Daily Breakfast Spread

Transcription

1 Economics, Currencies & Rates Daily Breakfast Spread DBS Group Research 5 April 2017 Economics US Fed expectations Implied fed funds rate Jun17 Sep17 Dec17 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: For the first time in four years, inflation has risen above the Bank of Korea s (BOK) 2% target. Headline CPI registered 2.2% (YoY) in Mar17, a further pickup compared to 2% in Jan-Feb17. Food prices have come down from the peak, but remained high on the YoY basis at 3.5%. Meanwhile, transportation fees increased 6.4%, the strongest gains seen since Nov11. Excluding the volatile food and energy items, core CPI remained benign, staying stable at 1.4% in Mar17 versus 1.5% in Jan-Feb17. Meanwhile, public inflation expectations appeared to be under control. According to the consumer confidence survey, the expected inflation rate for the next one year has eased to 2.6% in Mar17, down from 2.8% at the beginning of this year. Based on the current sequential trend, headline CPI will likely stay above 2% in 2Q-3Q17, and possibly exceed 2.5% in Jun-Jul17. This will pose upside risks to the BOK s whole-year CPI forecast of 1.8%. That said, we think the BOK will downplay inflation risks when it reviews economic forecasts and monetary policy on 13 Apr. The recent rise in food prices, which was associated with the supply-side disruptions (e.g., foot-and-mouth disease), would be interpreted as a temporary phenomenon. Energy inflation may not be a big worry to the policymakers as well, given that global oil prices have lost upward momentum recently and the base effects will also become more favorable in the later part of this year. In addition, the stability in core CPI, slack in the labor market and a negative output gap all suggest that the risk of demand-driven inflation is low. Chances should be high that the BOK will keep the policy rate unchanged at 1.25% next week. Southeast Asia, India IN: Pressure on India s current account balance from a goods trade deficit is routinely offset by higher service trade earnings (see chart). These service surpluses are however moderating of late. On 12-month trailing sum basis, this surplus is down to USD 63bn (3.0% of GDP) in Jan17 from $74bn in Jan15. These earnings face further downside risks from US s protectionist trade stance. On goods trade, India is not foremost on Washington s radar because America s trade deficit with India is less than a tenth that with China. India is, however, vulnerable from US s services trade deficit with India. America runs surpluses here with other key regional peers. IN: Current account - goods and services balance USD bn Mar-12 Sep-12 Mar-13 Sep-13 Goods balance Services balance Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Refer to important disclosures at the end of this report. 1

2 In particular, the focus is on the offshoring business and skilled labour movement in the software and information technology sector (~half of India s service exports). Hence any developments in this regard should be watched closely. The US immigration office is reportedly exploring a stringent approval system for work visas, closer scrutiny of offshore companies and high dependency on foreign skilled workforce. These changes are likely to impact India. Over 60% of software exports head to the US (and Canada), including offshoring activity. India also accounted for twothirds of non-immigrant visas (H1B work visas) issued by the US between It remains to be seen if these fresh clamps also impact broad cross-border service trade with the US, posing a risk for service sector earnings. Apart from trade, US is also the second biggest source of overseas remittances for India, after the Gulf countries. Overall, India s current account remains exposed to shifts in the US trade policies. Notably, developments are quite fluid at this stage and hence warrant close attention. MY: Expect a strong showing in Feb17 exports. A forecast of 15.2% YoY has been penciled in for export sales in the month. This will be up from an already robust expansion of 13.6% in the previous month. However, an expected surge in imports of 23.4% will likely offset the rise in exports. This will then translate into a trade surplus of MYR 4.4bn, a tad lower than last month s MYR 4.7bn. Plainly, all the signs are pointing to a strong export performance. The PMIs of all key markets are above 50 and heading to the moon (see Chart). Global electronics cycle is definitely on an upswing (see Chart). Juxtaposed with the fact that oil prices are off the bottom and as a result, oil related exports are contributing rather than subtracting from overall export performance, one shouldn t be surprise with a double digit growth in exports. That said, strong production for exports also imply strong imports of intermediate products. Besides, the government is ramping up infrastructure projects given the extra buffer from higher than projected oil prices (the fiscal assumption on oil prices is USD 45/bbl) as well as an upcoming election. That means even stronger import demand, which will offset the export growth. MY: Upswing in global electronics cycle % YoY % YoY Semicon billing, 3mma Semicon shipments, 3mma (RHS) Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 MY: PMIs rising Index Singapore EZ China US Latest: Feb/Mar17 47 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 2

