Category

Macro

Brief Macro: Hong Kong /Trade War/Huawei/Stimulus/Stink Bugs and more

By | Daily Briefs, Macro

In this briefing:

  1. Hong Kong /Trade War/Huawei/Stimulus/Stink Bugs

1. Hong Kong /Trade War/Huawei/Stimulus/Stink Bugs

China News That Matters

  • Do you hear the people sing?
  • The deadline is in my head
  • A wealth of data on people, governments and companies
  • So stimulating: Beijing pushes funding for big infrastructure
  • Stink Bug vs Armyworm, amid food inflation battle 

In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Macro: Trade War/Hong Kong/Shipbuilding/Rubbish and more

By | Daily Briefs, Macro

In this briefing:

  1. Trade War/Hong Kong/Shipbuilding/Rubbish
  2. Taking Off: Vietnamese Exports Are Rocking and Rolling
  3. Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession)
  4. Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked
  5. UK: GDP Revisions Soften 2Q19 Weakness

1. Trade War/Hong Kong/Shipbuilding/Rubbish

China News That Matters

  • Trump complains about Chinese shopping
  • Hong Kong crisis – deal “dead”, but not withdrawn
  • When we could be diving for pearls
  • Where there’s muck, there’s brass

In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

2. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

Whisper it quietly but not all Asian exporters are struggling. In the first six months of 2019 the dollar value of exports from Korea dropped 8.5% YoY. Taiwanese exports were down 3.6% YoY . Meanwhile, Chinese exports, the country at the heart of the trade war, were down just 0.1% YoY.  

3. Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession)

Singapore’s real GDP grew 0.1% YoY in 2Q 2019 (according to the advance estimate based mainly on April-May data), the weakest quarterly reading in a decade. At the seasonally-adjusted annualized rate (saar, the way the US reports its quarterly GDP), Singapore’s GDP contracted 3.4%QoQ in 2Q 2019, essentially giving back almost all of the 3.8%QoQ expansion in 1Q 2019. That followed a slight expansion of 0.8% QoQ in 3Q 2018, and a contraction of -0.8%QoQ in 4Q 2018 — which essentially implied that Singapore’s economy has stalled (recording average quarterly growth of 0.1%QoQ) for the past 1 year (4 quarters, from 3Q 2018 to 2Q 2019). 

As a trade-dependent economy, Singapore is the most direct victim of China’s slumping domestic demand, which has caused China’s imports to decline sharply since November 2018, severely weakening the global semiconductor/electronics sector — and dragging Asia’s economies down with it. China reported that its imports were down 7.3% YoY in June 2019 (only marginally better than its record -8.5%YoY reading for May). This will imply that Singapore’s exports (and NODX) remain extremely weak in June 2019 as well, thereby ensuring that the actual 2Q 2019 GDP print will not be much different from this weak advance estimate. Taiwan and Korea are likely to also succumb, albeit less so because of their willingness to deploy an earlier fiscal stimulus.   

Singapore has ample fiscal resources — including large, recurring investment income and land sale proceeds which Singapore does not even count as government revenue. With its cyclical manufacturing sector contracting for 3 consecutive quarters, it is already time for Singapore to announce a large fiscal stimulus — reduced employer contributions to CPF, removal of caps on the income and corporate tax rebates, and possibly even a temporary reduction in GST rate. However, the last is highly unlikely, and other measures are likely only after it is clear that the whole economy is in recession. Fiscal and monetary stimulus in October 2019 will be too late to prevent Singapore falling into recession, and the gloom is likely to worsen in the near-term. We recommend being Underweight Singapore.  

4. Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked

Trade%2019 07 12%20oil

The Energy Minister finally enforced Mining Law stipulations on a coal mine with an expiring contract (CCOW), the small Tanito Harum — but this sets a precedent that augurs the eventual breakup of concessions that account for the bulk of the coal sector.  A presidential revision of the law next year seems likely, but mining investment will be subdued in the meantime.  The release of the Canadian educator Neil Bantleman, in a miscarriage of justice regarding supposed child sex abuse, mitigates damage from the six-year old saga.  Mitra Adiperkasa (MAPI IJ) owners Sjamsul and Itjih Nursalim may have won a reprieve when the KPK — for the first time in its 15 year history — lost a case in court related to their charges.  Widodo’s rebuke of the ministers of energy and state enterprises signals potential changes in those sectors in an eventual reshuffle; but whether their replacements would improve matters is questionable.

