wednesday nov. 9, - bloomberg.com · the indian rupee banknote denominations that will cease to be...
TRANSCRIPT
Wednesday
Nov. 9, 2016
Nov. 9, 2016
U.S. Election Nears End; China CPI, PPI; BOT RateBen Baris, Bloomberg Briefs Editor
WHAT TO WATCH: Voting in the . By 10 a.m., continues U.S. presidential election40 of the 50 U.S. states will have finished voting. Polls on the West Coast close at noon, leaving only the state of Alaska still voting. Traditionally, this is when TV networks and the Associated Press would call the presidential race.
ECONOMICS: Economists surveyed by Bloomberg forecast China consumer pricesrose 2.1 percent in October from a year earlier and advanced 0.9 producer pricespercent, 9:30 a.m. Japan's current account balance is expected to show a 2.02 trillion yen surplus in September, up from 2 trillion yen in August, 7:50 a.m. The Bank of
will decide on monetary policy at 3 p.m., with the median forecast anticipating Thailandthe central bank will keep its benchmark interest rate unchanged at 1.5 percent.
GOVERNMENT: Swedish Enterprise Minister visits India with a Mikael Damberggroup of business leaders, and will meet with Prime Minister , Finance Narendra ModiMinister , Defense Minister at the India – Sweden Arun Jaitley Manohar ParrikarBusiness Leaders' Round Table.
MARKETS: The increased 0.4 percent to 2,139.64 Tuesday. S&P 500 U.S. Treasury yields rose four basis points to 1.87 percent. rose 1 percent to 10-year Mexico’s peso
a two-month high of 18.42 per U.S. dollar. traded near $45 a barrel.Oil
(All times local for Hong Kong.)
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In This Issue
China's exports for a second fellmonth in October, potentially indicating deeper problems for the sector: Tom Orlik and Fielding Chen
The offshore yuan, once a safe haven relative to the euro and the Swiss franc, has to a more swungvulnerable status: Yuki Masujimaand .Fielding Chen
With the currency hitting record lows and the budget deficit worsening, senior Mongolian officials said they support an program from assistancethe IMF: .Michael Kohn
The , which People’s Bank of Chinahas held the benchmark interest rate at a record low for more than a year, said in a Tuesday that the reportcurrent level is in line with economic fundamentals.
Quote of the Day
"The market is pricing in a Clinton victory. Votecastr added a bit of fuel to the move."
— Win Thin, global head of emerging
markets at Brown Brothers Harriman & Co. in
New York, on the yen's decline toward its
weakest level since July
500 and 1,000The Indian rupee banknote denominations that will to be ceaselegal tender from Wednesday. The step by Prime Minister Narendra
is an attempt to fulfill his Modielection promise of curbing tax evasion and recovering illegal income, locally known as black money, stashed overseas.
China Trade
Ominous Sign for China Debt as Cash Crunch Bites Early
China’s $3.2 trillion corporate bond market is already starting to reel from rising interbank borrowing costs, and the traditional year-end funding crunch hasn’t even started yet. The yield premium for five-year AA rated notes over the sovereign climbed 10 basis points in October as interbank borrowing costs surged to an 18-month high. Worse may be yet to come as lenders tend to hoard cash for year-end regulatory checks, prompting the overnight repo fixing to rise in December in four of the past five years, including a 33 basis point jump in the last month of 2015. China’s bond market has had 11 consecutive quarters of gains as investors bet the central bank would keep interest rates low to support an economy growing at the slowest pace in a quarter century. The advance has faltered as the People’s Bank of China focuses on cutting debt, pushing up short-term borrowing costs to discourage speculative trading.
— Bloomberg News
Economics Asia 2 Nov. 9, 2016
China Trade
Exports Drop Despite Weak YuanBy Fielding Chen and Tom OrlikChina’s exports fell for a second month in October, a negative counterpoint to a slew of more positive data at the start of the fourth quarter. The mismatch between shrinking overseas sales, a weaker yuan, and resilient global demand is a puzzle, and might indicate deeper problems with the export sector. The latest data will add to expectations for yuan weakness, though the pattern in the last few months has remained stability on a trade-weighted basis.
