24 Mar 2014
Asia EM Express: Thai court annuls general election, BoT downgrades GDP forecast
FXStreet (Łódź) - On Friday the Bank of Thailand released the monetary policy report for the first quarter of 2014, in which it downgraded this year's GDP forecast to 2.7% from 3.0%.
“Lower than expected economic momentum in H2 2013…[and the] prolonged political situation since late 2013…[which has] delayed government spending…dampened confidence of consumers and investors…and adversely affecting tourism” the BoT explained in the report. “If the political standoff is resolved within H1 2014, domestic demand will improve.”
But the political situation in Thailand had become even more complicated on Friday as the country's Constitutional Court ruled that the general election which was held in February was invalid because it took more than one day, as demonstrators were blocking the vote. Therefore, Thailand has been left in limbo, without a full government and the prime minister Yingluck Shinawatra entangled in allegations of corruption.
Tim Condon from ING believes that we might see more GDP forecast downgrades from the BoT. “Politics and the failure of an export-led recovery to materialize will, we believe, sustain GDP
growth this year at the fourth quarter’s 2.4% QoQ annualized rate.”
“We reiterate our forecast of one more policy interest rate cut this year to 1.75% and our
yearend 3.40% forecast for the 10-year government bond yield.”
In China news that 50 blue-chip companies will have the possibility to issue preferred shares caused the Shanghai index to rise 2.7% on Monday. The new vehicle for raising capital will benefit lenders and the most indebted sectors such as housing and materials.
Moreover, PboC Deputy Governor Hu Xiaolian reaffirmed on Monday that corporate defaults will be allowed. Chinese yuan rose by the most in over two years following the PboC's decision to set the daily fixing 0.04% stronger at 6.1452.
Economic data
Key data today was China's flash HSBC Manufacturing PMI, released by Markit Economics. It surprised to the downside, showing a slowdown to 48.1 form 48.5 and against forecasts of a rise to 48.7.
“The positive market expectations were likely due to the seasonal effect and the rebound
of the MNI China indicator to 53.4 in March from 50.2 in February,” Zhiwei Zhang, Research Analyst at Nomura suggests. “We maintain our view that growth momentum will slow in H1, and policy easing will pick up in Q2.”
“We continue to expect the reserve requirement ratio to be cut by 50bp in Q2 and another 50bp in Q3. Fiscal policy will also likely become expansionary in Q2 to keep GDP growth from dropping below 7% (Nomura: 7.3% in Q1, 7.1% in Q2).”
Meanwhile, Statistics Singapore informed that on an annual basis inflation grew at the slowest pace in four years in in February at 0.4%, a notch down from the previous 1.4% growth.
Tim Condon from ING sees inflation in Singapore rebounding from March on and points out that the Monetary Authority of Singapore expects CPI to remain in the 2-3% range this year.
“With the tight labour market from the government’s productivity boosting policies raising business costs we think the MAS will see little scope for relaxing the 'modest and gradual' S$-NEER appreciation policy in the April 2014 policy statement,” Condon says. “We expect a 'don’t fight the MAS' mindset will divert hot money to other equity markets, which will support USDSGD.”
Also on Monday Taiwan published annual Industrial Production data which came in at 7% in February, compared with the 1.78 drop in January and beating expectations of a 3.5% increase.
Furthermore, on Friday Taiwan released the Unemployment Rate for February, which stood at 4.05%, slightly lower than the previous reading of 4.07% and against consensus of a rise to 4.10%.
Technicals
The Westpac Bank Corporation team of analysts comment on the on the direction of Asian currencies this week:
“Risks in USD/CNY/CNH appear to be getting more two-way. A lot of bad news is priced into the near term growth outlook, while hopes of fresh stimulus grow. Any fresh stimulus measures are likely to be a bigger positive for other Asian currencies rather than CNY/CNH. Still, the implied yields on the USD/CNY NDF curve are starting to get to attractive levels from a short USD perspective (particularly the 3 month tenor). Elsewhere we remain long USD/KRW and look for further catch up to USD/CNY and USD/TWD weakness. INR remains a standout performer, while SGD NEER continues to suggest fading rallies in USD/SGD.”
