ASEAN Morning Bytes
Sentiment could sour as US-China tensions flare up overnight
EM Space: US-China tensions rise after the US closed China’s consulate in Texas
- General Asia: Investors may turn defensive on Thursday with market players awaiting possible retaliation from China after the US abruptly closed a Chinese consulate in Texas. Potential additional stimulus efforts from the US will also be in focus although sentiment will likely still be driven mainly by Covid-19 developments and rising US-China tension on Thursday.
- Malaysia: Higher food, fuel and transport prices helped to deliver the full percentage point improvement in CPI inflation in June (-1.9% YoY vs -2.9% in May). This brings average inflation in 2Q20 to -2.6%, slightly weaker than our -2.5% forecast and a sharply negative turn from +0.9% in 1Q. Besides continued weak demand, base effects are at work to cause more negative inflation in 3Q. That said, we are revising our full-year forecast for 2020 to -1.8% from -2.5%. We are keeping our view of at least one more 25bp BNM policy rate cut in this cycle, at the September meeting.
- Singapore: June CPI inflation data is due today. The consensus is looking for a less negative headline inflation rate of -0.5% YoY (vs. -0.8% in May). The improvement mainly results from base effects rather than any underlying demand recovery even if the phasing out of the Covid-19 circuit-breaker in June should have released some pent-up demand. The core inflation rate is likely to be unchanged at -0.2% YoY. As in most Asian economies with negative inflation, we see Singapore’s negative trend lasting through the end of the year, or maybe beyond.
- Philippines: The Philippines recorded a surprise budget surplus of Php1.8 bn in June, with revenue collections surging as the government relaxed some of its strict lockdown measures. Revenue collection expanded 117.1% as delayed income tax returns were recorded in June with the rise in collections outpacing government expenditures, which increased 26.7%. For the year, the budget deficit settled at Php560 bn or 2.7% of GDP and we can expect the deficit to widen in the second half of the year as government spending will likely accelerate to offset the slowing economy.
What to look out for: US-China tension and Covid-19 developments
- Singapore inflation (23 July)
- Taiwan industrial production (23 July)
- US initial jobless claims (23 July)
- Singapore industrial production (24 July)
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23 July 2020
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