ASEAN Morning Bytes

China inflation data will be the highlight for Thursday

Nicholas Mapa

Senior Economist, Philippines

In this article

EM Space: Covid-19 cases continue to accelerate but tech shares lift sentiment What to look out for: China inflation and Covid-19 developments

EM Space: Covid-19 cases continue to accelerate but tech shares lift sentiment

General Asia: Asian markets are set to edge higher with technology shares climbing on hopes for a recovery as investors continue to look past the sustained pickup in fresh Covid-19 cases in the United States and new hot spots in other countries. US-China relations remain tense with US officials floating the idea of banning a popular China-based app and revoking student visas of Chinese nationals should classes shift to online platforms. Despite the risk of US-China relations worsening and the acceleration in Covid-19 cases, risk sentiment remains supported with investors looking to China inflation data out later on Thursday for further direction.
Malaysia: May industrial production (IP) data is due today. Our forecast of a 30.0% YoY IP fall is slightly weaker than the consensus view of -29.0% and it follows an accelerated export decline (-25.5% vs. -24% in April). The relaxation of the Covid-19 lockdown in May provides some upside risk to this view. The combined April-May IP growth will shed light on GDP in 2Q20, which we see falling by 8.3% YoY - the most since the 1998 Asian crisis. This might be the trough for GDP. Although the sluggish recovery should keep the central bank (BNM) on an easing path in the months ahead. BNM scaled back easing to a 25bp policy rate cut to 1.75% earlier this week from 50bp cut at the last meeting in July. We expect at least one more rate cut in this cycle, probably in September.
Indonesia: Indonesia’s retail sales contracted again, posting a 20.6% decline in May with the pandemic and partial lockdowns hampering household consumption for the period. This is the 6th straight month of contraction and we expect the trend to continue in the coming months given slowing economic activity with new Covid-19 infections still accelerating. The sustained pickup in infections will likely keep consumer confidence and overall retail sales in the red, forcing overall GDP to contract in the coming quarters.
Philippines: The Philippines recorded another record in terms of new daily Covid-19 infections on Wednesday with 2,539 new cases, bringing the total number of infected to 50,359. Despite the recent acceleration in infections and the apparent spread of the virus to areas outside the capital region, authorities continue to push for the economy to reopen given dire economic growth projections. President Duterte cautioned against reopening quickly to prevent a “relapse” but finance secretary Dominguez indicated that government must strike a balance between safeguarding public health and restarting the economy. We expect the surge in infections to continue although the government will likely refrain from total lockdowns but instead opt for localized shutdowns to limit transmission.

What to look out for: China inflation and Covid-19 developments

China inflation (9 July)
US initial jobless claims (9 July)
Philippines trade (10 July)
Malaysia industrial production (10 July)
Thailand GIR (10 July)
US PPI inflation (10 July)

Author

Nicholas Mapa

Senior Economist, Philippines

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