Politics: President Joko Widodo issued clemency for Neil Bantleman, the Canadian educator convicted in a clear miscarriage of justice regarding supposed child‑sex abuse in 2016.  He is now in Ontario, but the teacher Ferdi Tijon and several cleaning staff remain in prison (Page 2).  Prabowo Subianto’s party tied ‘reconciliation’ – sought by aides to Widodo – to the return of Islamic Defenders Front (FPI) leader Habib Rizieq from Mecca.  Presidential Chief of Staff Gen (ret) Moeldoko dismissed the possibility, noting that Rizieq’s exile is self‑imposed.  Gerindra officials also want the release of several hundred rioters arrested in May.  In effect, Gerindra is openly requesting legal‑system interference for political aims.  This highlights the weak prospects for constructive opposition from Prabowo’s party.  Widodo has shown no intention to help Rizieq, but risks exist that some sort of ‘reconciliation’ will involve impunity for the May rioting (p. 2).  The president pointedly admonished Energy Minister Ignasius Jonan and State Minister for State Enterprises Rini Soemarno for having allowed oil imports to increase (which occurred in 2018).  This may signal that the pair have lost favor and will exit the cabinet (p. 3).  Police generals are objects of scrutiny in a 170‑page report, due out soon, on the 2017 attack on corruption investigator Novel Bawesdan (p. 6).

Justice: For the first time since its founding 15 years ago, the Anti-Corruption Commission (KPK) lost a case in court – against former Bank Restructuring Agency (Ibra) head Syafruddin Temenggung, in a trial with implications for major business and political interests.  But KPK members have vowed to continue pursuing related suspects, the fugitive Gadjah Tunggal Group (GTG) owners Sjamsul and Itjih Nursalim (p. 8).  After a high school teacher in Mataram recorded her boss harassing her sexually over the phone, the boss filed charges against her for having electronically distributed lewd material (his own).  Supreme Court justices sentenced her to six months in prison (p. 9).  

Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news.  The writer is Kevin O’Rourke, author of the book Reformasi.  For subscription info please contact: <[email protected]>.

Policy News: The Energy Ministry shut down a mid‑sized coal producer, Barki’s Tanito Harum, due to the expiry of its Coal Contract of Work (CCOW).  Without a revision of the 2009 Mining Law, the same may happen to Bakrie’s giant Arutmin in November 2020.  CCOWs expiring through 2025 account for two‑thirds of Indonesia’s coal production and the bulk of its fuel for power generation.  Adaro, Indika, Sinar Mas and Bumi are among those in limbo (p. 11).  A sorely needed Land Bill could potentially pass by September – but the Forestry Association (Aphi) is mounting stiff resistance (p. 13).  Car producers are anticipating a regulation on electric vehicles (p. 14).

5. UK: GDP Revisions Soften 2Q19 Weakness

2019 07 10%20gdp2

  • UK monthly GDP rebounded by 0.3% m-o-m as car manufacturing normalised after its unusually concentrated maintenance cycle in April.
  • The 3m-o-3m rate of 0.3% exceeded all expectations as March was broadly revised up across the sectors. A stronger statistical carry-over effect lifts my 2Q19 GDP growth forecast by 0.1pp to 0.0% q-o-q and makes weakness appear more isolated.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Macro: Taking Off: Vietnamese Exports Are Rocking and Rolling and more

By | Daily Briefs, Macro

In this briefing:

  1. Taking Off: Vietnamese Exports Are Rocking and Rolling
  2. Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession)
  3. Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked
  4. UK: GDP Revisions Soften 2Q19 Weakness
  5. Trade War Takes Its Toll

1. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

Whisper it quietly but not all Asian exporters are struggling. In the first six months of 2019 the dollar value of exports from Korea dropped 8.5% YoY. Taiwanese exports were down 3.6% YoY . Meanwhile, Chinese exports, the country at the heart of the trade war, were down just 0.1% YoY.  

2. Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession)

Singapore’s real GDP grew 0.1% YoY in 2Q 2019 (according to the advance estimate based mainly on April-May data), the weakest quarterly reading in a decade. At the seasonally-adjusted annualized rate (saar, the way the US reports its quarterly GDP), Singapore’s GDP contracted 3.4%QoQ in 2Q 2019, essentially giving back almost all of the 3.8%QoQ expansion in 1Q 2019. That followed a slight expansion of 0.8% QoQ in 3Q 2018, and a contraction of -0.8%QoQ in 4Q 2018 — which essentially implied that Singapore’s economy has stalled (recording average quarterly growth of 0.1%QoQ) for the past 1 year (4 quarters, from 3Q 2018 to 2Q 2019). 

As a trade-dependent economy, Singapore is the most direct victim of China’s slumping domestic demand, which has caused China’s imports to decline sharply since November 2018, severely weakening the global semiconductor/electronics sector — and dragging Asia’s economies down with it. China reported that its imports were down 7.3% YoY in June 2019 (only marginally better than its record -8.5%YoY reading for May). This will imply that Singapore’s exports (and NODX) remain extremely weak in June 2019 as well, thereby ensuring that the actual 2Q 2019 GDP print will not be much different from this weak advance estimate. Taiwan and Korea are likely to also succumb, albeit less so because of their willingness to deploy an earlier fiscal stimulus.   