Exports measured in yuan terms fell 3.2 percent year on year in October, a slower pace of decline than the 5.6 percent fall in September but below the consensus estimate of a 0.8 percent drop. Imports in yuan terms rose 3.2 percent, up from 2.2 percent in September but missing expectations for a 5 percent gain. The headline figures in yuan terms were flattered by a 6.8 percent depreciation in the Chinese currency against the dollar in the last year. The trade balance expanded to 325.3 billion yuan from 278.4 billion yuan in September.
Stripping out the impact of yuan depreciation, exports in dollar terms fell 7.3 percent year on year in October after a 10 percent drop in September. Imports slipped 1.4 percent after a 1.9 percent decline. China’s trade surplus in dollar terms was $49 billion, up from $42 billion. The surplus is in contrast to a larger-than-expected $45.7 billion decline in China’s foreign reserves in October, indicating quicker capital outflows in the month.
China’s shrinking exports, a weaker yuan, and resilient global demand sit strangely together. A weaker yuan and stronger U.S. household sector should be driving a rebound in China’s overseas sales. Continued contraction is therefore a puzzle and demands further explanation:
It’s possible the weakness in the yuan has been insufficient to offset the drag on competitiveness from past gains. The currency is down 6.9 percent in the last year but in the last five years it's still up 16.1 percent.
Protectionism is likely having an impact, with G-20 countries introducing more than 1,200 trade control measures over the last five years.
It’s possible a slowdown in the consumer electronics upgrade cycle is weighing on China’s sales. If Apple’s watches and Samsung’s phones don’t fire the imagination, China’s manufacturers have less business.
More speculatively, it’s possible that the last downturn in exports, with a contraction for much of 2015, saw factories simply shutting up shop or moving to lower-cost locations in Southeast Asia.
It seems likely that it’s a combination of those factors at work. Even so, Bloomberg Intelligence Economics continues to believe that a weaker yuan, stronger global demand, and China’s
other policy measures to support competitiveness (like freezing the minimum wage) will drive a return to modest export growth.
Looking forward, uncertainties arising from the U.S. presidential election and Brexit may weigh on the global economic recovery. The proposal for a 45 percent tariff on U.S. imports from China by presidential candidate Trump could reduce China’s exports to the U.S. by 60 percent to 70 percent, according to BI Economics’ estimates. That poses a huge downside risk to China’s export outlook should Trump win.
Readings on export orders in both the National Bureau of Statistics and the Caixin PMIs had swung back into contraction territory in October, pointing to weaker external demand ahead. Soft exports may not jeopardize the government’s 6.5-7 percent GDP growth target for this year, as it’s already well within reach. Still, looking further forward, a challenging export outlook, on top of a cooling property market, means the government will have to continue relying on domestic stimulus to keep growth within its comfort zone next year.
Exports, Imports, Trade Balance in Yuan Terms
Economics Asia 4 Nov. 9, 2016
Yuan
Safe-Haven Index Shows Offshore Yuan Swing to WeaknessBy Yuki Masujima and Tom Orlik, Bloomberg Intelligence EconomistsThe offshore yuan, once a safe haven relative to the euro and the Swiss franc, has swung to a more vulnerable status. As global markets brace for potential shocks from the outcome of the U.S. presidential election to the U.K.’s wandering into the Brexit wilderness, that adds to downside risks for the currency.
Safe-haven status for a currency is relative. The yen is a safe haven against all other currencies, reflecting Japan’s low interest rates, strong net foreign asset position and deep and liquid financial markets. Other currencies can have safe haven status in some pairs but be vulnerable in others. Safe-haven status also changes over time. Sterling was a safe-haven currency in the early 2000s, but lost that status from 2007 on. Where does the offshore yuan fit on the spectrum? Relative to the dollar and the yen, the CNH has always been the vulnerable currency in the pair — depreciating at times of heightened market volatility. In the last year, that vulnerability has increased. Relative to the euro and the Swiss franc, from 2011 to early 2014, the CNH was the safe haven in the pair. That changed in early-2014 when the CNH swung to vulnerable status. In the period since, its vulnerability has increased.
