Asia week ahead: Inflation from China and India, a BSP pause and Australian unemployment

Next week will feature a data deluge from China. Chinese authorities have advised banks to tap their early 2024 loans and reallocate the lending to this quarter. We should see this taking effect and observe a bump in aggregate financing and new yuan loans. The People's Bank of China (PBoC) is adopting more credit policy adjustments instead of direct monetary easing to help provide a boost to the economy. Aggregate financing should stand somewhere near CNY 2750bn, and new yuan loans should be at CNY 1400bn.

China’s industrial production may be slowly recovering based on the latest Caixin PMI report, though the official PMIs were softer again this month. Any improvement is therefore likely to be quite modest. We are expecting industrial production to grow 5.8% YoY, but this will likely be helped along by favourable base effects.

For retail sales, although the Caixin service PMI showed some acceleration in activity, sales results from the ’Singles Days’ festival across e-commerce platform showed slower growth. Despite this, favourable base effects could also help retail sales growth post double-digit YoY growth at 12%.

After hitting a four-month low last month, India’s inflation could edge up once again amid rising tomato and other vegetable prices. Base effects will push the index even higher as food price inflation slowed last November. Core inflation is also on the rise as India’s demand for housing has grown in tandem with its strong GDP results as of late. As such, we believe that it is likely for the CPI number to come close to 6.0% YoY.

Australia will release its November labour market data next week. Part-time employment may drop sharply as part-time staff employed for the Australian National Referendum will drop out of the employment count. The Electoral Commission estimated that up to 100,000 part-time jobs could have been created by the referendum, and many of these may drop out this month – though some may convert to full-time jobs.

The latest report from ANZ also showed a 4.6% MoM fall in job advertisements, the biggest drop since August 2021. This suggests that the labour market is cooling. The overall employment change is likely to be strongly negative. We expect the unemployment rate to edge up to 3.8% YoY.

Two business surveys, the Tankan and the PMI report, should give an indication of the outlook for Japan’s manufacturing and non-manufacturing sectors next week. We are expecting the two reports to show a recovery in the services sector, while the manufacturing sector is likely to contract again. The strength in the services sector is likely due to upbeat tourism and private service activity, and we should see this trend continue.

Meanwhile, the IT cycle appears to be turning around, but concerns about growth prospects for developed markets could weigh on the manufacturers’ sentiment. Core machinery orders are expected to rise modestly on the back of a recovery in the semiconductor cycle.

Bangko Sentral ng Pilipinas will likely keep rates untouched at 6.5% for their last meeting of the year. Inflation has slowed considerably from the peak of 6.1% YoY last September. Despite the sharp slowdown in inflation, BSP Governor Eli Remolona indicated that policy setting must remain “significantly tight” given elevated risks to the inflation outlook.

We expect another hawkish hold from the BSP next week, with Remolona signalling potential rate hikes in 2024 should inflation flare up again.

Indonesia reports trade data next week and we expect another round of contraction for both exports and imports. Exports are likely to fall due to base effects and still subdued global demand. Imports could also stay subdued due to lower costs for imported energy items, although a pickup in capital machinery could keep the contraction shallow. The overall trade balance should stay in a surplus of roughly $3.4bn, quite like the surplus reported in October.

A decent trade surplus would be supportive of the IDR which has experienced bouts of depreciation this year.