20 July 2018
Asia week ahead: Prepare for slower growth

Weak exports, weak manufacturing, and therefore slow GDP growth. This was the storyline across Asia in the last quarter and likely to prevail for the rest of the year

The key Asian economic releases next week are Korea’s GDP for the second quarter and June manufacturing data from Singapore and Taiwan, all informing about Asia’s growth outlook in the tariff era. Weak exports, weak manufacturing, and therefore slow GDP growth was the economic story across Asia in the last quarter. And it's likely to remain the theme for the rest of the year.

Indonesia: Central bank pauses after aggressive tightening

Bank Indonesia (BI) decided to keep policy rates steady at today's meeting. But the central bank may need to show it stands ready to be aggressive once again to support the currency

The recent stability of IDR and funds inflows argued for a pause in the tightening cycle

The Indonesian rupiah (IDR) has traded between IDR14350 and IDR14480 since a 50 basis point rate hike late last month. And foreign funds amounting to $650-$670 million have flowed back into the local government bond market in the past two weeks. These developments supported BI’s decision to keep policy rates unchanged at today's brief meeting. BI remains vigilant to protect the recent stability by also continuing to intervene directly in both the currency and local government bond markets. The central bank also indicated its readiness to further tighten monetary policy. However, the market tested BI’s resolve soon after the decision was announced, with IDR breaking above the upper end of the recent trading range and breaching IDR14500. One reason for the weakness is the central bank's view that the current account deficit would be less than 3% of GDP, which likely raised concerns. Previously, BI expected the current account deficit to be around 2.5% of GDP in 2018. We continue to expect BI to resume its tightening in the coming months with at least another 25 basis point hike this year and another 50 basis points in 2019. We cannot rule out BI turning aggressive again to support the IDR.

Australia: Jobs surprise

Employment growth of 50,900 in June beat the consensus view of a 16,500 gain in jobs. What's more, these are mostly full-time jobs. 

Full time jobs dominate

Strong growth in full-time jobs in June helped to shift a labour market that was beginning to be dominated by part-time jobs. Our full-time equivalence measure suggests that labour demand is now picking up strength. Were this to also be reflected in some improved wages growth, it could radically change the outlook for the Reserve Bank of Australia, which most forecasters see on hold all this year, and possibly all of next year too. 

Queensland provides most of the pick up

While the labour markets in Victoria and New South Wales seem to be alternately chopping up and then down for no significant aggregate trend, this month, an outsize 14,800 gain in Queensland has provided most of the upwards push, making this state the second biggest job creator year to date at 26,600, behind New South Wales at 62,600, but ahead of Victoria at 21,900. 

The local government puts the gains down to Back to Work programmes and re-skilling, though tourism associated with the April 2018 Commonwealth Games, and heavy investment in LNG export infrastructure projects and population inflows from expensive property areas such as Melbourne and Sydney are more likely to be doing the heavy lifting.

The June employment data were certainly an outsize month on month bounce. Though given the volatility of this series, not that eye-watering. This data will only likely become a significant market mover if repeated in July.  

Reading time around 3 minutes

Good MornING Asia - 20 July 2018

A little more discipline from certain quarters would be helpful for financial markets

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