Singapore has ample fiscal resources — including large, recurring investment income and land sale proceeds which Singapore does not even count as government revenue. With its cyclical manufacturing sector contracting for 3 consecutive quarters, it is already time for Singapore to announce a large fiscal stimulus — reduced employer contributions to CPF, removal of caps on the income and corporate tax rebates, and possibly even a temporary reduction in GST rate. However, the last is highly unlikely, and other measures are likely only after it is clear that the whole economy is in recession. Fiscal and monetary stimulus in October 2019 will be too late to prevent Singapore falling into recession, and the gloom is likely to worsen in the near-term. We recommend being Underweight Singapore.  

3. Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked

Trade%2019 07 12%20oil

The Energy Minister finally enforced Mining Law stipulations on a coal mine with an expiring contract (CCOW), the small Tanito Harum — but this sets a precedent that augurs the eventual breakup of concessions that account for the bulk of the coal sector.  A presidential revision of the law next year seems likely, but mining investment will be subdued in the meantime.  The release of the Canadian educator Neil Bantleman, in a miscarriage of justice regarding supposed child sex abuse, mitigates damage from the six-year old saga.  Mitra Adiperkasa (MAPI IJ) owners Sjamsul and Itjih Nursalim may have won a reprieve when the KPK — for the first time in its 15 year history — lost a case in court related to their charges.  Widodo’s rebuke of the ministers of energy and state enterprises signals potential changes in those sectors in an eventual reshuffle; but whether their replacements would improve matters is questionable.

Politics: President Joko Widodo issued clemency for Neil Bantleman, the Canadian educator convicted in a clear miscarriage of justice regarding supposed child‑sex abuse in 2016.  He is now in Ontario, but the teacher Ferdi Tijon and several cleaning staff remain in prison (Page 2).  Prabowo Subianto’s party tied ‘reconciliation’ – sought by aides to Widodo – to the return of Islamic Defenders Front (FPI) leader Habib Rizieq from Mecca.  Presidential Chief of Staff Gen (ret) Moeldoko dismissed the possibility, noting that Rizieq’s exile is self‑imposed.  Gerindra officials also want the release of several hundred rioters arrested in May.  In effect, Gerindra is openly requesting legal‑system interference for political aims.  This highlights the weak prospects for constructive opposition from Prabowo’s party.  Widodo has shown no intention to help Rizieq, but risks exist that some sort of ‘reconciliation’ will involve impunity for the May rioting (p. 2).  The president pointedly admonished Energy Minister Ignasius Jonan and State Minister for State Enterprises Rini Soemarno for having allowed oil imports to increase (which occurred in 2018).  This may signal that the pair have lost favor and will exit the cabinet (p. 3).  Police generals are objects of scrutiny in a 170‑page report, due out soon, on the 2017 attack on corruption investigator Novel Bawesdan (p. 6).

Justice: For the first time since its founding 15 years ago, the Anti-Corruption Commission (KPK) lost a case in court – against former Bank Restructuring Agency (Ibra) head Syafruddin Temenggung, in a trial with implications for major business and political interests.  But KPK members have vowed to continue pursuing related suspects, the fugitive Gadjah Tunggal Group (GTG) owners Sjamsul and Itjih Nursalim (p. 8).  After a high school teacher in Mataram recorded her boss harassing her sexually over the phone, the boss filed charges against her for having electronically distributed lewd material (his own).  Supreme Court justices sentenced her to six months in prison (p. 9).  

Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news.  The writer is Kevin O’Rourke, author of the book Reformasi.  For subscription info please contact: <[email protected]>.

Policy News: The Energy Ministry shut down a mid‑sized coal producer, Barki’s Tanito Harum, due to the expiry of its Coal Contract of Work (CCOW).  Without a revision of the 2009 Mining Law, the same may happen to Bakrie’s giant Arutmin in November 2020.  CCOWs expiring through 2025 account for two‑thirds of Indonesia’s coal production and the bulk of its fuel for power generation.  Adaro, Indika, Sinar Mas and Bumi are among those in limbo (p. 11).  A sorely needed Land Bill could potentially pass by September – but the Forestry Association (Aphi) is mounting stiff resistance (p. 13).  Car producers are anticipating a regulation on electric vehicles (p. 14).

