DM Asia-Pac

[Japan] [Korea] [Taiwan] [Hong Kong] [Singapore] [Australia] [New Zealand]

JAPAN

[Twitter: EMgist latest]

  • Strategy:

    • JPY:​

      • 14 May-18: We lower the stop-loss level on our strategic short EURJPY (EURJPY BGN CURNCY) to 131.7 - in anticipation that weak Japan economic data this week are likely to reinforce support for the BOJ's prolonged easing stance: 

      • Still constructive JPY (5 Mar-18): In Japan, the focus will be on the BOJ, beginning with the resumption of Governor Kuroda's parliamentary hearing on Tuesday. Markets will watch for further guidance after Kuroda who commented - for the first time last Friday - on the timing of a BOJ exit 'around FY 2019' (April-March 2020) when inflation is also expected to reach its 2% goal. This pushed USD-JPY below the 105.64 intra-day low on 16 February until closing higher (105.75) while EUR-JPY tested a 6mth-low.​

        • Strategic long JPY vs USD and EUR: We expect the Yen to extend its appreciation trend this week even after breaking key levels late last week. Reinforcement that Japan remains on a gradual economic and price recovery track - from Kuroda's testimony (Tue), Q4 GDP upward revision (Thu) and the BOJ press conference (Fri) - is likely to keep the JPY supported. Volatility later this week when US jobs data are released (Fri) could provide a tactical entry opportunity.​

        • Leveraged funds are still net-short JPY. Position rebalancing is likely to see further convergence with EUR (net long) positioning - supporting JPY outperformance vs both the euro and dollar.

      • Tactical short EUR-JPY (26 Feb-18): We expect EUR-JPY (131.4) to break its 200dma (131.2) as soon as this week.​ Data-driven reinforcement of a gradual Japanese economic and price recovery as well as risk premium re-pricing ahead of Italian elections (a likely culprit behind last week's less-hawkish-than-expected ECB minutes) will support Yen outperformance vs the Euro.

    • Equities: 

      • NKY at crossroads (5 Mar-18): Nikkei 225 ended last week just above its 200dma support level - dragged by news of US import tariffs and a stronger yen. Moves in JPY, trade protectionism rhetoric and global risk sentiment are likely to determine price action this week.​

 

  • Macro:

    • Latest:

      • 14 May-19: Japan - Slower GDP/CPI seen this week: The summary of opinions last week reaffirmed the BOJ's commitment to a prolonged easing. One member emphasized the need for the bank to communicate that its commitment to 2%-inflation 'at the earliest possible' has not changed - despite dropping the reference to hitting it "around fiscal 2019".

      • Week ahead (12 Mar-18): In Japan, we will also monitor any Japanese market sensitivity towards new revelations relating to the school public land sale scandal that has dogged PM Abe for over a year and which saw the resignation of the tax chief last week. This could complicate Abe's bid for LDP leadership in September - and for markets - once again renew questions over Abenomics just as Governor Kuroda starts his second term. See Japan: Policy Implications from the Document-Tampering Scandal (Takuji Okubo, 11 Mar-18). Noteworthy Japanese economic data this week include machine tool orders (Mon), PPI and tertiary industry index (Tue), BOJ minutes and core machine orders (Wed) and IP-final (Fri).

      • Week ahead (5 Mar-18): Noteworthy Japanese economic data this week include leading index (Wed), trade balance, final GDP and labor cash earnings (Thu), and household spending (Fri). Consensus expects the final reading for Q4 GDP to be significantly revised higher from 0.5% to 1.0% qoq sa - on the back of stronger-than-expected capex. Continued widening in the positive output gap (1.35% of GDP as of 3Q17 - and highest since 2008) could raise prospects for nascent inflation pressures - most recently bolstered by last Friday's Tokyo inflation and national jobs data. Tokyo core CPI quickened to 0.9% yoy in February - beating consensus 0.8% and prior 0.7%. Although CPI remains well below the BOJ's 2% target, what matter most are the speed and direction of travel.​

