Daily BriefsMacro

Macro: Asian Technology Exports to Stay Firm past Peak Global Demand and more

In today’s briefing:

  • Asian Technology Exports to Stay Firm past Peak Global Demand
  • China: Calling the Bottom in Activity Growth
  • US-China Relations: Biden-Xi Call Unlikely to Reverse the Deterioration in US-China Relations
  • COVID-19: Lull In Caseloads May Prove To Be Fleeting Amid Ample Epidemiological Uncertainty
  • TMI Snapshot: Supply Constraints & Chinese Coal Correlations Stand Out as Inflationary Drivers
  • Malaysia: Four Things to Look Out for in Budget 2022
  • FX Dashboard: Russian Ruble Is Lagging the Rally in Oil
  • Norway: No Need to Wear Green
  • UK: Employers Await Workers in Q4

Asian Technology Exports to Stay Firm past Peak Global Demand

By Nigel Chiang

While the peak in growth in global demand for technology goods is behind us, Asian tech exports are likely to be buoyed by robust global goods spending even after re-opening, still-tight inventories, and a healthy IT capital spending outlook. Thus, tech exports are likely decelerate rather than reverse direction and will still support Asian economic growth. 

Lead indicators such as Taiwanese export orders substantiate this constructive view of tech demand. Moreover, our detailed analysis of observations made by several leading chip firms also reinforces our positive view. By and large, they remain confident about future growth.

Separately,  there are also nascent signs that supply conditions in the global chip sector are improving, with inventory-shipment ratios appearing to have turned a corner in Taiwan, Korea, and the US.


China: Calling the Bottom in Activity Growth

By Nigel Chiang

Chinese trade and monetary data depict an economy moving in line with what the policymakers are comfortable with, i.e., slowing to a trend rate that the authorities can live with. We expect only modest policy changes.

We continue to view our full-year GDP growth forecast of 8.2%, which assumes average sequential (i.e. q/q sa) growth of 0.5% in the third and fourth quarters, or approximately half the 0.9% average in the first and second quarters, as achievable in spite of the relatively soft state of domestic demand, and we are currently tracking 3Q21 GDP at 4.1%.


US-China Relations: Biden-Xi Call Unlikely to Reverse the Deterioration in US-China Relations

By Manu Bhaskaran

Biden’s chat with Xi Jinping will do little to alleviate a tense US-China relationship. The fundamentals of the bilateral relationship and the domestic pre-occupations of the leaders militate against that. China is likely to feel emboldened by recent strategic setbacks that the US has suffered and is in no mood to make compromises. Expect potential difficulties in trade and over Taiwan.


COVID-19: Lull In Caseloads May Prove To Be Fleeting Amid Ample Epidemiological Uncertainty

By Nicholas Chia

  • India, Malaysia and Indonesia are seeing COVID-19 infections beginning to fall, raising hopes of a return to economic normalcy that could deliver upside economic surprises. There are already incipient signs of a turnaround emerging in these economies. Caseloads in the Philippines, unfortunately, remain high and rising.
  • There is ample epidemiological uncertainty in the air over how things will evolve moving forward. A hypothesis is that the high transmissible of the Delta variant allows a build-up of antibodies in large swathes of the population, enabling a sharp correction in caseloads in a shorter period of time.
  • But future strains of the coronavirus are able to evade the antibodies, leading to another wave of infections that see a sharp rise (and eventually, fall) in caseloads. The Mu variant appears to be less transmissible but is more able to evade vaccines and antibodies, raising concerns that the next wave may well be months away.

TMI Snapshot: Supply Constraints & Chinese Coal Correlations Stand Out as Inflationary Drivers

By Elan Gore

  • Our text-mined inflation indicators have seen greater volatility over the summer months, with media reporting of supply constraints emerging as our best-correlated indicator for 5yr5yr inflation expectations in recent months
  • Reporting on supply constraints surged to a new cycle-high +5.2x STDEVs earlier this month, and remains elevated at +3.8x; among a basket of commodities, China (ZCE) coal futures have been the most strongly correlated with our supply constraints indicator at 58% in the T6M, followed by Newcastle coal futures, significantly ahead of other commodity correlations
  • The sharp rally in ZCE Coal to a new 52-wk high this week (+45% YTD), driven by persistent coal shortages in China, has had far-reaching implications for global cost curves across a wide range of commodities from aluminum to plastics and fertilizers; shortages have also led to electricity rationing in multiple provinces, limiting production and lifting prices on key commodities and manufactured goods
  • Record low Chinese coal inventories are raising fears of another severe coal supply crunch in the winter, suggesting tight coal supply may continue driving inflation in the coming months
  • While the China coal shortage is hardly the only source of supply constraints currently driving global inflationary pressures, we believe the correlations are not spurious; a near-record US trade gap, record Chinese exports and spiking China PPI all point to accelerating inflation transmission from China to the US consumer, with the coal crunch a key driver

TMI Data Science utilizes text mining/NLP to build custom leading indicators using unstructured data sourced from the global financial, trade & traditional media. Our proprietary tools text-mine the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income & individual equities. 


Malaysia: Four Things to Look Out for in Budget 2022

By Nicholas Chia

  • First, the main policy thrusts post-Covid will be aligned with the 12th Malaysia Plan which will be released at the end of this month: public health, technology, sustainability and the people’s welfare will be prominent areas of focus in this coming budget, with the first two sectors likely to be the biggest gainers.
  • Second, expect more clarity on medium-term fiscal consolidation plans. The government is likely to be coy for now on possible tax increases given the impending elections but will signal its keenness to bring the deficit down at a gradual pace.
  • Third, fiscal largesse involving higher social spending is probably unavoidable given that we expect a general election to be called within the next 9-12 months.  
  • Finally, we see efforts being made to improve the quality of spending to strengthen the multiplier effect of discretionary fiscal spending.

FX Dashboard: Russian Ruble Is Lagging the Rally in Oil

By Gautam Jain, PhD, CFA

The ruble has lagged the rally in oil prices, which is partly by design following the establishment of the fiscal rule by the Russian authorities. While the benefit of the improvement of the current account should be felt over the medium term, the factors that have been relevant in the near term have been monetary policy and the risk of sanctions. Both of these are now behind in our view, indicating that the ruble should broadly be driven by its beta to EM FX in the near term.

Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.


Norway: No Need to Wear Green

By Phil Rush

  • Norway’s election results show a swing to the left, with Labour, Centre and Socialist Left having a combined majority of five in the new parliament. Crucially, these three parties can govern without the support of the Green Party.
  • We see limited implications of the result for investors, with the Norges Bank still set to raise the policy rate on 23 September.

UK: Employers Await Workers in Q4

By Phil Rush

  • The unemployment rate declined again to 4.6% in Jul-21, matching expectations but diverging from the rising rate reported by repeat survey respondents. October remains the real test for the labour market as furlough and self-employment grants end.
  • Ludicrously lucrative government grants have been capping the self-employed at 70% of effort, depriving some desperately constrained sectors of up to 11% of hours. Narrow and temporary issues are not raising overall pay trends, so wage growth will collapse.

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