25 September 2018
ASEAN Morning Bytes

General market tone: Risk off. Sentiment reversed on Monday with last week’s rally proving short-lived as the US tariffs on Chinese imports kicked in.

International theme: Trade issues back in focus, Fed dot plots awaited

  • The recent rally quickly faded with traders pulling back on Monday after the US tariffs on $200 billion worth of Chinese imports kicked in.  With China looking more intent on retaliating via both quantitative and qualitative measures, investors are now readying for a long drawn out trade dispute.
  • The Fed begins its two-day policy meeting with market full pricing-in a rate hike by the FOMC.  With the dot plots likely to show further rate hikes down the road given accelerating inflation, Mario Draghi apparently has begun to sing a hawkish tune as well as flagged inflation building momentum in the Eurozone.
India: More pain for rupee

Ongoing financial trouble comes as a fresh blow to the rupee as well as a political blow to Prime Minister Narendra Modi just ahead of the general elections in early 2019. The negative news is keeping the USD/INR firmly on track to meet our 73.50 forecast for end-2018

As if India’s weakening external payments and budget situation aren’t enough, reports of trouble at a non-bank finance company, a housing company, and a couple of private sector banks come as a fresh blow for the Indian rupee (INR). Recent developments have regulators, including the central bank (RBI), on their toes. The negative news from the financial sector is keeping the USD/INR firmly on track to meet our 73.50 forecast for end-2018.  

Singapore inflation rises less than expected

A bit of food and a bit of clothing helped keep inflation heading up this month - next month may see a return to 1.0% inflation

Headline inflation doesn't really warrant any MAS response

AT 0.7%YoY, Singapore's inflation is low and has been below 1.0% since May 2017, when it briefly spiked higher on a technicality. Prior to that, you have to go back to August 2014 to find headline inflation at 1.0% "legitimately".  Today's figures don't appear to take us much closer to 1.0%, the top of the Monetary Authority of Singapore's target range for 2018.

But the long wait may soon be over. If average monthly outcomes for all of the Singapore's components over the last three years prevail next month, and that includes a fairly soggy 2016/2017 set of figures, then we could see a 1.0% inflation rate reached again as soon as the September figures next month. 

Core inflation unchanged at 1.9%

The MAS core inflation rate which excludes private transport costs and accommodation did not rise in August from the July 1.9% rate. This inflation rate already looks fairly good compared to the usual 2.0% international benchmark for "sensible" core inflation. But unlike most core measures which exclude externally driven food and energy prices, The Singpaore measure is flattered by the exclusion of two of the most negative components of all items CPI basket - private transportation and accommodation. These items are not irrelevant from a consideration of domestic demand pressures, and therefore, from the stance of monetary policy. 

So despite a modestly improved outlook for headline inflation over the coming months, the escalating trade war makes a change of the already slightly tightening MAS monetary policy stance in October seem very unlikely. 

Accommodation price deflation moderating

One small element of good news as far as the core rate of inflation goes is that deflation in the accommodation sector is abating. Though at -2.6%YoY in August, its recovery back to positive annual price changes (last seen in 2014) is being painfully slow. 

Reading time around 3 minutes

Good MornING Asia - 25 September 2018

After a brief hiatus, the global risk aversion resumed as the new US tariff on China kicked off and another Fed tightening loomed. Little on the way today to alter the risk-off sentiment today

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