Daily BriefsMacro

Macro: China: Downside Risks To Growth Entail Broader Spillovers To ASEAN and more

In today’s briefing:

  • China: Downside Risks To Growth Entail Broader Spillovers To ASEAN, Most Of Which Are Negative
  • Oil Markets Tighten, But For How Long?
  • Temperatures Rise and Fall in Asia’s Geo-Political Hot Spots
  • Underneath the Bonnet of “sticky” Global Inflation
  • UK: Green Light, Red Light, Elimination
  • The Philippines: Marcos (Arguably) The Front-Runner In 2022 Presidential Polls
  • FX Dashboard: Chilean Central Bank Is Set to Deliver Another Hawkish Surprise

China: Downside Risks To Growth Entail Broader Spillovers To ASEAN, Most Of Which Are Negative

By Manu Bhaskaran

  • Our baseline expectation is for China to overcome its recent malaise. But, the risks of a sharp downturn have risen. We assess the exposure of the region to such a slowdown.
  • Pulling together the impact through trade, commodity prices and currency impact, we find that Hong Kong, Taiwan and Thailand are more vulnerable than others.

East Asia’s Exposure to China

Country

Chinese tourists as % of total (2020)

Chinese Consumption

(% of total VA)

Chinese Investments

(% of total VA)

Share of Exports to China (%)

(2020)

Share of FDI from China (%)

(2020)

Z-score, higher = more reliant on China

Hong Kong

75.8

1.8

1.8

59.1

28.1

5.8

Taiwan

8.1

4.2

8.1

29.7

1.4

2.8

Thailand

18.6

2.9

3.2

12.8

22.1

1.0

South Korea

27.2

2.4

5.0

25.9

4.2

0.8

Vietnam

25.0

3.1

2.8

17.4

8.6

0.2

Malaysia

9.4

3.1

4.7

16.2

5.7

-0.1

Singapore

13.0

2.9

4.6

13.7

2.3

-0.7

Philippines

11.5

1.3

2.4

15.1

13.9

-1.8

Indonesia

5.9

1.2

1.3

19.5

16.9

-2.1

India

3.1

0.4

0.6

6.9

0.1

-5.8

Source: CEIC, OECD TIVA. Note that for India, tourism data is only available from 2019.

Oil Markets Tighten, But For How Long?

By Nicholas Chia

  • Supply-side bottlenecks push prices up: With US shale producers remaining on the sidelines and OPEC rebuffing the White House’s calls to crank the pumps, crude Brent is set to test the USD85-resistance level.
  • But what goes up must come down: Higher oil prices represent a stern test of OPEC+’s ability and discipline to maintain existing curbs, particularly as the shift toward renewables accelerate and spur a rush to pump before fossil fuels turn into stranded assets.
  • India, Thailand and Singapore are most at risk from the oil price hikes, with Hong Kong, China and Vietnam at the other end of the spectrum.

 

Primary Energy consumption (%)

Inflation weights (%)

CPI sensitivity to oil shock (%)

Oil import intensity (%)

Z-score, the lower the better

HK

70.0

3.3

2.5

1.6

-2.5

CN

19.7

8.2

2.6

9.9

-2.3

VN

25.9

9.7

7.1

1.8

-1.9

ID

38.0

11.5

0.5

8.2

-1.0

PH

45.0

8.6

10.5

1.4

-0.7

KR

42.9

9.6

5.8

12.4

0.3

SG

86.1

5.0

4.8

14.9

1.4

TH

48.5

11.8

14.0

7.8

2.1

MY

36.8

11.1

17.5

9.7

2.2

IN

30.1

15.4

1.9

23.6

2.4

Source: CEIC, Centennial Asia Advisors

Temperatures Rise and Fall in Asia’s Geo-Political Hot Spots

By Manu Bhaskaran

The US and China agreed that their presidents will meet before the year-end. Expect a very modest re-set of their relationship but at least Chinese pressure on Taiwan has eased, for now.

However, tensions along the Sino-Indian border are edging up.