        • After the jobless rate hit a 25-year low in January, tightening Japanese labor conditions could also show up in modestly higher wage growth (labor cash earnings are due Thursday). Governor Kuroda has said that 2%-inflation is not sustainable without wage growth of more than 3%, which keeps markets engaged in the spring wage negotiations currently underway. Executives are expected to reply to union requests by mid-March.​

      • Week ahead (26 Feb-18): In Japan, consumption will be the focus ahead of retail sales (Wed), consumer confidence (Thu) and household spending (Fri). Elsewhere, Japan also sees IP (Wed), capital spending and Nikkei PMI (Thu) followed by jobless rate and Tokyo CPI (Fri). Consensus expects Tokyo headline and super-core inflation to accelerate to 1.4% and 0.5% from 1.3% and 0.4% yoy.

        • Jobs data (current job-to-application ratio 1.6, jobless rate 2.8%) may reinforce tight labor conditions as well as boost the case for ~3% pay raises requested by labor unions - and called for by PM Abe (to spur consumption and lift inflation) - during spring wage negotiations. Executives are expected to reply to pay proposals around mid-March. BOJ dove Kataoka speaks on Thursday. 

  • Growth:

    • Views: ​

      • 21 May-18 - Japan - GDP wake-up call: GDP shrank for first time in two years during Q1, contracting more than expected on a surprise fall in business spending as well as flat private consumption. Economists expect a rebound in Q2 on better business capex and consumer spending.

        • In terms of policy, although growth is expected to rebound in Q2, the negative print may serve as A Wake-Up Call for Japanese Policymakers (Takuji Okubo, 17 May-18). BOJ needs to reiterate its commitment to easing, but it is unclear what more they can pull off other than maintaining (even more resolute) commitment to the status quo. Barring a new dovish change in tone, we think JPY (USDJPY CURNCY) will be more a function of the dollar and global risk sentiment in the coming months.

  • Monetary policy

    • MPC: 

      • 27 Apr-18: The BOJ kept its policy settings unchanged as expected in a 8-1 vote. Deputy Governor Masazumi Wakatabe voted in line with the majority, a sign he’ll work with Governor Haruhiko Kuroda, rather than try to lead a charge for added stimulus (for now). The absence of a reference to a timeframe for achieving 2% inflation in the latest outlook report signals a shift to a more sustainable -- and realistic -- approach to reflating the economy.​

    • Commentary:

      • 20 Apr-18 (Bberg): Our view is the BOJ may look for a chance to nudge up its yield-curve settings, possibly around October. That hinges on core inflation exceeding and staying above 1% and Prime Minister Shinzo Abe making a symbolic declaration that deflation is over.

      • 26 Mar-18 (MUFJ MS): On 20 March, the government appointed BoJ executive director Masayoshi Amamiya and Waseda University professor Masazumi Wakatabe as BoJ deputy governors. This essentially marked the start of the second term for Haruhiko Kuroda at the helm of Japan’s central bank (first term for Kuroda, who was reappointed BoJ governor, ends on 8 April).

        • The biggest policy issue to address is reaching the BoJ’s 2% “price stability target.” Five years ago, Kuroda introduced quantitative and qualitative easing (QQE) with the aim of reaching this target within two years (Table 1). Additional easing steps were taken in October 2014 and negative interest rates were introduced in January 2016. This was followed by the September 2016 policy framework pivot to QQE with yield curve control.​

        • The BoJ under Kuroda’s first term was ready to “do anything” to reach the price target, but the BoJ under his second term is in a much more difficult position. Specifically, the Bank needs to carefully monitor the limitations and side effects of monetary easing, while still trying to reach the 2% price target

        • Kuroda’s reappointment has been met with many calls from private sector for him to start paving the way for an exit strategy, mindful of the side effects of prolonged easing. However, it would be hard for the BoJ to scale back its easing for the sole reason of addressing side effects. Such steps would probably not be called an “exit.” If the BoJ were to raise its target level for interest rates (explained as adjusting easing and not tightening) and, as a result, momentum for the economy / prices stalled, stock prices fell, and the yen appreciated, the BoJ would be criticized (even if its actions were not the actual causes). In this case, it would probably adopt more experimental policy steps. Policy management priority could change depending on the state of the economy and prices, but there is no end to policy making itself, in our view.

