Embed Size (px)
Citation preview
Friday
March 10, 2017
March 10, 2017
Australia Home Loans, India Industrial ProductionBy Colin Simpson and Ben Baris
What to Watch: reports on home loans in January, with the month-on-Australiamonth reading expected to show a 1 percent decline compared with December's 0.4 percent gain, 8:30 a.m. 's January industrial production print is likely to be up 0.4 Indiapercent year-on-year after the previous month saw a 0.4 percent decline.
Economics: Exports from the in January are forecast to have risen to Philippines10.5 percent year on year from December's 4.5 percent, 9 a.m. The trade deficit is expected to widen to $2.98 billion from $2.56 billion previously by economists surveyed by Bloomberg. releases retail sales figures for January at 1 p.m., and Singapore
reports on its foreign reserves at 3:30 p.m. Thailand
Government: China's and the National People's Congress Chinese People's continue in Beijing. Officials have used the NPC to Political Consultative Conference
burnish President Jinping’s credentials as an advocate for globalization ahead of the Xicountry’s first Silk Road summit in May. “China needs more global influence as its own growth depends more than ever before on global markets and resources," said CPPCC member .Jia Qingguo
Companies: Earnings reports are due from Delta Electronics, Wheelock, Guangzhou R&F Properties, Orient Overseas International, Advance Residence Investment, China Resources Cement Holding, China Goldjoy Group and Japan Logistics Fund.
Markets: The rose 0.1 percent to 2,364.94 on Thursday. The measure is S&P 500down 1.3 percent since reaching a record on March 1. sank Emerging-market equities1.5 percent, the most since December. dropped 2 percent to settle at $49.28 WTI crudeper barrel, the lowest close since Nov. 29. The was little changed as measured dollar by the Bloomberg dollar index, while the rose 0.4 percent to $1.0583. The yield on eurothe note rose four basis points to 2.598 percent.U.S. 10-year Treasury
(All times local for Hong Kong.)
Quote of the Day
"With protectionism and unilateralism on the rise, the belt and road initiative is a common cause where all countries roll up their sleeves and pitch in together."
— Chinese Foreign Minister Wang Yi
Commentary
The of the Reserve endBank of India's extraordinary liquidity management operations and a possible rate cut in August could pull the rug from under the 10-year yield:
. Abhishek Gupta
China’s producer priceinflation rose to a post-crisis high in February, reflecting robust demand, higher commodity prices, and a weaker yuan: . Fielding Chen
China’s new forlendingFebruary plummeted asholiday and seasonal effects dragged: Tom
(photo) and OrlikFielding Chen.
China’s central bank plans to apply a stricter method for assessing banks’ capital as part of to contain effortsfinancial-sector risks, people with knowledge of the matter said.Under the proposed change to the so-called Macro Prudential Assessment framework, the People’s Bank of China will remove an intermediary category in its evaluation of banks’ capital adequacy, the people said.
China Credit
Chinese, Malaysian Women Lead Asia in Management Jobs
Chinese and Malaysian women have made the greatest progress in Asia when it comes to landing jobs in management. Recruiting firm Hays Plc says women in those nations account for about a third of higher-level positions, with China expected to jump three percentage points this year.
— Molly Wei
Economics Asia 2 March 10, 2017
China Credit
Seasonal Credit Slump Doesn’t Break Leverage TrendBy Tom Orlik and Fielding Chen, Bloomberg Intelligence economistsChina’s new lending for February plummeted as holiday and seasonal effects dragged. It’s possible the marginaltightening of liquidity conditions and window guidance from the central bank also played a role. Outstanding credit continued on a path of rapid expansion, up 15.4 percent from a year earlier. Bloomberg Intelligence Economics’ expectation is that credit expansion for 2017 will register a moderate slowdown, as stronger growth allows the governmentto dial back stimulus and the central bankinches toward deleveraging.
The data was released a little earlier than expected, perhaps as the central bank wanted to get it out of the way ahead of their annual press conference Friday.
Total social finance, China’s broadest measure of new credit creation and equity issuance, came in at 1.15 trillion yuan ($166 billion) in February, way down from 3.74 trillion yuan in January and also below expectations of 1.45 trillion yuan. That drop reflects seasonal and holiday effects, not a break in the trend. China’s banks typically start the year with a bang, with big loans to their best customers in January, then ease back in February. A shorter and holiday-shortened month is also a factor.
