Asia Morning Bites
ASEAN Morning Bytes
General market tone: Risk-on.
The Fed's go ahead on rate cut is seen to boost risk-taking in Asia on Friday.
EM Space: Market players continue to price in Fed rate cuts in July
- General Asia: Comments from the Fed’s Clarida and Williams were interpreted as dovish with investors fully pricing in a rate cut by the FOMC at the end of the month. With the Fed expected to cut, other central banks in the region slashed their own borrowing costs on Thursday to boost sagging growth momentum amid global headwinds.
- ASEAN: The Asian Development Bank (ADB) lowered growth projections for southeast Asia largely due to the ill effects of the trade war which was only partially offset by stronger domestic consumption. ADB now forecasts the region's GDP growing by 4.8% in 2019 and 4.9% in 2020, slower than the previous forecasts of 4.9% and 5.0% respectively.
- Thailand: Deputy Prime Minister Somkid Jatusripitak prefers the Bank of Thailand’s measures (like recent tightening of rules on capital inflows) over policy interest rate cuts to curb THB appreciation pressure. Underlying his argument against rate cut for such purpose risks inviting the US wrath for currency manipulation given that Thailand is now on the US Treasury’s monitoring list for this purpose. We think such a concern is overdone. The rapid THB appreciation since 2017 downplays likelihood of any currency manipulation, while the economy also needs lower interest rates currently to support growth.
- Indonesia: Bank Indonesia (BI) decided to cut policy rates by 25 bps to 5.75%, a move expected by the market, to help boost sagging growth momentum. With the Fed primed to cut policy rates in July, the IDR has performed well, breaching the 14000 and giving the green signal to Governor Warjiyo to pitch in and help President Jokowi chase his bid for faster growth via investments. Warjiyo left the door open for further easing as he indicated that BI’s stance was accommodative. We expect further BI rate cuts this year should IDR remain stable and inflation and GDP growth remain softer.
- Philippines: The government released revised budget assumptions for the rest of 2019 and well into 2020 with PHP exchange rate assumptions adjusted to 51-53 (from 52-55) as inflation cools. Meanwhile, the administration retained its deficit to GDP target for 2019 at 3.2% but bumped that for 2020 to 3.2% from 3.0%. Don't be surprised if the classic twin-deficit problem resurfaces as increased government spending widens the current account deficit via increased capital goods and raw materials imports.
What to look out for: Fed speech
- Thailand trade data (19 July)
- Fed Bullard speech (19 July)
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This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
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