Data on trade, inflation, and GDP, together with central bank policy meetings is likely to add to the market volatility, but concerns around the slowdown in China remain at the fore. Surprisingly, the consensus around the growth forecasts for Indonesia and the Philippines isn't that bad given the duo were the hardest hit economies by the EM contagion
China’s October data dump started this week on a mixed note.
The official manufacturing purchasing manager's index fell in October, but its Caixin counterpart rose, but both indexes remained in the expansionary territory - a figure above 50. However, what is striking is the seventh consecutive fall in the PMI new export orders component, a sign of the trade war impact slowly coming through.
However, the hard data paints a positive picture. The average 12% year on year growth of China’s export in the first nine months of this year was twice as fast as a year ago and based on our house forecast of 23% YoY growth in October, the strength persisted into the final quarter of the year, even as the US tariffs on $260bn of Chinese goods took effect. Likewise, a 23% surge in Korea’s exports in October reinforces the message.
But Beijing isn’t quite as relaxed. This week China’s Politburo signalled timely measures to counter the slowdown, and the State Council announced a stimulus plan but stopped short of revealing the total amount. We suspect the details must be in the making and will drive the markets as soon as they hit the newswires over the coming weeks.
President Xi emphasised the economy has been hit by external forces and needs measures to support growth. At the same time, the National Council announced a stimulus package. While the amount has not been disclosed, we estimate it to be CNY9 to 10 trillion. We also weaken our yuan forecasts for 2019
President Xi emphasised that external forces have hit the economy, which we believe is a reference to the bilateral trade dispute between China and the US. The nature of the trade war has become clearer over time: as a technology war (the US avoids using China's technology, and avoids technology being transferred to China), an investment war (US imposes penalties on Chinese tech company in the US), and an additional geopolitical element (naval standoff in South China Sea and military sales to Taiwan).
Xi's message implies that the chance of getting a positive result from trade negotiations between China and the US is small. That means that the possibility of the trade war escalating and continuing to drag on the Chinese economy is high.
Suggestions from US President Trump that "trade talks are going along nicely" may be accurate, we'll have to wait and see... Hard facts today worth watching are the US labour report and Malaysian budget