3 Currencies FX: AUD/USD fell to yesterday from on Monday. Apart from the weak sentiment carried over from Monday s weakness in US equities, the Reserve Bank of Australia (RBA) affirmed its extended pause for monetary policy. Citing higher joblessness and housing bubble worries, the RBA signalled that it is unlikely to join the Fed in hiking rates this year. With the Fed affirming two more hikes this year, the prospect for the Fed Funds Rate (1.00%) converging with the cash target rate (1.50%) in the coming quarters has become real. Hence, AUD/USD is still setting sights lower towards the floor of this year s range between and AUD/USD has not been able to post a quarterly close above 0.77 since 3Q15. AUD/USD has not been able to sustain any quarterly rise above 0.77 since resistance level Jan-14 Jan-15 Jan-16 Jan-17 3

4 Economic calendar Event Consensus Actual Previous Apr 3 (Mon) TH: CPI (Mar) 1.3% y/y 0.76% y/y 1.44% y/y EZ: unemployment rate (Feb) 9.5% sa 9.5% sa 9.6% sa SG: PMI (Mar) electronics PMI US: ISM mfg (Mar) ID: CPI (Mar) 3.8% y/y 3.61% y/y 3.83% y/y Apr 4 (Tue) KR: CPI (Mar) 2.1% y/y 2.2% y/y 1.9% y/y US: trade balance (Feb) -USD 44.6bn -USD 43.6bn -USD 48.2bn US: durable goods orders (Feb) 1.7% m/m sa 1.8% m/m sa 1.7% m/m sa Apr 5 (Wed) KR: current acc. (Feb) USD mn USD mn PH: CPI (Mar) 3.4% y/y 3.3% y/y MY: trade balance (Feb) MYR 7.19bn MYR 4.71bn -- exports 15.1% y/y 13.6% y/y -- imports 19.5% y/y 16.1% y/y US: ADP employment chg (Mar) 185K 298K US: ISM non-mfg (Mar) Apr 6 (Thur) TW: CPI (Mar) 0.75% y/y -0.04% y/y US: initial jobless claims (Apr) Apr 7 (Fri) US: non-farm payroll (Mar) 175K 235K US: unemployment rate (Mar) 4.7% sa 4.7% sa Central bank policy calendar Policy Date Country Rate Current Consensus DBS Actual This week 06-Apr IN o/n repo 6.25% 6.25% 6.25% Next week 13-Apr KR 7 day repo rate 1.25% Last week 29-Mar TH 1 day repo 1.50% 1.50% 1.50% 1.50% 4

5 GDP & inflation forecasts GDP growth, % YoY CPI inflation, % YoY f 2018f f 2018f US Japan Eurozone Indonesia Malaysia Philippines Singapore Thailand Vietnam China Hong Kong Taiwan Korea India* * fiscal year ending Mar Policy & exchange rate forecasts Policy interest rates, eop Exchange rates, eop current 2Q17 3Q17 4Q17 1Q18 current 2Q17 3Q17 4Q17 1Q18 US Japan Eurozone Indonesia ,331 13,551 13,614 13,677 13,740 Malaysia Philippines Singapore n.a. n.a. n.a. n.a. n.a Thailand Vietnam^ ,695 22,849 23,034 23,218 23,402 China* Hong Kong n.a. n.a. n.a. n.a. n.a Taiwan Korea ,123 1,173 1,174 1,175 1,177 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 2, Japan Topix 1, Eurozone Eurostoxx 3, Indonesia JCI 5, Malaysia KLCI 1, Philippines PCI 7, Singapore Ccy policy FSSTI 3, Thailand SET 1, China S'hai Comp 3, Hong Kong Ccy policy HSI 24, Taiwan TWSE 9, Korea Kospi 2, India Sensex 29, Sources: Data for all charts and tables are from CEIC, Bloomberg and DBS Group Research (forecasts and transformations). 5