The most important gauge for determining the outlook on growth and deleveraging is the expansion of outstanding credit. BI Economics’ preferred gauge is growth in total social finance plus local government bond issuance. Based on that measure, outstanding credit expanded 15.4 percentfrom a year earlier, basically unchanged from 15.3 percent in January and down from a peak of 16.6 percent in April 2016.A 16.5 percent increase in bank assets in 2016 (more recent data are not yet available) is an alternative way of looking at the same trend, and provides broadly similar conclusions.
Based on policy signals from National People’s Congress, progress on deleveraging this year will be limited. Premier Li Keqiang’s call for 12 percent expansion in total social finance in 2017 implies new credit of about 18.7 trillion yuan. The key question though, is not howmuch credit China is pumping out, but
Additional charts on the Bloomberg .terminal
how fast credit is expanding relative to GDP. On that metric, things are looking a little better. Nominal GDP growth has accelerated rapidly, narrowing the gap with credit expansion and slowing the pace at which the economy is leveraging up.
On the policy outlook, BI Economics’ view is that strong growth, rising prices, concerns about financial stability, and the need to lean against yuan weakness add up to a compelling case for tightening. At the same time, concern about adding to corporate and local government debt servicing costs suggests that tightening should be cautious and incremental. That means more targeted moves, not increases in benchmark interest rates.
Slightly higher money market rates, andwindow guidance from the central bank to
cap loan growth may already have playeda role in crimping February’s loan total — though the dominant influence was certainly seasonal and holiday effects.
In the details of the February data, virtually all the categories registered a significant drop. Bank loans fell to 1.03 trillion yuan from 2.31 trillion yuan in January. Bond issuance contracted, presumably reflecting more maturing thannew issuance. The one exception was FX loans, which increased for a second month — rising to 36.8 billion yuan. Greater willingness to borrow in dollars could be a sign of confidence in the yuan— though the numbers remain small.
Bank loans to households (mainly mortgage lending) accelerated again, another sign that the property downturn may be delayed.
China Inflation
New and Outstanding Total Social Finance Growth
TSF, TSF + Local Gov't Bonds, and Bank Assets Growth
Economics Asia 3 March 10, 2017
China Inflation
Producer Price Surge Adds Case for PBOC TighteningBy Fielding Chen, BI Economist China’s producer price inflation rose to a post-crisis high in February, coming in a touch above expectations. This reflects robust demand, higher commodity prices, and a weaker yuan. More-recent moves in oil and iron ore prices suggest some cooling ahead. But the reflation trend points to higher corporate profits and lower real borrowing costs — both positive for China’s economy.
Consumer price inflation slowed in February and the end of the Chinese New Year holiday hit food prices. But non-food inflation — a better gauge of demand — was relatively stable and in the government’s comfort zone. Yesterday’s data together support the PBOC’s tilt toward a moderately tighter stance, characterized as "prudent and neutral" by policy makers. Going forward, the central bank is likely to continue nudging up market rates to curb excess leverage, prevent yuan weakness and capital outflows, and control housing prices and inflation pressures.
Producer price inflation came in at 7.8 percent year on year in February, up from 6.9 percent year on year in January and a tick above expectations of a 7.7 percent reading. That was the fastest pace since September 2008. Robust growth momentum, surging global commodity prices, and a weaker yuan (which bolstered import prices) were the main drivers. That said, the post-crisis high may not be sustained — recent data show price increases for iron ore and oil have slowed in March.
Higher producer prices are a positive for the economy. Corporate profits get a boost, making it easier for firms to servicedebt. Higher inflation also means lower real borrowing costs — the real lending rate fell to minus 3.45 percent in February, the lowest in decades. The effect though,
View a live version of this chart on the .terminal
is uneven across sectors. Upstream companies see the most benefit, but the ones downstream could find it difficult to pass the higher costs on to consumers.
Consumer price inflation fell to 0.8 percent year on year in February, down from 2.5 percent in January and well below expectations of 1.7 percent. That mainly reflects a 4.3 percent drop in food prices after the Lunar New Year holiday. Non-food inflation was relatively stable at 2.2 percent, down a touch from 2.5 percent in January.
February’s drop is a seasonal blip, not abreak in the trend. So far though, there’s nothing in the CPI that adds pressure for the PBOC to tighten. That suggests the central bank may aim to keep its benchmark rates unchanged in the months ahead.
