24 October 2018
ASEAN Morning Bytes

General market tone: Risk-off. 

The mounting geopolitical tensions between the US and Russia over the nuclear arms race sustain global risk aversion  

International theme: Flight to safety amid elevated geopolitical risk

  • The equity market sell-off started in the Asian session yesterday spread to European and then to the US markets. The flight to safety was evident in higher US Treasuries, Japanese yen and gold.  The concerns of trade tensions between the US and China hurting corporate profitability are coming to fore.
  • The US Fed seems to be unfazed by recent stock rout with Atlanta Fed President Bostic favouring continued policy tightening.
  • President Trump and President Xi will be meeting on the sidelines of at the G-20 summit next week to discuss trade.   
  • The Italian budget crisis continues to dominate headlines in the Eurozone.
  • Saudi Arabia offers to make up for supply shortfall due to Iranian sanction drives oil lower.
  • Advance October manufacturing and services PMIs will provide a sense of the economic performance coming into the final quarter of 2018.
Philippine budget deficit points to solid 2H GDP this year

Philippine September budget deficit hit PHP96.25 bn as non-interest expenditure saw a 3rd straight month of double-digit gains.  Strong government spending will likely bolster growth into 2H 2018 and offset a likely slowdown in household spending due to accelerating inflation and elevated borrowing costs

Pump that prime: 3Q primary spending vaults 33.1%

The Philippines reported a September budget deficit of PHP96.25 bn as non-interest expenditure saw a third straight month of double-digit gains to post a 26% increase.  For the 3Q, government expenditure grew a whopping 31.1% with the year-to-date budget deficit at 72% of target and closing in fast on the PHP523.6 bn full-year deficit target.  In order to clear the full-year programme spend of PHP3.76 Tr, government spending will need to approach 40% growth on top of last year's impressive 4Q print.  Given the recent resolve the government has displayed in spending these past months, our forecast for 6.0-6.5% growth in the 2H will rely more heavily on the national government's ability to stimulate the economy to offset the projected deceleration in household consumption as the twin effects of accelerating inflation and higher borrowing costs begin to bite.

Fund the republic

On top of the current build-build-build efforts of the government, election-related expenditures are also seen to kick into high gear ahead of May 2019.  Given their current cash position and projected aggressive expenditure programme, the government will be pressured to finance the expected pump-priming efforts.  Such financing will likely employ a mix of foreign-denominated and local borrowings as the administration closes in on its expenditure target for the year. 

Reading time around 2 minutes

Good MornING Asia - 24 October 2018

Market confidence is a funny thing, you don't appreciate it when you've got it, but when you lose it, it is hard to restore

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