KOREA

Twitter: [Korea]

  • Strategy:​

    • FX - Neutral KRW vs USD; some tactical long-short opportunities around JPY-KRW: Towards the end of Trump's Asia visit (Nov-17), USD-KRW broke out of its historical range of 1110-1160 that has held through much of 2017. This is largely attributed to perceived reduction in risk premium wrt North Korea as well as a shift in BOK policy stance towards tightening.

      • In the previous 1110-1160 range, towards 1110, importers and pensions stepped up FX purchases. Towards 1160, corporate exporters convert FX proceeds to won, particularly before seasonal high-dividend periods (April). BOK smooths volatility in the interim. Volatility is heightened during bouts of geopolitical risk. BOK faces pressure to intervene if the JPY-KRW cross moves towards 9.00 to preserve FX competitiveness against Japan. Domestic risks to the 1110-1160 range may require a paradigm shift such as a breakthrough in the North Korean geopolitics (lower USD-KRW). 

    • Rates: Local rates are biased higher over the next 12mth horizon given global rates outlook and the prospect of BOK rate hikes through 2018. 9x12mth FRAs are pricing in 75bp more in rate hikes by 2H18. BOK hike timing will be data-dependent given downside growth risks and still low inflation.

    • Equities

      • 14 May-18: Open trade - Strategic long Korean equities vs EM via iShares MSCI South Korea Index Fund (ETF) (EWY US) vs iShares MSCI Emerging Markets Indx (ETF) (EEM US) (opened 8 Mar-18, target 1.672 by 12 June, last 1.611, P&L +6%): North Korea's release of three American hostages augurs well for US-DPRK talks (12 June in Singapore), which should buoy near-term sentiment for Korean equities. That this positive development proceeded despite Trump's pull out of the Iran accord is an especially positive sign. 

      • Strategic long Korean equities vs EM (via iShares MSCI South Korea Index Fund (ETF) (EWY US) and iShares MSCI Emerging Markets Indx (ETF) (EEM US)) (12 Mar-18): The reduction in Korean geopolitical risk premium that took hold earlier this year ahead of the Winter Olympics should receive additional tailwind from Kim Jong Un's overtures. The prospects for de-escalation also increases the Korean government's standing vis-a-vis Beijing and Washington as it navigates a loosening on the Thaad missile-related tourism embargo from the former and a reassessment of steel tariffs and KORUS FTA with the latter.​

  • Macro: 

    • 21 May-18: Korea - BOK meets, difficult to 'remain optimistic': Although the BOK is likely to stay on hold (after its first cyclical rate hike to 1.50% in November), we are interested in the bank's outlook assessment. Outgoing BOK Governor Lee was especially downbeat last week - saying it is difficult to remain optimistic about the economy considering various uncertainties (including global policy normalization and US-China trade tensions) as well as lack of recovery in the Korean job market. This reduces near-term urgency of another rate hike, which consensus expects sometime in 2H18. Also this week, President Moon meets Trump (Tue) and North Korea will begin shutting down its Punggye-ri nuclear test ground (Wed). These events - as well as the US-China trade stalemate - are likely to keep peninsula peace talks on track after a brief scare last week. We stay strategic long Korean stocks vs EM via relative value long iShares MSCI South Korea Index Fund (ETF) (EWY US)vs short iShares MSCI Emerging Markets Indx (ETF) (EEM US).