6 Contributors: Economics David Carbon Singapore (65) Irvin Seah Singapore (65) Tieying Ma Singapore (65) Radhika Rao Singapore (65) Gundy Cahyadi Singapore (65) Chris Leung Hong Kong (852) Currencies / Fixed Income Philip Wee Singapore (65) Eugene Leow Singapore (65) Nathan Chow Hong Kong (852) 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) Australia DBS Sydney (61 2) China DBS Beijing (86 10) DBS Dongguan (86 769) DBS Guangzhou (86 20) DBS Hangzhou (86 571) DBS Shanghai (86 21) 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) 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) Philippines DBS Manila (63 2) Taiwan 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 (44 207) 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 IN: structural tailwinds to add to cyclical 31 Mar 17 upswing KR: is optimism justified? 29 Mar 17 IN: monetary policy on cruise control 27 Mar 17 TH: narrower C/A surplus a plus 21 Mar 17 SG: ensuring fiscal sustainability 20 Mar 17 Qtrly: Economics-Markets-Strategy 2Q17 9 Mar 17 Asia: Trump and the state of US-Asia trade 7 Mar 17 CN: the rise and rise (and rise) of the RMB 24 Feb 17 ID: next move is a rate hike 21 Feb 17 SG budget: building the future economy 21 Feb 17 CN: what to watch for as PBoC tightens 20 Feb 17 SG: upgraded 20 Feb 17 TW: Trump s policies and Taiwan 15 Feb 17 SG: shaping the future 6 Feb 17 FX: USD strength hits a roadblock 3 Feb 17 IN budget: a balanced approach 2 Feb 17 Rates: global rates roundup 2 Feb 17 TW: shifting into higher gear 27 Jan 17 SG: time to recalibrate 26 Jan 17 EZ: ECB stays defensive 24 Jan 17 ID: looking at an S&P upgrade 19 Jan 17 US: pop goes the headline 18 Jan 17 Asia cyclical dashboard 17 Jan 17 IN budget: stability over growth 12 Jan 17 Rates: SGS: US-dependent 10 Jan 17 IN: is oil the next headache? 13 Dec 16 Qtrly: Economics-Markets-Strategy 1Q17 8 Dec 16 ID: FDI much stronger than it appears 30 Nov 16 EZ: ECB challenged by higher bond yields 16 Nov 16 TW: 7 likely outcomes in Nov 16 Global: revenge of the demographic dividend 14 Nov 16 US: structural interest rate compression 2 Nov 16 FX: mid-quarter update 1 Nov 16 SG: down but not out 1 Nov 16 Rates: global rates roundup 31 Oct 16 TW: diversifying into Southeast Asia 21 Oct 16 CN: cyclical bottom 19 Oct 16 IN: assessing current account 18 Oct 16 improvement PHgov bonds: expensive (still) 11 Oct 16 SGD: sticking to neutral 7 Oct 16 EZ: not taper time yet 7 Oct 16 CN: avoiding the Minsky moment 6 Oct 16 IN: monetary policy committee lowers rates 4 Oct 16 Qtrly: Economics-Markets-Strategy 4Q16 15 Sep 16 CNH: SDR inclusion - right time, right place 8 Sep 16 IN: savings rate in need of a boost 2 Sep 16 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. Sources for all charts and tables are CEIC and Bloomberg unless otherwise specified. DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore Tel: Company Registration No E. 7