreciation a big worry? Asia: Curves pricing interest rate risk TH: Government-sponsored growth US: 2013 inflation risks? Not so much 23 Jan13 18Jan13 18Jan13 18Jan13 15 Jan13 14 Jan13 27 Dec12 Disclaimer: The information herein is published by DBS Bank Ltd (the Company ). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. 7