30 January 2019
ASEAN morning bytes

General market tone: Slight risk-on.

Hopes for a positive outcome to US-China trade talks are expected to boost bargain hunting on Wednesday.

EM Space: Kudlow says Trump is “moderately optimistic” about trade, boosts risk appetite

  • General Asia:  Positive comments from US officials on trade talks with China will likely boost confidence on Wednesday with a major US telco giant also signaling that China’s projected slowdown may not be as severe as earlier predicted. The Fed concludes a two-day policy meeting early on Thursday with the markets all but expecting a dovish pause.  
  • Malaysia: Trade likely to have ended 2018 on a stronger note with pick up in both export and import growth. December data is due today. Our estimate of 14% annual growth in USD-denominated exports in 2018 is the best performance among Asian countries. While global electronics demand weighs on export performance this year, firmer global oil prices should support petroleum exports.
  • Philippines: Bangko Sentral ng Pilipinas (BSP) Governor Espenilla is back in the office after an extended leave, preaching “prudence” and “cautious optimism” while also vowing that policy moves would be “data dependent”. Previously, the Governor had indicated that conditions were “ripe for a reserve requirement (RRR)” cuts while also pledging to remain on guard to ward off any build up in price pressures.  The BSP meets for the first time on 7 February with an outside chance for the central bank to reduce the RRR as part of the governor’s market reform agenda.          
Thailand: Manufacturing supports 4Q growth pick-up

Our view that GDP growth improved slightly to 3.5% in 4Q18 from 3.3% in the previous quarter is on track. Still, it’s an unexceptional performance, not justifying the central bank rate hike in December  

Better than expected December production

Thailand’s manufacturing production growth slowed further to 0.8% year-on-year in December from 0.9% in November, which was revised lower from the 1.0% initial estimate. But the result was better than the consensus expectation for 0.6% growth and far better than our forecast of a 1% fall which rested on steeper export contraction in the last month.

Autos and electronics goods reportedly helped headline growth to remain in positive territory, though it looks transitory as these are the front-line sectors getting hit by the US-China trade tensions, as reflected by their steadily falling exports.

Base effects underlies 4Q18 GDP improvement

While exports remained on a weakening path in the final quarter of 2018, low-base effects aided an improvement in manufacturing growth to 2.4% YoY in 4Q18 from 0.9% in the previous quarter. This is consistent with our estimate of a slight pick-up in GDP growth to 3.5% from 3.3% over the same quarters (data due on 18 February). It’s still not an exceptional starting point for the government looking for a 4% GDP growth in 2019.

We are wondering why the Bank of Thailand even bothered to tighten policy in December. We aren’t expecting any move this year, while the authorities have started to signal an unchanged central bank policy. Meanwhile, mounting political uncertainty will weigh on local markets, including the THB who’s year-to-date outperformance among Asian currencies, with 3.2% appreciation against the USD, remains at risk of being reversed.

Reading time around 3 minutes

Good MornING Asia - 30 January 2019

It's another fairly quiet day in Asia as we head towards next week's Chinese New Year holidays

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