3 December 2018
China: Rough seas in 2019

The Chinese economy is set to slow down in 2019. The most likely scenario is an escalation of the US-China trade conflict, hurting exporters, manufacturing and logistics services. Pressure from trade and investment partners will also intensify

Escalation of the trade dispute is the key risk to China in 2019

2019 will be a difficult year for China in terms of economic growth and the increasingly tricky political relationships with its trading partners.

An escalation in trade tensions is the key risk to China in 2019 – and this seems like the most probable scenario. This will hurt exporters, manufacturing and logistics services, therefore slowing economic growth directly.

Indirectly, the bilateral trade conflict between China and the US has resulted in multilateral trade and investment disputes. This is exacerbated by international voices blaming the Belt and Road Initiative as a debt pile-up exercise for poorer economies. It has become more difficult to maintain existing relationships with trade and investment partners. The recent APEC meeting showed these economies having difficulties positioning themselves between China and the US.

Japan: Ready to bounce back

Economic growth in Japan contracted in the third quarter, hit by extensive damage from typhoon Jebi. But the doors are now open for a fourth-quarter bounce back as the post-typhoon clean-up spurs economic activity

Jebi wreaks havoc on 3Q18 GDP figures

Typhoon Jebi made landfall over Shikoku and then the Kansai region of South Eastern Japan on 4 September, before tracking North West in the direction of Taiwan and Far East Russia. Jebi was estimated by one source as being the most powerful storm on the surface of the planet so far in 2018. It was the most intense tropical cyclone to hit Japan since Typhoon Yancy in 1993. 

At peak intensity, Jebi was a Category 5 super Typhoon, with sustained wind speeds of 195km/h, and gusts of 280km/h.

Korea: The central bank hikes policy rate by 25bp

Today’s rate hike resets the Bank of Korea’s policy for yet another long pause, possibly throughout 2019. We are reviewing our forecast of one 25bp hike in the third quarter of 2019

A 25bp BoK policy rate hike

The Bank of Korea’s Monetary Policy Board voted to increase the Base Rate by 25 basis points (bp) to 1.75% at their meeting today. The rate hike doesn’t come as any reprieve to the Korean Won (KRW) from its recent underperformance vis-à-vis Asian currencies. Despite the rate hike, the USD/KRW spiked above 1123 in early trading today, though as of this writing the pair had retraced to Thursday's closing level of 1119.4.

The worsening export prospects as signalled by the recent rout in global technology shares will likely cap the upside for the currency while the rate hike won’t be conducive for growth when inflation remains well-anchored around the BoK’s 2% comfort level and is likely to track the global oil price lower. That said, the risk to our view of the USD/KRW spiking to the 1150 level in the near term remains skewed to the downside.

China: PMI disappoints but stimulus is coming

Though both official manufacturing and non-manufacturing PMIs are worse than expected, we believe that stimulus is on the way as local governments have raised funds to finance infrastructure projects

Manufacturing PMI at the brink of 50

Manufacturing activities did not grow in November despite local governments having raised funds for infrastructure projects. New orders grew slower to 50.4 in the month, down from 50.8 a month ago. New export orders were still gloomy at 47 but edged up from 46.9. It shows that stimulus on infrastructure projects has come in later than expected.

Reading time around 3 minutes

Good MornING Asia - 3 December 2018

After a constant battering by China-US trade tensions for most of this year, the weekend developments come as a significant relief for the markets. How long the trade truce will last remains a question though

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