4. UK: GDP Revisions Soften 2Q19 Weakness

2019 07 10%20gdp2

  • UK monthly GDP rebounded by 0.3% m-o-m as car manufacturing normalised after its unusually concentrated maintenance cycle in April.
  • The 3m-o-3m rate of 0.3% exceeded all expectations as March was broadly revised up across the sectors. A stronger statistical carry-over effect lifts my 2Q19 GDP growth forecast by 0.1pp to 0.0% q-o-q and makes weakness appear more isolated.

5. Trade War Takes Its Toll

Capture%201

The strength of the dollar and the US-China trade war have taken their toll on the world economy The erosion in global US dollar purchasing power is translating in weaker demand for Asian exports. The easing of US-China trade tensions following the G20 meeting is welcome. However, of equal importance is where the US dollar heads from here. The biggest risk here is that the ECB and the BoJ expand extraordinary monetary policy measures, and in doing so spark another round of competitive devaluation by non-US dollar areas and a further erosion in global US dollar purchasing power

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Macro: UK Inflation: Broad Resilience Against May-19 Airfares and more

By | Daily Briefs, Macro

In this briefing:

  1. UK Inflation: Broad Resilience Against May-19 Airfares
  2. US Corporate Sentiment Becomes Bifurcated, While Fed Requires Time to Justify Any Rate Cut
  3. Preview: BoE Hawks Doused by GDP Data
  4. Hong Kong /Trade War/Huawei/Stimulus/Stink Bugs

1. UK Inflation: Broad Resilience Against May-19 Airfares

2019 06 19%20inf2

  • UK inflation data for May-19 contained a broad mix of small upside surprises that are suggestive of underlying resilience, even while the headline rate slowed.
  • Disinflation was mostly concentrated in airfares, where weakness was already in my forecast, so I was positively surprised by the headline rates of 2.0% on the CPI and 3.0% on the RPI (index at 289.2).
  • Further falls remain likely to occur in the coming months until a trough forms after the energy utility price cap cut in October.

2. US Corporate Sentiment Becomes Bifurcated, While Fed Requires Time to Justify Any Rate Cut

Business%20roundtable

US corporate sentiment has become less upbeat for larger companies due to trade-induced uncertainties, but small companies, with their higher domestic exposure, have recently become more upbeat about the future business environment.

Current global supply chains took years to establish. Hence, ongoing concerns about prospective replacements are unlikely to dissipate soon or even after the possible arrival of a new Administration, because Democrats have also embraced protectionism.

Despite the vulnerability to higher costs stemming from tariffs, members of the National Federation of Independent Business cite declining available labour quality, a typical late-cycle phenomenon, as being their main business concern. Consequently, this has created an incentive to invest in labour-saving capital equipment to preserve internal efficiencies.

The Trump Administration’s recent tactic of threatening Mexico with tariffs over illegal immigration succeeded in forcing the Fed to further lower their bar for reducing the federal funds rate, thereby potentially encouraging President Trump to further use tariffs to pressure Chair Powell.

Currently, not all Federal Open Market Committee (FOMC) members share Chair Powell’s dovish inclinations. Agreements about the nature of unfolding threats to their dual mandate, as well as financial stability, need to be reached before a reduction in the federal funds rate can be engineered.

Financial conditions do not currently jeopardise economic activity or risk-taking, although an insurance policy rate cut by the Fed could fuel excessive speculation in financial markets that could ultimately destabilise the real economy.

3. Preview: BoE Hawks Doused by GDP Data

2019 06 17%20boe1

  • Excess demand and inflation are applying hawkish pressures to the MPC that might not normally be tolerable. The MPC’s hawkish message in May has been ignored in favour of loosening monetary conditions even further.
  • Temporary disruption to output in April has hit the prospects for 2Q19 heavily. Until the rebound is seen, the MPC is likely to remain cautious and resist the sort of significant strengthening in its hawkish guidance that I’d previously expected.

4. Hong Kong /Trade War/Huawei/Stimulus/Stink Bugs

China News That Matters

  • Do you hear the people sing?
  • The deadline is in my head
  • A wealth of data on people, governments and companies
  • So stimulating: Beijing pushes funding for big infrastructure
  • Stink Bug vs Armyworm, amid food inflation battle 

In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Macro: U.S. Economic Forecast Scenarios Amid Worsening Trade Uncertainties and more

By | Daily Briefs, Macro

In this briefing:

  1. U.S. Economic Forecast Scenarios Amid Worsening Trade Uncertainties

1. U.S. Economic Forecast Scenarios Amid Worsening Trade Uncertainties

060919cht2

The Trump Administration’s announcement in late May of the imposition of tariffs on imported goods from Mexico represented another escalation of global trade tensions.  Tumultuous trade policy has been a feature of the economic outlook for over a year but central to our 2019 U.S. growth forecast was an expectation that trade-related uncertainties would eventually ease allowing for a pickup in business investment later in the year.  This outlook still looked reasonable to us last month but the message to Corporate America with the Mexico tariffs, coming after the deal of the USMCA, is that trade agreements do not permanently alleviate uncertainties about their input costs or supply chains.  With business uncertainty about trade now less likely to ease we need to reconsider our central forecast that business investment will strengthen substantially later this year.  Forecasting uncertainty seems higher than normal so in addition to a revised baseline outlook we summarize two alternative scenarios (and provide some highly-subjective probabilities for these scenarios).

