Daily Brief Macro: Sri Lanka Rubber Sector Shows Export Resilience but Supply Constraints Deepen and more

Highlights

• Exports remain resilient and increasingly value-added

• Domestic raw-material supply is becoming the main structural constraint

• The outlook is positive for manufacturing but dependent on supply-side reform: 

• Bank of Thailand kept interest rates unchanged at 1%, it's a bit dangerous to be leaving the interest rate unchanged when inflation has picked up and is likely to go higher over the course of the rest of the year. Philippines Central Bank raised interest rates to 5% from 4.75%, not good news for a country where investment is contracting at almost double-digit levels. Bank of Korea also raised 25bps to 3% to ease the inflation pressure caused by the semiconductor industry.
• Taiwanese Central Bank used to be one of the sound money proponents in Asia because it monitored money supply growth and credit growth as the variables which would determine monetary policy, but that is gone as Taiwan moved towards a cheap exchange rate strategy.
• Chinese industrial profits increased about 11% year on year in July, 17.6% year to date, which is very different from what we're seeing in the return on equity in the stock market. The overall profit figures in China are not that badly and that usually is the precursor for an upswing in the business cycle.

• Opportunities to recover from the energy supply shock this summer have been lost, with the inflationary squeeze intensifying, albeit with demand remaining resilient.
• Central banks are responding, with rate hikes in Korea and the Philippines, while the ECB’s Meeting Accounts strongly signal September and Chair Warsh sounds hawkish.
• Next week is the RBNZ’s turn to hike, although Canada should stay on hold amid the trade war’s renewal. Flash EA inflation and US non-farm payrolls are data highlights.