Week in FX Asia Sept 9-14: FED is doing the PBoC a favour

It seems the Fed is doing the job of Chinese policy makers. This summer’s biggest mystery is why the PBoC has not done more to support internal growth. Analysts will tell you that Chinese industrial output and exports growth happens to be at its lowest level since the beginning of the financial crisis. Yet the CBanks monetary policy remains relatively tight. US QE will push capital flows to emerging markets. A percentage of these flows will end up supporting China’s questionable real estate and equity prices, and naturally “pump up liquidity in the banking system, pushing bank lending and investment higher.” If the Fed happens to get US growth off the canvass, then China will have a stronger economy to export too, certainly one that should have more of a renewed appetite for Chinese goods.

Below are some other highlights of the week:

ASIA

• CNY: Chinese imports fall for second consecutive month in August. China’s exports rose +2.7%, y/y, a touch weaker than the consensus forecast of +2.9%. The major surprise was in imports, which fell -2.6% against consensus for a +3.5% rise. Weak imports helped drive the trade surplus to +\$26.7b. While the decline in import value no doubt reflects weaker domestic demand.
• JPY: Real-GDP for Q2 was revised down to +0.2%, q/q, or an annualized +0.7%, from the initial estimate of +0.3%, mainly due to a downward revision to private-sector inventories. The current account surplus stood at +Â¥625.4b in July, down -40.6%, y/y, compared with +Â¥433.3b in June. The terms of trade improved somewhat on the back of lower crude oil prices, the trade deficit increased to -ï¿¥476.9b in July from -ï¿¥166.6b in June due to a weakness in the export volume.
• KRW: Korea’s Finance Ministry unveiled fiscal stimulus measures worth +KRW5.9t (\$5.2b), of which +KRW4.6t will be allocated for this year and KRW1.3tn for 2013. The measures include extra spending and tax cuts that utilize unspent funds in the existing budget.
• AUD: Aussie number of home loans fell -1.0% in July, following a revised +1.0% rise in June. Investment lending dropped -2.7% in July from a revised +4.4% increase in June, while owner-occupied home loans declined 1.4%mom in July from a revised 0.9%mom increase in June. Despite RBA cuts, home loans have remained weak, suggesting scope for further cuts, in our view.
• NZD: Kiwi REINZ housing price index rose +1.3%, m/m in August, compared with a 0.7%mom fall in July. The number of homes sold was up 16.2%yoy in August, following a 19.9%yoy increase in July.
• MYR: Malaysia’s IP rose +1.4%, y/y in July, following a +3.7% rise in June, but was weaker than market expectations of +3%.
• AUD: Aussie’s NAB business conditions index rose +4pts in August to stand at +1, more than recouping July’s loss. In contrast, the index of confidence fell -5pts to stand at -2 in August, reversing much of the improvement made in July.
• JPY: Japan’s BSI large all industry index rebounded to +2.2pt in Q3, after the -3.1pts in Q2.
• PHP: Philippines’ July merchandise exports rose +7.8%, y/y, significantly stronger than consensus and our expectations. BSP expect growth to be soft in Q3 and the market does not expect any rate cut next week.
• SGD: The MAS is expected to have intervened in the market.
• JPY: Japan’s machinery orders rose more than estimated in July to mark the second straight month of rebound. Orders climbed 4.6%mom following a 5.6%mom gain in June.
• AUD: Aussie Westpac consumer confidence index rose +1.6% to 98.2 in September, from 96.6 in August. Separately, new dwellings in Q2 rose +4.6%, compared to a revised fall of -7.8% in Q1.
• KRW: South Korea’s unemployment rate was unchanged from July at +3.1%. The number of employed people increased by +364k or +0.2%, y/y to +24.9m in August.
• NZD: The RBNZ left the cash rate and its neutral guidance unchanged, in line with the market’s expectation. The 90-day rate projection is consistent with the OCR unchanged well into 2013. The improvement in housing is offset by weak trading partner growth.
• KRW: The Bank of Korea left the cash rate unchanged at +3%, against consensus for a -25bp cut. The statement maintains a dovish tone.
• PHP: The BSP left policy rates unchanged at +3.75%, in line with consensus.
• IDR: The BI left its policy rate unchanged at +5.75%, in line with consensus, again opting to accommodate growth despite signs of the economy overheating.
• INR: The market continues to expect no rate change at next Monday’s RBI meeting, but futures are pricing in a -50bp cut on 30 October.
• JPY: Japanese IP was revised to -1.0%, m/m in July from the preliminary figure of -1.2% and in y/y it was revised to -0.8% from the preliminary figure of -1.0%. Capacity utilization was revised up to +0.5%, m/m in July from the preliminary figure of -2.3%.

AMERICAS Week in FX

EUROPE Week in FX

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