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Macro: Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession) and more

By | Daily Briefs, Macro

In this briefing:

  1. Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession)
  2. Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked
  3. UK: GDP Revisions Soften 2Q19 Weakness
  4. Trade War Takes Its Toll
  5. Trade Truce/Tech War/Market Opening/NEVs /Hong Kong

1. Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession)

Singapore’s real GDP grew 0.1% YoY in 2Q 2019 (according to the advance estimate based mainly on April-May data), the weakest quarterly reading in a decade. At the seasonally-adjusted annualized rate (saar, the way the US reports its quarterly GDP), Singapore’s GDP contracted 3.4%QoQ in 2Q 2019, essentially giving back almost all of the 3.8%QoQ expansion in 1Q 2019. That followed a slight expansion of 0.8% QoQ in 3Q 2018, and a contraction of -0.8%QoQ in 4Q 2018 — which essentially implied that Singapore’s economy has stalled (recording average quarterly growth of 0.1%QoQ) for the past 1 year (4 quarters, from 3Q 2018 to 2Q 2019). 

As a trade-dependent economy, Singapore is the most direct victim of China’s slumping domestic demand, which has caused China’s imports to decline sharply since November 2018, severely weakening the global semiconductor/electronics sector — and dragging Asia’s economies down with it. China reported that its imports were down 7.3% YoY in June 2019 (only marginally better than its record -8.5%YoY reading for May). This will imply that Singapore’s exports (and NODX) remain extremely weak in June 2019 as well, thereby ensuring that the actual 2Q 2019 GDP print will not be much different from this weak advance estimate. Taiwan and Korea are likely to also succumb, albeit less so because of their willingness to deploy an earlier fiscal stimulus.   

Singapore has ample fiscal resources — including large, recurring investment income and land sale proceeds which Singapore does not even count as government revenue. With its cyclical manufacturing sector contracting for 3 consecutive quarters, it is already time for Singapore to announce a large fiscal stimulus — reduced employer contributions to CPF, removal of caps on the income and corporate tax rebates, and possibly even a temporary reduction in GST rate. However, the last is highly unlikely, and other measures are likely only after it is clear that the whole economy is in recession. Fiscal and monetary stimulus in October 2019 will be too late to prevent Singapore falling into recession, and the gloom is likely to worsen in the near-term. We recommend being Underweight Singapore.  

2. Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked

Trade%2019 07 12%20oil

The Energy Minister finally enforced Mining Law stipulations on a coal mine with an expiring contract (CCOW), the small Tanito Harum — but this sets a precedent that augurs the eventual breakup of concessions that account for the bulk of the coal sector.  A presidential revision of the law next year seems likely, but mining investment will be subdued in the meantime.  The release of the Canadian educator Neil Bantleman, in a miscarriage of justice regarding supposed child sex abuse, mitigates damage from the six-year old saga.  Mitra Adiperkasa (MAPI IJ) owners Sjamsul and Itjih Nursalim may have won a reprieve when the KPK — for the first time in its 15 year history — lost a case in court related to their charges.  Widodo’s rebuke of the ministers of energy and state enterprises signals potential changes in those sectors in an eventual reshuffle; but whether their replacements would improve matters is questionable.

Politics: President Joko Widodo issued clemency for Neil Bantleman, the Canadian educator convicted in a clear miscarriage of justice regarding supposed child‑sex abuse in 2016.  He is now in Ontario, but the teacher Ferdi Tijon and several cleaning staff remain in prison (Page 2).  Prabowo Subianto’s party tied ‘reconciliation’ – sought by aides to Widodo – to the return of Islamic Defenders Front (FPI) leader Habib Rizieq from Mecca.  Presidential Chief of Staff Gen (ret) Moeldoko dismissed the possibility, noting that Rizieq’s exile is self‑imposed.  Gerindra officials also want the release of several hundred rioters arrested in May.  In effect, Gerindra is openly requesting legal‑system interference for political aims.  This highlights the weak prospects for constructive opposition from Prabowo’s party.  Widodo has shown no intention to help Rizieq, but risks exist that some sort of ‘reconciliation’ will involve impunity for the May rioting (p. 2).  The president pointedly admonished Energy Minister Ignasius Jonan and State Minister for State Enterprises Rini Soemarno for having allowed oil imports to increase (which occurred in 2018).  This may signal that the pair have lost favor and will exit the cabinet (p. 3).  Police generals are objects of scrutiny in a 170‑page report, due out soon, on the 2017 attack on corruption investigator Novel Bawesdan (p. 6).

