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but data volatility has picked up, especially headline inflation…
prices, and core inflation remains extremely well anchored
central banks are likely to remain in &39;wait and see&39; mode for now
We had a chill summer in Asia. Volatility collapsed and the data highlighted an enviable
mix of strong growth and decelerating inflation. This trend will remain in place for now
(see: Asia Economics Quarterly), but fresh autumnal winds have augured some change.
As is usually the case with Asian markets, the strongest winds blow from the West.
Indeed, US policy - both monetary and fiscal - will continue setting the tone for
financial markets for the rest of the year, as they have in recent weeks when currency
market volatility jumped on the back of tax reform news. Fortunately, HSBC&39;s FX
strategists believe that the weak dollar trend will ultimately persist - a boon for liquidity in
the region - in line with our belief that the FOMC will be a lot less hawkish than the dots
currently suggest. This is particularly the case when it comes to fed funds hikes for next
year, not to mention that the ECB and BoJ are likely years away from outright tightening.
Coupled with what is likely an ephemeral jump in financial volatility, there is increasing
noise in the data, too. Most noticeably, there was a jump in headline CPI in some
economies in August and September - most notably in Thailand and Malaysia - almost
entirely attributable to higher oil prices. Take Malaysia: headline CPI jumped 0.5ppt to
3.7% y-o-y, while core decelerated to a 7-month low of 2.4%. Crude prices are already
retreating, while food price baskets point to disinflation despite noticeable exceptions. In
the case of Korea, lower food prices more than offset higher oil prices in September.
3Q GDP prints will trickle in over the coming weeks. Export-dependent economies
will likely see robust performance thanks to electronics. While activity should remain
strong in 4Q, PMIs mostly flat-lined in September, suggesting momentum will slow into
2018. And China The market will focus on the 19 October data dump:3Q GDP may
decelerate a tad due to softer property investment and a slight deceleration in exports, but
should also reflect an encouraging rebound in private investment. However, China
watchers will be focusing more closely on any pronouncements or hints during the 19th
Party Congress starting on 18 October, for a more forward-looking perspective.
What does this all mean for Asia Policymakers&39; conviction that inflation will remain
low provides room to &39;wait and see&39;, and in some cases has allowed easing. Bank
Indonesia surprised with a second consecutive rate cut in September, and the PBoC
announced a differentiated RRR cut to spur SME lending. Central banks rumoured to be
prime candidates for tightening, namely BNM and BSP, are likely to keep rates on hold.
But not all are in the same boat. We expect the MAS to verbally set the stage for an April
slope increasing in the October 13th statement - with a risk of outright tightening next
week. All in all, clear skies for Asia. But look out for pockets of turbulence.
12 October 2017
Frederic Neumann
Economist
The Hongkong and Shanghai Banking Corporation Limited
fredericneumann@hsbc.hk
+85228224556
Joseph Incalcaterra
Economist
The Hongkong and Shanghai Banking Corporation Limited
joseph.f.incalcaterra@hsbc.hk
+85228224687
Ji Won Kwon
Economist
The Hongkong and Shanghai Banking Corporation Limited
ji.won.kwon@hsbc.hk
+85229966621
Dhiraj Nim
Associate
Bangalore
On top of the data
ECONOMICS
ASIA
Up, down, same same
ECONOMICS ● ASIA
12 October 2017Rolling over 3
Best of Asian economics research 6
PMI Heatmaps 8
Indicators 10
GDP & Industrial Production 12
Export 13
Consumer Spending 14
Headline & Core CPI 15
Major Asia Events 17
Australia 18
China 19
Hong Kong 20
India 21
Indonesia 22
Japan 23
Korea 24
Malaysia 25
New Zealand 26
Philippines 27
Singapore 28
Sri Lanka 29
Taiwan 30
Thailand 31
Vietnam 32
Disclosure appendix 33
Disclaimer 35
ContentsECONOMICS ● ASIA
12 October 2017
Good, but not stellar
Exports have been one of the big surprises over the past year in Asia. And punchy headline numbers
continue to roll in: Korean shipments rose over 30% y-o-y last month! Australia is on a roll as well,
even recording trade surpluses, a rare occurrence in recent years. Taiwan has been riding the wave
of the world’s thirst for electronic gadgets for a while now, as have exporters elsewhere, notably
in Singapore, the Philippines, and Vietnam. Japan, meanwhile, is flying high, with its export boom
partly fuelled by a cheaper Yen and partly by a helpful product mix – in this, the economy mirrors
shipment strength in other developed markets, like Germany and the US.
Question is: how long will the bounce last Well, a collapse seems unlikely: the world economy is
growing at a decent enough clip, and the expansion looks fairly even across most regions. Still, there
are signs that momentum could slow into year-end.
Turn to our first chart. This shows export volume growth for emerging Asia. Shipments have picked
up steam nicely over the past year. However, note that these are currently expanding only a touch
faster than their post-2010 average, which itself is well below the average growth rate of the mid-
2000s. How does this square with the punchy headline numbers Price effects: rising commodity
and semiconductor prices have flattered nominal values, while the pick-up in volumes has been
much more subdued. Also note that the latest growth-run comes after an unusual stretch of
Rolling over
region, even if the rise partly reflects the bounce in commodity prices
with PMI new export orders for emerging Asia pulling back last month
will be needed to support trade growth in Asia, and beyond, into 2018
Frederic Neumann
Economist
The Hongkong and Shanghai
Banking Corporation Limited
fredericneumann@hsbc.hk
+85228224556
Abanti Bhaumik
Economics Associate
Bangalore
Chart 1: Emerging Asia export volume growth
Source: CPB, HSBC
-20
-101030
Jan-01Jan-03Jan-05Jan-07Jan-09Jan-11Jan-13Jan-15Jan-17
Emerging Asia export volumes, sa (% y-o-y 3mma)
avg:14.6%
avg:3.5%
ECONOMICS ● ASIA
12 October 2017stagnation. That means ‘base effects’ have given extra shine to headline numbers. One way to
illustrate this is it to look at export volumes in level terms (Chart 2). For the region, these are
currently below their peak earlier this year and even below their level in early 2015.
Chart 3: Emerging Asia nominal exports and Taiwan export orders
Source: CEIC, HSBC
None of this suggests that growth will completely fizzle. But it puts the recent upswing in perspective.
Plus there are some signs of cooling momentum. Chart 3 shows Taiwanese export orders, which
include not only orders placed with factories on the island, but also with subsidiaries of Taiwanese
firms in China – thus a useful lead indicator for the wider region. These appear to have peaked,
although it is admittedly early days. We also keep a close eye on capital goods orders from the
-40
-30
-20
-101030
40
50
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Jan-00Jun-01Nov-02Apr-04Sep-05Feb-07Jul-08Dec-09May-11Oct-12Mar-14Aug-15Jan-17