    • DPRK opportunity for breakthrough (12 Mar-18): North Korea's proposal to discuss full denuclearization in exchange for economic assistance and security guarantees presents an opportunity for a breakthrough. We are guardedly optimistic about prospects for a lasting peace in the Korean Peninsula. The first litmus test for the DPRK's credibility is to allow annual US-ROK military exercises in April proceed without objection. Further out, there is a lack of clarity over over the type of security guarantees that would satisfy Kim Jong Un as well as the practical sequencing of sanctions relief and verifiable denuclearization.​

 

  • Growth

    • Commentary​

      • 20 Apr-18 (Bberg): Exports, which comprise about half of GDP, have so far remained relatively robust in the face of tariff threats. Strength in the semiconductor sector has outweighed weakness in autos.

        • Investment may have slowed on higher corporate taxes. U.S.-China trade tensions may have also prompted firms to postpone investment decisions.

        • Increased government spending likely bolstered growth. President Moon Jae-in’s budget for 2018 was up about 7% from the previous year’s. His labor-friendly policies, including a minimum-wage hike in January, likely helped lift consumption.

        • Steady growth would suggest the economy is still running slightly below capacity -- our estimate of potential growth stands at about 3.1%. That points to inflationary pressure remaining muted, keeping the Bank of Korea on hold.​

  • Monetary policy - Tightening cycle begins: BOK is likely to begin to raise its benchmark 7-day repo rate (current 1.25%) on its 30 Nov-17 MPC. Consensus sees +50-75bp in rate hikes through end-2018. This could be excessive if downside growth risks/still low inflation persist, external/geopolitical risk sentiment deteriorates and BOK becomes more concerned over a stronger KRW.

  • Geopolitics

    • Views: 

      • 9 Mar-18 - Big opportunity for breakthrough with potential US-DPRK direct talks:

        • What's at stake?

          • A grand bargain: In exchange for economic assistance and security guarantees, North Korea would give up its nuclear-weapons program in a way that could be verified by outsiders. ​

        • Why did DPRK change its stance?

          • Kim may see himself negotiating from a position of strength after advancements in his nuclear program.

          • He could also be feeling the bite of tougher sanctions imposed by the United Nations Security Council, U.S. and European Union.

          • It’s also possible that Kim sees an opportunity to create dissension between the U.S. and South Korea. ​

        • Security guarantees: What kinds of security guarantees would satisfy the North Korea leader?

          • North Korea says it wouldn’t give up its program without assurances that the U.S. poses no military threat to the country or to him/his regime. Whereas Trump has insisted that North Korea must be willing to commit to giving up its nuclear weapons before talks could begin.

            • Kim would have to be convinced by whatever security guarantees he’d receive in exchange. He has gone to great lengths to ensure it the survival of his regime. He’s executed senior advisers including his uncle. Possession of a nuclear arsenal, arguably, lowers the risk of a foreign invasion that would depose him.

            • Until recently, North Korea’s position had been that talks shouldn’t be tied to any such conditions. And in an address in December, Kim said his nation’s nuclear deterrent was “irreversible.”

            • DPRK track record of reneging on deals: North Korea has a history of escalating and then lowering nuclear tensions to win diplomatic and economic benefits. A 1994 deal to freeze its nuclear program, brokered by U.S. President Jimmy Carter, collapsed in 2002. A year after North Korea’s first nuclear test in 2006, multinational talks produced an agreement to close its nuclear facilities in exchange for food and energy assistance. That accord collapsed in 2009.

          • Sequencing: Question of how to reach an agreement on how to sequence sanctions relief, denuclearization, security guarantees. North Korea compliance has always been in doubt. A lot of goodwill and concrete steps need to be taken by Kim Jon Un to credibly convince actors that this is not a tactic to stall for time while scientists race towards more capable nuclear weapon.

        • First, North-South will meet in April:

          • The leaders of North and South Korea have agreed to meet for a summit on their shared border in late April.

          • A lot at stake for South Korea. National Assembly elections (13 Jun) and the ruling party does not hold a majority.