Justice: For the first time since its founding 15 years ago, the Anti-Corruption Commission (KPK) lost a case in court – against former Bank Restructuring Agency (Ibra) head Syafruddin Temenggung, in a trial with implications for major business and political interests.  But KPK members have vowed to continue pursuing related suspects, the fugitive Gadjah Tunggal Group (GTG) owners Sjamsul and Itjih Nursalim (p. 8).  After a high school teacher in Mataram recorded her boss harassing her sexually over the phone, the boss filed charges against her for having electronically distributed lewd material (his own).  Supreme Court justices sentenced her to six months in prison (p. 9).  

Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news.  The writer is Kevin O’Rourke, author of the book Reformasi.  For subscription info please contact: <[email protected]>.

Policy News: The Energy Ministry shut down a mid‑sized coal producer, Barki’s Tanito Harum, due to the expiry of its Coal Contract of Work (CCOW).  Without a revision of the 2009 Mining Law, the same may happen to Bakrie’s giant Arutmin in November 2020.  CCOWs expiring through 2025 account for two‑thirds of Indonesia’s coal production and the bulk of its fuel for power generation.  Adaro, Indika, Sinar Mas and Bumi are among those in limbo (p. 11).  A sorely needed Land Bill could potentially pass by September – but the Forestry Association (Aphi) is mounting stiff resistance (p. 13).  Car producers are anticipating a regulation on electric vehicles (p. 14).

3. UK: GDP Revisions Soften 2Q19 Weakness

2019 07 10%20gdp2

  • UK monthly GDP rebounded by 0.3% m-o-m as car manufacturing normalised after its unusually concentrated maintenance cycle in April.
  • The 3m-o-3m rate of 0.3% exceeded all expectations as March was broadly revised up across the sectors. A stronger statistical carry-over effect lifts my 2Q19 GDP growth forecast by 0.1pp to 0.0% q-o-q and makes weakness appear more isolated.

4. Trade War Takes Its Toll

Capture%201

The strength of the dollar and the US-China trade war have taken their toll on the world economy The erosion in global US dollar purchasing power is translating in weaker demand for Asian exports. The easing of US-China trade tensions following the G20 meeting is welcome. However, of equal importance is where the US dollar heads from here. The biggest risk here is that the ECB and the BoJ expand extraordinary monetary policy measures, and in doing so spark another round of competitive devaluation by non-US dollar areas and a further erosion in global US dollar purchasing power

5. Trade Truce/Tech War/Market Opening/NEVs /Hong Kong

China News That Matters

  • Talking again after Trump delays further tariffs
  • Despite reprieve, Huawei vows to end US dependence 
  • Take control – for a hefty premium
  • Robotaxis – hail one this year?
  • Violent protests challenge Beijing rule 

In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Macro: U.S. Economic Forecast Scenarios Amid Worsening Trade Uncertainties and more

By | Daily Briefs, Macro

In this briefing:

  1. U.S. Economic Forecast Scenarios Amid Worsening Trade Uncertainties
  2. To China With Love From Russia
  3. EM Cross-Border Capital Inflows Collapse: Investor Turn ‘Risk-Off’

1. U.S. Economic Forecast Scenarios Amid Worsening Trade Uncertainties

060919cht2

The Trump Administration’s announcement in late May of the imposition of tariffs on imported goods from Mexico represented another escalation of global trade tensions.  Tumultuous trade policy has been a feature of the economic outlook for over a year but central to our 2019 U.S. growth forecast was an expectation that trade-related uncertainties would eventually ease allowing for a pickup in business investment later in the year.  This outlook still looked reasonable to us last month but the message to Corporate America with the Mexico tariffs, coming after the deal of the USMCA, is that trade agreements do not permanently alleviate uncertainties about their input costs or supply chains.  With business uncertainty about trade now less likely to ease we need to reconsider our central forecast that business investment will strengthen substantially later this year.  Forecasting uncertainty seems higher than normal so in addition to a revised baseline outlook we summarize two alternative scenarios (and provide some highly-subjective probabilities for these scenarios).

2. To China With Love From Russia

Last week President Xi Jinping met President Vladimir Putin for the 29th time since 2013 and the second time in two months in St Petersburg. The growing relationship between China and Russia is a hugely important one. It has the potential to redefine global trade patterns and shift the global balance of economic and geopolitical power. Driven by need and by economics, this is relationship that is only set to grow and for that a big thanks goes to Mr Trump.