“Lower than expected economic momentum in H2 2013…[and the] prolonged political situation since late 2013…[which has] delayed government spending…dampened confidence of consumers and investors…and adversely affecting tourism” the BoT explained in the report. “If the political standoff is resolved within H1 2014, domestic demand will improve.”
But the political situation in Thailand had become even more complicated on Friday as the country's Constitutional Court ruled that the general election which was held in February was invalid because it took more than one day, as demonstrators were blocking the vote. Therefore, Thailand has been left in limbo, without a full government and the prime minister Yingluck Shinawatra entangled in allegations of corruption.
Tim Condon from ING believes that we might see more GDP forecast downgrades from the BoT. “Politics and the failure of an export-led recovery to materialize will, we believe, sustain GDP
growth this year at the fourth quarter’s 2.4% QoQ annualized rate.”
“We reiterate our forecast of one more policy interest rate cut this year to 1.75% and our
yearend 3.40% forecast for the 10-year government bond yield.”
In China news that 50 blue-chip companies will have the possibility to issue preferred shares caused the Shanghai index to rise 2.7% on Monday. The new vehicle for raising capital will benefit lenders and the most indebted sectors such as housing and materials.
Moreover, PboC Deputy Governor Hu Xiaolian reaffirmed on Monday that corporate defaults will be allowed. Chinese yuan rose by the most in over two years following the PboC's decision to set the daily fixing 0.04% stronger at 6.1452.
Economic data
Key data today was China's flash HSBC Manufacturing PMI, released by Markit Economics. It surprised to the downside, showing a slowdown to 48.1 form 48.5 and against forecasts of a rise to 48.7.
“The positive market expectations were likely due to the seasonal effect and the rebound
of the MNI China indicator to 53.4 in March from 50.2 in February,” Zhiwei Zhang, Research Analyst at Nomura suggests. “We maintain our view that growth momentum will slow in H1, and policy easing will pick up in Q2.”
“We continue to expect the reserve requirement ratio to be cut by 50bp in Q2 and another 50bp in Q3. Fiscal policy will also likely become expansionary in Q2 to keep GDP growth from dropping below 7% (Nomura: 7.3% in Q1, 7.1% in Q2).”
Meanwhile, Statistics Singapore informed that on an annual basis inflation grew at the slowest pace in four years in in February at 0.4%, a notch down from the previous 1.4% growth.
Tim Condon from ING sees inflation in Singapore rebounding from March on and points out that the Monetary Authority of Singapore expects CPI to remain in the 2-3% range this year.
“With the tight labour market from the government’s productivity boosting policies raising business costs we think the MAS will see little scope for relaxing the 'modest and gradual' S$-NEER appreciation policy in the April 2014 policy statement,” Condon says. “We expect a 'don’t fight the MAS' mindset will divert hot money to other equity markets, which will support USDSGD.”
Also on Monday Taiwan published annual Industrial Production data which came in at 7% in February, compared with the 1.78 drop in January and beating expectations of a 3.5% increase.
Furthermore, on Friday Taiwan released the Unemployment Rate for February, which stood at 4.05%, slightly lower than the previous reading of 4.07% and against consensus of a rise to 4.10%.
Technicals
The Westpac Bank Corporation team of analysts comment on the on the direction of Asian currencies this week:
“Risks in USD/CNY/CNH appear to be getting more two-way. A lot of bad news is priced into the near term growth outlook, while hopes of fresh stimulus grow. Any fresh stimulus measures are likely to be a bigger positive for other Asian currencies rather than CNY/CNH. Still, the implied yields on the USD/CNY NDF curve are starting to get to attractive levels from a short USD perspective (particularly the 3 month tenor). Elsewhere we remain long USD/KRW and look for further catch up to USD/CNY and USD/TWD weakness. INR remains a standout performer, while SGD NEER continues to suggest fading rallies in USD/SGD.”