Clarity? Nope!
Yesterday's Brexit vote was a mix of good and bad for PM Johnson. Markets have given it a thumbs down if GBP is any guide. Hope has risen for a resolution to HK's problems, following an FT story about Chief Executive, Carrie Lam, stepping down. But this is not a straightforward issue either. Inflation dominates today's calendar releases.
In a nutshell...
James Smith's latest Brexit update will be out early this afternoon, but in the meantime, he has helpfully prepared this summary of the forthcoming note:
"The UK is now highly unlikely to leave the EU on October 31. That’s the single biggest takeaway from Tuesday’s fiery evening in Westminster. MPs rejected the government’s ultra-fast timetable for passing the Withdrawal Agreement Bill (WAB).
The EU is now expected to grant an Article 50 extension - perhaps one lasting 3-4 months, with an option to shorten it if a deal is ratified in the UK.
But while the prime minister has been defeated in a key battle, it’s not clear he has lost the war. While there are a number of hurdles still to be overcome, there is a feeling that a majority now exists for the deal that could conceivably get the WAB over the line.
That would enable Johnson’s Conservatives to go to an election with the UK formally outside of the EU. But don’t forget that Labour MPs will likely be needed to sign-off on an election, and many are wary given how far they are behind in the polls. That means the UK may not go to the polls until 2020, and opposition lawmakers may hope that this extra time will see some of the Conservative's recent momentum begin to ebb away".
Hope for a resolution in HK?
Today's FT carries a story that Beijing is drawing up plans to replace HK's Chief Executive, Carrie Lam, with an interim leader. The full story can be found on the FT's Home Page.
Lam's removal is one of the key demands from the protest movement, but not the only one. Universal suffrage, and an independent inquiry into police tactics are others. So it remains to be seen if this development, if it is confirmed, will be enough calm the protest movement. The suggestion is that any replacement will be contingent on calm returning to the streets of Hong Kong.
One of the factors that may be pressuring a change of heart in Beijing is the suggestion that the US Senate is to require annual reviews of Hong Kong SAR to decide whether it is autonomous enough to justify its special trading status as distinct from mainland China.
Will these latest moves help to create calm? This is what our Iris Pang in HK thinks: "After the Financial Secretary handed out more candy for the economy there is an FT report that China is going find a new CEO for Hong Kong to replace Mrs Carrie Lam. If there is a new CEO then he/she will have to be very tough on dealing with violence on the one hand and possibly setting up independent investigations on police use of force on the other hand. But even if this is done, we doubt that the protests will stop altogether. The economy still has a long way to go before it can be recovered".
Out of gas?
We wrote yesterday that on a very dull day for economic releases, it might pay to keep an eye on the September existing-home-sales data out of the US.
Our reasoning? Although it is a small element of the US economy, housing has an undue influence on other things, such as consumer spending and sentiment. It is, after all, the single biggest asset on most household's balance sheets. The figure for September dropped back to 5.38m homes (saar). Not enough to signal a retreat in the housing market, but enough to suggest that recent gains are running out of steam. We will probably need a further fall in US Treasury yields and mortgage yields to provide some further push for this market. This is where the Fed could step in with more rate cuts. The October 31 meeting looks likely to deliver on that front.
Inflation data and what it means
Prakash Sakpal writes on today's inflation data out of Malaysia and Singapore: "September consumer price inflation figures from Malaysia and Singapore are unlikely to show any departure from the existing low inflation trends in these economies. We share the consensus view of a slight dip in Malaysia’s inflation to 1.3% year-on-year from 1.5% in August and an unchanged rate of Singapore’s headline inflation at 0.5% and core at 0.8%.
So what does this all mean for the monetary policies of each economy's respective central bank? Some weak signals emerged recently from Malaysia, which had otherwise been outperforming the region. These signals reinforce our view that there will be one more preemptive Bank Negara Malaysia policy rate cut in the current quarter.
Singapore’s economy is already flirting with a recession. Widening of the negative output gap suggests that inflation should remain subdued for a prolonged period, which conflicts with the continued MAS tightening announced last week (albeit at a slower pace of SGD NEER appreciation). Unfortunately, monetary policy is now fixed for the next six months, shifting the onus on fiscal policy, which also looks unlikely to deliver a meaningful boost. Barring any improvement in the external trade environment, the economy is in for further slow growth".
Download
Download opinion
23 October 2019
Good MornING Asia - 23 October 2019 This bundle contains 3 Articles"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.
This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.
ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).