3. EM Cross-Border Capital Inflows Collapse: Investor Turn ‘Risk-Off’

Smartk1

  • Cross-border capital flows to Emerging Markets (ex China) plunge by US$75 billion in May 2019
  • Flows into China buck this trend rising by US$10 billion
  • Cross-border flows are sensitive to Chinese economic tempo and US dollar
  • EM investors turn decisively ‘risk-off’ in positioning, but this is a future opportunity

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Brief Macro: To China With Love From Russia and more

By | Daily Briefs, Macro

In this briefing:

  1. To China With Love From Russia
  2. EM Cross-Border Capital Inflows Collapse: Investor Turn ‘Risk-Off’

1. To China With Love From Russia

Last week President Xi Jinping met President Vladimir Putin for the 29th time since 2013 and the second time in two months in St Petersburg. The growing relationship between China and Russia is a hugely important one. It has the potential to redefine global trade patterns and shift the global balance of economic and geopolitical power. Driven by need and by economics, this is relationship that is only set to grow and for that a big thanks goes to Mr Trump.

2. EM Cross-Border Capital Inflows Collapse: Investor Turn ‘Risk-Off’

Smartk1

  • Cross-border capital flows to Emerging Markets (ex China) plunge by US$75 billion in May 2019
  • Flows into China buck this trend rising by US$10 billion
  • Cross-border flows are sensitive to Chinese economic tempo and US dollar
  • EM investors turn decisively ‘risk-off’ in positioning, but this is a future opportunity

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Macro: Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked and more

By | Daily Briefs, Macro

In this briefing:

  1. Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked
  2. UK: GDP Revisions Soften 2Q19 Weakness
  3. Trade War Takes Its Toll
  4. Trade Truce/Tech War/Market Opening/NEVs /Hong Kong
  5. Coming Home

1. Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked

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The Energy Minister finally enforced Mining Law stipulations on a coal mine with an expiring contract (CCOW), the small Tanito Harum — but this sets a precedent that augurs the eventual breakup of concessions that account for the bulk of the coal sector.  A presidential revision of the law next year seems likely, but mining investment will be subdued in the meantime.  The release of the Canadian educator Neil Bantleman, in a miscarriage of justice regarding supposed child sex abuse, mitigates damage from the six-year old saga.  Mitra Adiperkasa (MAPI IJ) owners Sjamsul and Itjih Nursalim may have won a reprieve when the KPK — for the first time in its 15 year history — lost a case in court related to their charges.  Widodo’s rebuke of the ministers of energy and state enterprises signals potential changes in those sectors in an eventual reshuffle; but whether their replacements would improve matters is questionable.

Politics: President Joko Widodo issued clemency for Neil Bantleman, the Canadian educator convicted in a clear miscarriage of justice regarding supposed child‑sex abuse in 2016.  He is now in Ontario, but the teacher Ferdi Tijon and several cleaning staff remain in prison (Page 2).  Prabowo Subianto’s party tied ‘reconciliation’ – sought by aides to Widodo – to the return of Islamic Defenders Front (FPI) leader Habib Rizieq from Mecca.  Presidential Chief of Staff Gen (ret) Moeldoko dismissed the possibility, noting that Rizieq’s exile is self‑imposed.  Gerindra officials also want the release of several hundred rioters arrested in May.  In effect, Gerindra is openly requesting legal‑system interference for political aims.  This highlights the weak prospects for constructive opposition from Prabowo’s party.  Widodo has shown no intention to help Rizieq, but risks exist that some sort of ‘reconciliation’ will involve impunity for the May rioting (p. 2).  The president pointedly admonished Energy Minister Ignasius Jonan and State Minister for State Enterprises Rini Soemarno for having allowed oil imports to increase (which occurred in 2018).  This may signal that the pair have lost favor and will exit the cabinet (p. 3).  Police generals are objects of scrutiny in a 170‑page report, due out soon, on the 2017 attack on corruption investigator Novel Bawesdan (p. 6).

Justice: For the first time since its founding 15 years ago, the Anti-Corruption Commission (KPK) lost a case in court – against former Bank Restructuring Agency (Ibra) head Syafruddin Temenggung, in a trial with implications for major business and political interests.  But KPK members have vowed to continue pursuing related suspects, the fugitive Gadjah Tunggal Group (GTG) owners Sjamsul and Itjih Nursalim (p. 8).  After a high school teacher in Mataram recorded her boss harassing her sexually over the phone, the boss filed charges against her for having electronically distributed lewd material (his own).  Supreme Court justices sentenced her to six months in prison (p. 9).  

Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news.  The writer is Kevin O’Rourke, author of the book Reformasi.  For subscription info please contact: <[email protected]>.