Given distortions to the data from the Lunar New Year holiday, looking at inflation for the first two months of the year gives a clearer picture. PPI inflation January and February combined was an average 7.4 percent. For the CPI, where seasonal effects are greater, inflation for
the two months averaged 1.7 percent.The government announced a 3 percent
inflation target for 2017 at the National People’s Congress, the same target as last year. PBOC Deputy Governor Yi Gang said recently that inflation this year may be close to a "Goldilocks" 2 percent to 3 percent range. That suggests the central bank may aim to keep its benchmark rates unchanged in 2017.
Still, the government has tweaked its monetary policy stance to "prudent and neutral" in 2017 from "prudent" in previous years. The addition of "neutral" indicates a slight tightening bias, in Bloomberg Intelligence Economics’ view. The PBOC has started to guide market rates higher since the final months of lastyear, including 10 basis-point increases inrates on its Medium-term Lending Facilityand reverse repos. The central bank is likely to continue on that path in the months ahead, as policy makers try to curb excess leverage, prevent yuan weakness and capital outflows, and control housing prices and inflation pressures.
India
Producer Price Index, Oil and Iron Ore Prices
Economics Asia 4 March 10, 2017
India
10-Year Yield Set to Exit RBI Roller CoasterBy Abhishek Gupta, BI EconomistWith demonetization rendering 86 percent of India’s currency in circulation illegal, its impact on bank liquidity and bond yields was immediately visible. As people rushed to deposit their old notes, bank deposits and liquidity surged — with a corresponding decline in benchmark 10-year government bond yields.
Then the Reserve Bank of India waded in to manage the surplus liquidity. RBI reverse repos, with a yield of 6.24 percent, put a floor under the 10-year yield. Coupled with the switch in the RBI’s policy stance to neutral from accommodative, the 10-year yield is now back to where it was before the demonetization shock.
Bloomberg Intelligence Economics’ view is that situation is not set to last. The end of the RBI’s extraordinary liquidity management operations and, if inflation falls below target, a rate cut in August, could both pull the floor out from under the 10-year yield.
Here’s the latest situation:
The roughly 6 trillion rupees ($90 billion) of cash management bills issued by the RBI until mid-January to soak up the initial flood of demonetization liquidity are now maturing.
The resulting increase in liquidity should be pushing yields down, but it’s not — the 10-year yield is currently about 6.85 percent, close to its level before the demonetization shock.
That reflects two factors: First, the RBI's surprise rate pause at the December and February policy meetings. Second, and
Read the full analysis on the terminal , and view a live version of this chart .here here
equally important, is the RBI's liquidity absorption through variable rate reverse repo auctions.
Absorption of surplus liquidity by the RBI is resulting in a higher cut-off yield of 6.24 percent on the RBI’s reverse repo auctions.
With the maturity of reverse repo auctions ranging from one-day to 91-day, compounding interest at these intervals increases the annualized interest rate earned by banks on the reverse repo funds by another 15 to 20 basis points.
As a result, the RBI’s liquidity operations are putting a floor under the 10-year yield at around 6.4 percent to 6.45 percent — higher than the 6.25 percent RBI policy rate that typically acts as the floor.
Going forward, as remonetization continues and credit growth in the systempicks up, surplus liquidity should disappear, moving the banking system closer to the RBI’s objective of a neutral position. As that happens over the course of this year, the RBI will no longer need to absorb surplus liquidity at a high cut-off yield of 6.24 percent. In BI Economics view, this should remove the artificial floor below 10-year yields, returning them closer to the 6.25 percent RBI policy rate (plus term premium).
In addition, BI Economics expects the RBI to cut the policy rate by 25 basis points at its August policy review, after having met its 4 percent CPI inflation target by June. This should also lower 10-year yields. Other factors, most notably a rise in global yields, could certainly push in the other direction.
BI Insight
Demonetization Driving Banking Liquidity and 10-Year Yields
Economics Asia 5 March 10, 2017
BI Insight
Alibaba Steps Up Overseas Expansion to Target 50% Non-China Sales By Michelle Ma, BI AnalystChinese online retail giant Alibaba is investing more in the U.S., India and Southeast Asia as the e-commerce sector in its home market continues to mature. It's using different strategies to serve these territories, targeting sales of U.S. products to China and Chinese products to other developing markets.
Chairman Jack Ma pledged that Alibaba's U.S. expansion could create 1 million jobs there when he met President Donald Trump before his inauguration. The company's Olympic sponsorship deal could also help it reach its goal of generating half its sales outside China.
Alibaba is strengthening its payment services in the U.S. to better serve Chinese travelers and buyers of American products in China.