        • Location matters: Important that Kim Jong Un meets outside of the US to deprive Kim of opportunity to use Trump visit for propaganda (Mar-a-Lago summit?)​. China could be neutral ground for meeting.

      • 29 Nov-17: Until the most recent missile test (29 Nov) - the first in 73 days - perceived geopolitical risk premium had been falling due to two major factors: 1/ Absence of a DPRK missile test during Trump's Asia visit and 2/ Reports (30 Oct) that ~200 people died when tunnels collapsed near the nuclear test site after the 2 Sep nuclear test. The presumption is that underground hydrogen bomb tests should not be expected anytime soon. Many geostrategists are pointing to the eventuality that the world must accept a nuclear North Korea, crediting Kim Jong Un with playing a strategically smart game - inconsistent with Trump's 'mad man' characterizations.

    • Recent news:

      • 9 Mar-18: 

        • Japan PM Abe agreed in call with Trump on Fri to visit US in April, agreed with US that this is result of sustained pressure on North Korea​

        • Trump “will accept the invitation to meet with Kim Jong Un at a place and time to be determined ... We look forward to the denuclearization of North Korea. In the meantime, all sanctions and maximum pressure must remain." - WH statement

        • Kim Jong Un Invites Trump to Meet in North Korea. South Korea official says Trump agrees to meet by May

      • 8 Mar-18: DPRK agreement to enter nuclear talks coincides w/ shrinking FX reserves, possibly now $4-5bn, and CPI spike, as sanctions limited export earnings - acc to Korea researchers

      • 6 Mar-18: DPRK says it’s ready to discuss full denuclearization, directly with US, in exchange for guarantees of its security. The statement comes via South Korea, who have just wrapped up two days of talks

      • 5 Mar-18 (WSJ): Kim Jong Un Holds First Known Meeting With South Korea

      • 26 Feb-18 (WSJ): North Korea Olympic Delegation Says Regime ‘Fully Willing’ to Talk to US just hours after state media said it would “never have face-to-face talks”

      • 11 Feb-18: Korea President Moon Jae-in's ability to accept North's invitation to summit depends on tensions not returning to pre-Olympic levels. Moon has cards to pressure US into reducing intensity of joint military drills - China Global Times

        • North Korea asked South Korea Pres. Moon Jae-in to summit in Pyongyang, possibly seeking to drive wedge btwn ROK and US. VP Pence said US will continue to impose steep costs on DPRK but Trump admin now ready to talk to regime - WaPo​

      • 1 Feb-18: >30 North Koreans arrived in South Korea, affirming fragile Winter Olympics truce. DPRK foreign min sent a letter to UN asking it to recognize "improved inter-Korean relations", blamed US for tensions - KCNA

        • 29 Jan-18: North Korea called off planned joint Olympic event at Mount Kumgang, blaming Korea media for encouraging insulting sentiment. WSJ reports DPRK scaled back annual winter military exercises with US officials speculating fuel shortages.

      • 17 Jan-18: Trump accused Russia of helping North Korea evade sanctions. "What China is helping us with, Russia is denting" - Trump via Reuters

        • DPRK athletes will come to Korea on Feb. 1, with rest of delegation arriving Feb. 7. Sides have yet to decide who will represent Kim at Olympics to be held from Feb. 9​

        • (Bloomberg): Korea’s will march jointly under one unified flag during opening ceremony of Winter Olympics

      • 9 Jan-18 (FT): North-South Korea agreed to hold military talks, further high-level dialogue, resolve issues via negotiations acc to joint statement after ~11hrs of discussions. DPRK took umbrage w/ ROK's raising of denuclearization.