Policy News: The Energy Ministry shut down a mid‑sized coal producer, Barki’s Tanito Harum, due to the expiry of its Coal Contract of Work (CCOW).  Without a revision of the 2009 Mining Law, the same may happen to Bakrie’s giant Arutmin in November 2020.  CCOWs expiring through 2025 account for two‑thirds of Indonesia’s coal production and the bulk of its fuel for power generation.  Adaro, Indika, Sinar Mas and Bumi are among those in limbo (p. 11).  A sorely needed Land Bill could potentially pass by September – but the Forestry Association (Aphi) is mounting stiff resistance (p. 13).  Car producers are anticipating a regulation on electric vehicles (p. 14).

2. UK: GDP Revisions Soften 2Q19 Weakness

2019 07 10%20gdp2

  • UK monthly GDP rebounded by 0.3% m-o-m as car manufacturing normalised after its unusually concentrated maintenance cycle in April.
  • The 3m-o-3m rate of 0.3% exceeded all expectations as March was broadly revised up across the sectors. A stronger statistical carry-over effect lifts my 2Q19 GDP growth forecast by 0.1pp to 0.0% q-o-q and makes weakness appear more isolated.

3. Trade War Takes Its Toll

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The strength of the dollar and the US-China trade war have taken their toll on the world economy The erosion in global US dollar purchasing power is translating in weaker demand for Asian exports. The easing of US-China trade tensions following the G20 meeting is welcome. However, of equal importance is where the US dollar heads from here. The biggest risk here is that the ECB and the BoJ expand extraordinary monetary policy measures, and in doing so spark another round of competitive devaluation by non-US dollar areas and a further erosion in global US dollar purchasing power

4. Trade Truce/Tech War/Market Opening/NEVs /Hong Kong

China News That Matters

  • Talking again after Trump delays further tariffs
  • Despite reprieve, Huawei vows to end US dependence 
  • Take control – for a hefty premium
  • Robotaxis – hail one this year?
  • Violent protests challenge Beijing rule 

In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

5. Coming Home

Fig1


Despite the US-China trade war, Taiwan’s investment and credit cycles are still in the early stages of an investment cycle upswing. Figure 1 shows investment bucking the trend (the charted residuals in blue are showing a +2 positive deviation from trend). It might seem strange that both cycles look supportive of growth while Taiwan’s economic engine, exports, are falling.

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Brief Macro: To China With Love From Russia and more

By | Daily Briefs, Macro

In this briefing:

  1. To China With Love From Russia
  2. EM Cross-Border Capital Inflows Collapse: Investor Turn ‘Risk-Off’
  3. Fed Still Requires Compliant Data to Engineer Insurance Policy Rate Cut

1. To China With Love From Russia

Last week President Xi Jinping met President Vladimir Putin for the 29th time since 2013 and the second time in two months in St Petersburg. The growing relationship between China and Russia is a hugely important one. It has the potential to redefine global trade patterns and shift the global balance of economic and geopolitical power. Driven by need and by economics, this is relationship that is only set to grow and for that a big thanks goes to Mr Trump.

2. EM Cross-Border Capital Inflows Collapse: Investor Turn ‘Risk-Off’

Smartk1

  • Cross-border capital flows to Emerging Markets (ex China) plunge by US$75 billion in May 2019
  • Flows into China buck this trend rising by US$10 billion
  • Cross-border flows are sensitive to Chinese economic tempo and US dollar
  • EM investors turn decisively ‘risk-off’ in positioning, but this is a future opportunity

3. Fed Still Requires Compliant Data to Engineer Insurance Policy Rate Cut

Services

Financial markets pounced on recent comments by Fed Chair Powell that the policy rate could be lowered if trade-induced downside economic risks increase, but he was not stating anything new about the systematic manner in which US monetary policy is formulated. Crucially, policy rate reductions will require data consistency.

Recent US economic data has been mixed, notably signs of an emerging dichotomy between a slowing manufacturing sector and strengthening private service activity.

After a sub-par Employment Situation report for May, the Federal Open Market Committee (FOMC) will closely monitor the state-by-state dispersion of any increases in initial unemployment claims to detect signs of trade-induced weakness in the manufacturing sector. The 30-31 July FOMC meeting is the earliest credible opportunity for a reduction in the federal funds rate if data supports trade-induced economic weakness.

The Fed has struggled to normalise policy settings since the Great Recession due to inconsistent assistance from fiscal policy in supporting aggregate demand, as well as unfavourable long-term potential GDP dynamics.

The Trump Administration’s decision to ease fiscal policy ahead of resolving trade disputes means the Fed has little or no choice but to ease policy to bailout any prospective weakening in the economy stemming from ill-conceived protectionism.

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