6 December 2018
ASEAN morning bytes

General market tone: Risk off.

Trading will remain defensive on Thursday with investors still wary of slowing global economic growth and with the OPEC meeting in focus. 

International theme: Risk sentiment still impaired by US-China trade deal while OPEC meeting begins

  • Global markets took a hit on Wednesday with concerns about global growth festering. Traders will likely adopt more caution on Thursday with the OPEC meeting starting in Vienna.
Malaysia: October trade surplus at all-time high

The external payments position will remain supportive of the Malaysian ringgit into 2019. But a widely expected global growth slowdown and the resultant double whammy to the economy from slower exports and lower commodity prices will be negative

A record high trade surplus

Malaysia’s trade surplus widened to a record 16.3 billion Malaysian ringgit (MYR) in October from MYR 15.3 billion in September. A surprise 17.7% rebound in exports from a year ago contributed to the higher trade surplus even as imports also posted a significant positive swing to 11.4% annual growth from a 2.8% fall in September. Both export and import growth were way above the consensus estimates of 5.8% and 3.3%, respectively.

Electrical and electronics and commodity cluster (liquefied natural gas, crude petroleum, petroleum products, and palm oil) remained the main export drivers. A 60% surge in semiconductor exports stood out. Strong exports pulled imports higher as most of the (raw material) imports are processed for exports. By-products, electronics and electricals, crude and petroleum products, chemicals, metals, and transport equipment helped headline import growth.

China to buy more US goods, restates patent laws. But is it enough? 

The China authority has issued a notice that it will penalise entities which violate patent laws. But this warning merely reiterates existing laws. Meanwhile, Chinese officials say they are preparing to restart imports of US soybeans and energy. Will this be enough to satisfy the US?

China tries to calm US concerns over intellectual property

China issued a notice on 4 December publicising its patent laws. In this statement, China noted that there are collaborative efforts among different government entities to penalise behaviour which violates patent rights.

China is giving a very Chinese style answer to requests from the western world on protecting intellectual property rights.

At first glance, this seems to be a swift response to the US's concerns over intellectual property rights, which is one of the key topics in trade negotiations. The trade dispute is not just about narrowing the US-China trade deficit, but also, and more importantly, about protecting intellectual property rights and the channels to transfer advanced technology.

But looking at the detail, we find that China has only listed a long table of all the existing laws relating to violations on patents. To us, it seems China is signalling that it already has the necessary laws to guard against such violations. 

Philippines: November inflation at 6.0%, shows clear deceleration trend

Easing price pressures increase the likelihood of a policy rate cut as early as 2Q19

That humped-shape inflation curve

Price pressures eased in November with the CPI basket of heavily weighted food items weighing on the overall print. Food items, which account for roughly 38% of the headline, showed an 8.0% increase in prices, down from 9.4% in the previous month as supply conditions improved. Utilities and communication were the two other sub-sectors that posted slower increases in growth with utilities up 4.2% (from 4.8% in October) while communication prices increased 0.4% (from 0.5% in October).  Apart from these three, all other subsectors showed faster inflation.

The 6.0% November print validates that inflation peaked in the 3Q and we can expect this downtrend to continue in the coming months, especially with the government making headway in November by passing the rice tarrification bill, securing up to 750,000 MT of rice imports and by rolling back public transport fare adjustments.  With these developments, we reiterate our view that inflation will plunge to an average of 3.6% in 2019 from this year’s 5.3%. This implies that inflation will drop to about 3.0% by 4Q19.

Moderating inflation opens door for rate cut as early as 2Q19

Although the central bank (BSP) has reiterated its desire to remain vigilant against any signs of second-round effects and anchor expectations, should inflation continue to show this kind of stark deceleration over the next few months, the BSP could reverse its stance as early as 2Q19. On top of BSP’s widely projected 200 basis point cut to reserve requirements, the BSP may opt to slash borrowing costs as early as 2Q19 not only because of slowing inflation but also because Philippine economic growth is expected to slow in 4Q18 and 1H19.  Further, the Fed could adopt a less aggressive rate hike stance, with market expectations now showing only two more Fed rate hikes until the end of 2019. If a confluence of decelerating inflation, slower GDP and a dovish Fed align, the chances for a BSP two-pronged easing increases significantly. In light of these developments, we are reviewing our forecast for BSP policy in 2019.    

Reading time around 4 minutes

Good MornING Asia - 6 December 2018

Little is going on in Asia today. We think risk aversion continues with the markets awaiting further clarity on the US-China trade truce and the outcome of the OPEC meeting. 

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