General market tone: Wait and see
Risk sentiment steadied on Tuesday with market players digesting positive earnings reports, while tensions between the West and Saudi Arabia remain a concern.
The economic activity data for September released over the last couple of days provides mixed signals on inflation and the external trade gap. An oversold Indian rupee (INR) position since August provides the currency with an edge to outperform in a softer US dollar environment, though there is no lasting relief in sight due to persistently high oil prices
September consumer price inflation of 3.8% year-on-year was yet another downside surprise, though it’s still an uptick from the 3.7% rate in August. Food prices continued to surprise. But transport has started to accelerate while most other components remained elevated, led by an 8.5% increase in utility prices.
It seems the high base-year effect is outweighing the underlying upward inflationary pressure from higher global crude prices and the weak currency. The base effect will remain in play for the rest of FY2019 (ending in March 2019), and, with the central bank's (RBI) policy driven solely by inflation, this could stave off any pressure to hike rates. However, while food has kept the headline CPI muted, inflation in all other CPI components has been on an upward trend this year (see figure).
And wholesale prices have painted a different picture to consumer prices. A spike in WPI inflation in September to 5.1% year-on-year from 4.5% in the previous month was steeper than expected. As in the CPI, food inflation continued to be low but utility inflation was in the high double-digits due to rising oil prices, which drove the headline WPI rate higher.
Higher factory gate prices will eventually be passed on to consumers.
August Overseas Filipino Worker (OFW) remittances slip 0.9% but year to date remittances chug along at 2.5%
August Overseas Filipino remittances slipped by 0.9% year-on-year with a total of $2.476 billion sent home in August. All major sources of remittances saw growth save for the Middle East which experienced an inexplicable 28.8% drop in flows. This brings the year-to-date haul to $19.056 billion, up 2.5% from the same period in 2017 as OFW remittances continue to be a stable source of FX to the Philippines.
Malaysian, Indonesian and Thai officials are raising the prospect of using pre-emptive capital controls to stave off financial crises. This is not necessarily unreasonable