      • 8 Jan-18: Korea reaches symbolic breakthrough for Winter Olympics. Pyongyang’s participation in games threatens to complicate US pressure on regime

      • 10 Dec-17 (Bloomberg): North Korea effort to strengthen relations with UN is extension of its announcement it completed its nuclear program last month. Both aim for negotiations with the US

        • 4 Dec-17: UN political affairs chief Jeffrey Feltman set to meet North Korea Foreign Minister Ri Yong Ho, other officials during visit to Pyongyang Dec 5-8​

      • 3 Dec-17: North Korea said US "begging" for nuclear war by planning "largest-ever" joint aerial drill w/ ROK (4-8 Dec) just after concluding exercise w/ nuclear-powered aircraft carriers

      • 30 Nov-17: China won't start oil embargo vs North Korea, or take other steps on top of UN sanctions, bc doing so might trigger humanitarian crisis. National interests cannot be sacrificed to any US agenda - Global Times

      • 29 Nov: North Korea fired an ICBM in its first provocation since President Trump labeled Pyongyang a sponsor of terrorism in early Nov. The missile was launched at 3:17 a.m. local time, reached an altitude of more than 4,000 kilometers (2,500 miles), and traveled about 1,000 km before splashing into the Sea of Japan. Trump responded that the U.S. "will handle" the situation. The Kim regime's last test firing was in September. ​North Korea declared its nuclear program complete: It test-fired long-range intercontinental ballistic missiles and said the entire U.S. was now in range. This is the third test of an ICBM in 2017 — and Kim said “we have finally realized the great historic cause of completing the state nuclear force”. It is unclear if the missile fired (29 Nov-17) contained a nuclear warhead or proves it is capable of mounting one that could withstand atmospheric re-entry. Some military analysts have upgraded their assessment of North Korea's nuclear capability, with one study concluding the country has successfully produced a miniaturized nuclear warhead that can fit inside its missiles. 

        • 11/12 Sep-17: Softer version of sanctions are passed by UN Security Council. US says new sanctions would cut exports by 90% and oil imports by 55%. Sanctions would also freeze assets, ban textile exports.

        • 2 Sep: DPRK says it successfully conducted underground test of H-bomb to be loaded into ICBM

    • Policy stance/objectives (29 Nov-17):

      • North Korea - Achieve 'nuclear power' status, use it to extract benefits: DPRK has vowed to complete its nuclear program to achieve ‘equilibrium of real force' vs the US and ‘calm down US belligerence' (15 Sep-17). Neither the carrot approach (aid and energy in return for concessions) nor stick (international sanctions and military exercises) has produced more than a temporary halt to North Korea’s nuclear program. North Korea has a track record of escalating and then lowering tensions to extract diplomatic and economic benefits. For example, North Korea has made numerous attempts to pressure China to ease sanctions in exchange for Beijing to send a special envoy trip to Pyongyang this year (Nikkei, 26 Nov-17).

        • At a head of state level of analysis, Kim has executed senior advisers including his uncle and one-time guardian, raising concerns about his temperament and the absence of considered counsel. 

      • US, Japan, South Korea:

        • US - All options on table including military, diplomacy and 'blame China' approach: Trump has threatened to deal with Kim's regime “very strongly,” saying all options — including military ones — are on the table.​ Trump has repeatedly criticized China for failing to do enough. In an address to the ROK National Assembly, Trump asked China/Russia to stop giving aid/to cut ties but extended some sympathy towards the people of North Korea - calling their country a 'Hell that no person deserves' (7 Nov-17). Trump opted not to visit the DMZ during his ROK visit on 7-8 Nov. Over objections from China, the U.S. has deployed a defense system in South Korea designed to take out North Korean missiles aimed at South Korea.

        • Japan - De-nuclearized DPRK before talks: Japan's policy has actively promoted tougher sanctions and emphasized de-nuclearization first before talks can begin.