Underneath the Bonnet of “sticky” Global Inflation

By Olivier Desbarres

Our measures of global headline and core CPI-inflation – weighted averages of inflation in 32 major developed and Emerging Market (EM) economies which account for over 90% of world GDP – between May 2020 and August 2021 rose respectively 2.4pp and 1.3pp to 3.5% yoy (decade high) and 2.8% yoy (13-year high). Global food price has risen over 40%.

Moreover partial data suggest that global CPI-inflation rose yet further in September.

Headline and core CPI-inflation have risen more rapidly in developed economies than in EM economies, in large part because of increase in US and Eurozone but subdued inflation in China. Whereas inflation (particularly headline) in developed economies is well above its pre-pandemic averages, EM inflation is broadly in line with 2015-2019 averages.

By historical standards inflation is theoretically a greater problem in developed economies than in EM. But this would ignore the more pernicious impact on households and businesses in poorer EM economies where governments have little fiscal firepower.

From this there are five key themes which we will analyse in forthcoming FIRMS reports:

  1. Relative weights, past and future, of supply-side vs demand pull-inflation.
  2. Whether global elevated CPI-inflation will ultimately prove “transitory” or “sticky”.
  3. Whether/at what pace central banks will further tighten monetary. Global central bank policy rate stands at 1.53%, up only 22bp since record-low 1.31% in August 2020.  As was the case following 2008 Financial Crisis EM central banks have led the way.
  4. The impact of tighter central bank monetary policy on domestic and global CPI-inflation and already modest economic growth.
  5. The overall implications for FX and interest rate markets, both in terms of directionality and volatility.

UK: Green Light, Red Light, Elimination

By Phil Rush

  • Green light: unemployment’s trend decline extended to 4.5% in Aug-21 on employment growth. Vacancies are at their highs, while redundancies are at their lows.
  • Red light: 5% of pre-covid payroll remains furloughed while the public sector is driving the rise in jobs. Industrial and consumer-facing businesses are struggling.
  • Elimination: frothy wage growth is evaporating with base effects and is on track to end the year near 3.2%. Headwinds should stop hawkish statements from turning to action.

The Philippines: Marcos (Arguably) The Front-Runner In 2022 Presidential Polls

By Nicholas Chia

  • Ferdinand “Bongbong” Marcos Jr has thrown his hat into the ring, as we expected, citing the need for a unifying leadership in the Philippines’ post-pandemic future which can be construed as a subtle broadside against the incumbent administration. Overtures have been extended to the Duterte camp, before the outgoing Chief Executive renounced his bid for the Vice Presidency.
  • VP Leni Robredo has also launched her candidacy for the presidency, framing the contest as a battle between pro-democratic and authoritarian forces. Barring any sea change, we do not expect the opposition to make any headway in the presidential (or legislative) elections.
  • Sara failed to file her certificate of candidacy by the 8th October deadline. There are 2 reasons why Sara Duterte could sit this election out. She is not in the best of health, and the elder Duterte’s poor health will most certainly cast greater scrutiny over Sara’s candidacy. The other calculation is that her candidacy risks splitting the vote and delivering a victory to Moreno or Pacquiao. More twists and turns are likely, as candidates can drop out and be replaced till mid-November.
  • In the interim, the political dynamic is exceedingly fluid. Marcos is the front-runner, for now, possessing ample name recognition, cognisant of the importance of social media and offering a compelling alternative moving forward. On the other hand, Isko Moreno’s big tent campaign could backfire as he risks repeating Grace Poe’s mistake in her botched run for the 2016 presidential elections. 

FX Dashboard: Chilean Central Bank Is Set to Deliver Another Hawkish Surprise

By Gautam Jain, PhD, CFA

Following the hawkish surprise at the last meeting, the Chilean central bank is likely to raise the pace of tightening even further at the MPC meeting tomorrow. Inflation has been rising steadily as the recovery picked up strongly on the back of the strong fiscal and monetary stimulus. More worrisome for the central bank is that long-term inflation expectations have deteriorated. The currency depreciation meanwhile has picked up pace as political uncertainty has risen, adding to inflationary risks. The central bank is thus likely to raise rates very aggressively to anchor inflation expectations and the currency in our view and is possibly evaluating a currency intervention program. Our bullish recommendations on the currency have taken a hit lately.

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.


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