Its Alipay service is growing organically by adding merchant partners such as Airbnb to increase transaction values and sales while Ant Financial in January agreed to acquire offline cash-transfer company MoneyGram for its U.S.-to-Asia fund transfer services. The deal's completion could allow Alibaba to better compete with PayPal.
MoneyGram offers its services through more than 350,000 agent locations around the world and derived almost 20 percent of its 2015 revenue from Wal-Mart, for which it's the exclusive provider of money transfers to outside the U.S.
Alibaba is tapping India's robust online volume growth. It plans to invest an additional $177 million in Indian e-commerce platform Paytm, according to news reports. India's e-commerce transaction value shot up 76 percent in 2016 on top of 130 percent in 2015,
based on eMarketer data, reflecting more users and higher disposable incomes. That trounces China's 31 percent. India's
35 percent internet penetration rate lags China's 53 percent, suggesting additional
growth potential.
Calendar
China's Thirst for Foreign Goods
India's E-Commerce Growth
Economics Asia 6 March 10, 2017
Calendar
TIME COUNTRY RELEASE PERIOD SURVEY PRIOR
7:50 Japan BSI Large All Industry QoQ 1Q — 3
7:50 Japan BSI Large Manufacturing QoQ 1Q — 7.5
8:30 Australia Home Loans MoM Jan -1.00% 0.40%
8:30 Australia Investment Lending Jan — -1.00%
8:30 Australia Owner-Occupier Loan Value MoM Jan — 1.30%
9:00 Philippines Exports YoY Jan 10.50% 4.50%
9:00 Philippines Exports Jan — $4871.0m
9:00 Philippines Imports YoY Jan 10.00% 19.10%
9:00 Philippines Imports Jan — $7435.0m
9:00 Philippines Trade Balance Jan -$2985m -$2564m
11:30 Thailand Consumer Confidence Feb — 74.5
11:30 Thailand Consumer Confidence Economic Feb — 63.1
13:00 Singapore Retail Sales SA MoM Jan 0.70% -1.90%
13:00 Singapore Retail Sales YoY Jan 0.80% 0.40%
13:00 Singapore Retail Sales Ex Auto YoY Jan -0.40% 0.30%
13:00 India Local Car Sales Feb — 186523
15:30 Thailand Foreign Reserves 3-Mar — $181.3b
15:30 Thailand Forward Contracts 3-Mar — $24.5b
20:00 India Industrial Production YoY Jan 0.40% -0.40%Source: Bloomberg ECO<GO>.
Click on the to see the full range of economists' forecasts on the terminal. highlighted releases All times local for Hong Kong. Survey figures updated at 5:52 a.m.
Today's Data Releases
Some officials at the Bank of Japan are considering whether they will need to give further guidance to the market on interest rates once inflation begins picking up, according to people familiar with central bank’s discussions.
There’s concern inside the BOJ that speculation of interest-rate hikes may come well before policy makers see the trend in underlying inflation as strong enough to justify any move, said the people, who asked not to be identified because talks are private.
With oil prices higher than a year ago and a relatively weak yen, the officials expect the benchmark inflation gauge to be around 1 percent later this year. They emphasize that the BOJ needs to look beyond any temporary factors boosting prices, and that what matters to the central bank is firm momentum to reach the 2 percent inflation target, said the people.
They want to see firm price gains that are backed by stronger wage growth and consumer spending before any rate hikes, according to the people.
— Toru Fujioka and Masahiro Hidaka
BOJ Said to Mull Giving More Rate Guidance
Bloomberg Brief: Economics Asia
Bloomberg Brief Managing Editor
Paul Smith
Global Head of Economics
Michael McDonough
Economics Asia Editors
Nathaniel E. Baker
Colin Simpson
Ben Baris
James Crombie
Chief Asia Economist
Tom Orlik
Asia Economist
Fielding Chen
Asia Economist
Tamara Henderson
Asia Economist
Yuki Masujima
Asia Economist
Abhishek Gupta
Marketing & Partnership Director
Courtney Martens
@bloomberg.netcmartens3
+1-212-617-2447
Reprints & Permissions
Lori Husted
+1-717-505-9701 x2204
Advertising
Lucy Rosen
+1-212-617-6759
Interested in learning more about
the Bloomberg terminal? Request a
free demo .here
© 2017 Bloomberg LP.
All rights reserved. This newsletter
and its contents may not be
forwarded or redistributed without
the prior consent of Bloomberg.
Please contact our reprints group
listed left for more information.