        • South Korea - Defuse tensions via diplomacy while staying alert to threat: ROK wants to avoid military conflict while maintaining the need for preparedness. Seoul has often acted as the most conciliatory force within the US-Japan-ROK axis. Korea's deployment of US Thaad missile defense has irked Beijing, which has implemented boycotts/sanctions on South Korea. Seoul may be open to a 'carrot option' of scaling back military drills around North Korea. It has also offered resumption of humanitarian aid if DPRK scales back its nuclear ambitions; this has divided ROK from Japan/US. At times, ROK has demonstrated nervousness over US rhetoric. It is pressing the US to hand over wartime command to its military in the event of war (WSJ, 26 Oct-17).

      • China - Avert military/promote diplomatic options, contain/counter-balance Pyongyang and Washington: China fears a collapse of the Pyongyang govt might prompt an influx of refugees into its northeastern provinces. China is North Korea’s biggest trade partner, main financial intermediary and supplier of most of its food/energy. Imports of the grain from China have spiked at the same time as past provocations by leader Kim Jong Un/his father Kim Jong Il over the past 10 years (Bloomberg, 2 Nov-17).

        • China has played both sides in UNSC sanctions - suspending critical coal purchases from its neighbor for five months in 2017 while pushing for peace talks to resume. China complied with 12 Sep-17 UNSC sanctions - telling companies to close within 120 days (Bloomberg, 28 Sep-17). China proposes that the best path is one where US/ROK freeze military exercises in exchange for North Korea halting nuclear and missile programs (Global Times, 20 Nov-17).

      • Russia - Expand regional influence via intermediation: Moscow has attempted to play an intermediary role, hosting DPRK officials at a non-proliferation conference in Moscow in late Oct-17. By threat of veto, it diluted tougher US calls for toughter sanctions (Sep-17). Like China, it has called for DPRK to halt nuclear tests in exchange for reduction in US-ROK military drills (Tass, 16 Oct-17).

      • Commentary:

        • Eurasia Group ('Signal' newsletter, 9 Jan-18): How does it look from each of the key participants' perspective?

          • You're Kim Jong-un – more than anything you want an ICBM that can hit the US. If you have refrigerator magnets, surely two of them are of Saddam Hussein and Muammar Qaddafi, as reminders. But with sanctions hurting your cash flow, you're in the mood for a temporary thaw, some international goodwill, and more time to develop that ICBM. You know South Korean president Moon Jae-in wants to ease tensions and have a peaceful Olympic games. So you sent him an olive branch on New Year's Day... And here you are.

          • You're Moon Jae-in – you've already agreed to postpone regular US-South Korea military drills to avoid provoking Kim during the Games. North Korean participation is a nice little win, but there's not much more you can do with the North without violating sanctions or diverging from the hardline policy of the US, your main security partner. Don't forget, Trump is also in a state about the trade deficit with your country, and is currently trying to renegotiate your most important free trade deal as a result. Tough spot. How good a geopolitical slalom skier are you?

          • You're Donald Trump – you've threatened to destroy North Korea, though you must know that would also risk the lives of tens of thousands of South Koreans and US troops too. And yet beneath the bluster, your administration has helped cobble together a decent sanctions regime. The trouble is that Kim's fundamental determination to get nuclear weapons that can hit you is undeterred – it's an existential security question for him. So after the goodwill of the Games, you'll resume military drills with South Korea, Little Rocket Man will test a Big Rocket, man, and... then what?​

    • Chronology of 2017 missile crisis (as of 29 Nov-17, * = number of confirmed missile tests):​

      • Nov (*): Trump labels DPRK a state sponsor of terrorism. DPRK tests intercontinental missile (29 Nov) and Kim says nuclear program is complete.​

      • Sep: DPRK says it successfully tested a hydrogen bomb capable of riding a long-range missile. UNSC approves new sanctions.

      • Aug (**): UNSC imposes the 'most stringent' sanctions on DPRK. DPRK says it will 'make the US pay dearly'. Trump says threats will be met with 'fire and fury'. DPRK fires ballistic missile that flies over Japan.

      • Jul (**): DPRK tests two intercontinental missiles, says entire US is in range.

      • Jun: US college student dies after release from DPRK detention. China, US quarrel over China's effectiveness at reining in Kim.

      • May (***): ROK elects Pres. Moon Jae-in, who proposes increased dialogue.

      • Apr (***): Trump warns of 'major major conflict'. China/US vow to cooperate over DPRK.

      • Mar (**): US deploys Thaad missile defense system in South Korea. ROK's Park Geun-Hye is ousted as president.

      • Feb (*): China suspends imports from DPRK. Trump says he will deal with DPRK 'very strongly'. Kim's half-brother murdered in Malaysia.

      • Jan: Kim says DPRK close to test-firing missile capable of hitting US.

    • Reference:​

TAIWAN

Updated 2 Nov-17

[Twitter: EMgist latest]

  • Monetary policy: The CBC is likely to hike its benchmark rate in 2018 (current 1.375%) as growth remains stable and inflation is likely to rise.

 

HONG KONG

Twitter: [HKD]

  • Strategy: 

  • ​Macro: 

 

  • Monetary and FX policy: 

    • Recent news: ​

      • 16 Apr-18: Hong Kong: HKMA bought HKD for second consec day on Fri to prevent it from falling below weak end of range. Bought HK$6.406bn ($816m), following Thu's HK$3.258bn​

      • 8 Mar-18: HKMA could tighten liquidity via additional bill sales as HKD plunges to weakest level since 1984 - Bberg survey

      • 28 Feb-18: HKD Weakness May Prompt HKMA to Sell Additional Bills - ANZ
        Ample liquidity + likelihood of more hawkish Fed continue to exert pressure on HKD; spread btwn 1mth Libor and Hibor may widen further in absence of policy action

        • HKD is weakening because more investors expect Fed to tighten more quickly and for interest rate differential between HKD and USD to widen, according to HKMA​

    • Commentary: 

      • 13 Apr-18​ - Impact on property market (FT, 13 Apr-18): The HKMA’s move to purchase Hong Kong dollars will reduce the aggregate balance of the local banking system from HK$180bn to around HK$176.5bn.

        • Mr Lee said this will “provide a more conducive environment for the normalisation of the interest rate in Hong Kong following more closely the interest rate level in the US . . . so we will expect that interest rates will rise incrementally . . . so I hope that people with debt burden will be watchful about this rise in interest rates.”

        • However, Mr Lee warned that the increase in interest rates could put pressure on mortgage borrowers.

        • “The property market prices depend on many factors . . . The key point is that the payment by mortgagees would likely increase if the HKD interest rates continue to rise in tandem with the US dollar interest rate. That would mean the monthly payment would increase, so we would appeal to borrowers, not just for mortgages, to manage their interest rate expenses carefully.”

      • 12 Apr-18 - Impact on liquidity (Bloomberg): Ryan Lam, head of research at Shanghai Commercial Bank, said that rates in the city won’t meaningfully increase until the balance falls below HK$50 billion.

SINGAPORE

Updated 2 Nov-17

[Twitter: EMgist latest]

  • Growth:

    • Commentary: ​

      • Bberg (16 Nov-18): Singapore’s expansion slowed to 2.6% year on year in 3Q, according to the advance estimate, down from 3.9% in 2Q and 4.5% in 1Q. The revised 3Q reading is likely to come in at 2.4%, according to the consensus estimate.

        • Net exports appear to have subtracted more from growth in 3Q, with weaker domestic exports and stronger imports.

        • Household spending remained supported by low inflation, higher home values, and ongoing measures by the government to boost wages. Even so, retail sales after inflation fell 0.2% year on year on average in 3Q following an increase of 0.9% in 2Q. Car sales also slumped.

        • Private investment appears to have been stable in 3Q. The increase in bank lending to businesses was unchanged at 6.3% year on year after adjusting for inflation.

  • Monetary policy:

    • MAS tightened monetary policy in April and October, remaining sanguine about the risks to growth from an escalating trade war between the U.S. and China​

 

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