That turning point in the CNH’s status came in early 2014 when the Chinese currency ended years of steady appreciation against the dollar and swung into depreciation mode. That put a halt to a long period when the currency could always be relied on to at least hold its ground against the dollar, making it attractive relative to other currencies that might either rise or fall against the greenback.
The implication, as global markets pick their way through a minefield of volatility, is that vulnerable currency status adds to reasons to expect CNH weakness. The currency has already fallen 5.9 percent inthe last year, making it the second-worst performer in Asia (behind only its onshorecousin, the CNY). Anything that adds
uncertainty — from an unexpected outcome in the U.S. presidential election to the next twist in the Brexit saga — could heap on depreciation pressure.
What’s not known is how China’s policy makers will react. The CNH, which is more market set, used to move independently from the government-controlled CNY. Since China’s policy makers intervened in the offshore market to punish short sellers early in 2016, the two have moved closely together. Whether global volatility triggers a risk-off reaction from the CNH, therefore, also
depends on whether policy makers in Beijing are inclined to see a period of accelerated currency depreciation.
Bloomberg Intelligence Economics determines whether a currency has safe haven or vulnerable status by conducting a rolling regression of the VIX — a measure of implied volatility of S&P 500 index options — and the two-year yield differential between China and the U.S. (or Germany) on the CNH-dollar (or euro) exchange rate. It runs from the beginning of 2001 through Oct. 12, 2016, with a 250 business day window.
Emerging Asia
CNH and USD — ‘Safe Haven’ Versus ‘Vulnerable’ Status
CNH and EUR — ‘Safe Haven’ Versus ‘Vulnerable’ Status
Economics Asia 5 Nov. 9, 2016
Emerging Asia
Mongolian Officials Back IMF Program Amid Widening Budget GapBy Michael Kohn, Bloomberg NewsWith the currency hitting record lows and the budget deficit worsening, senior Mongolian officials said they support an assistance program from the International Monetary Fund.
Foreign Minister Munkh-Orgil Tsend said he was confident an agreement with the IMF would be in place by February. Khayankhyarvaa Damdin, chairman of the ruling party’s parliamentary caucus, said at a press conference on Monday that "Mongolia should enter the IMF program. In fact, we are losing time on this process."
Mongolia is facing a financial crisis caused by a collapse in commodity prices, mounting debt and years of off-budget spending. Since coming to power in June, the Mongolian People’s Party has announced an economic reform plan containing spending cuts, and asked for the IMF’s help.
In its first 100 days in office, the government cut spending, brought off-budget expenses into a single consolidated budget and conducted a probe into money owed to private and foreign companies. Munkh-Orgil doesn’t expect to see a balanced budget until 2020, “Until then we are aiming to cut the budget deficit slowly but steadily,’’ he said in Ulaanbaatar on Monday.
"Priority number one was getting the fiscal house in order,’’ Munkh-Orgil said. “Now we know exactly whom we owe to and how much."
The nation has to repay more than $1 billion in debt by January 2018, foreign exchange reserves were at the lowest since 2009 at the end of September, and
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the tugrik dropped to an all-time low of2,411 to the dollar on Tuesday, a 17 percent decline this year.
The IMF "held very productive discussions with the Mongolian authorities" on policies that could become part of an IMF-supported economic and financial program, the fund said last week after two weeks of talks.
The economic plan is under review by parliament, with the government saying it will return the budget to surplus, boost foreign reserves and increase investment. "I think parliament would want to make some changes but it is in agreement with the general thrust of the proposal," said Munkh-Orgil, adding that he expects parliament to accept the plan by the end of this month.
An IMF program could then be finalized
in January for February, he said. That would ease financial concerns ahead of the March maturity of the Development Bank of Mongolia’s $580 million bond.
While passage of the plan is not a prerequisite to an IMF program, it would be a "good complementary measure" saidMunkh-Orgil. "The IMF representatives think this is an excellent plan. They are infull agreement with basically every line."Signing up to an IMF plan would not shut the door to receiving financial aid from bilateral donors, Munkh-Orgil added.The IMF "will welcome contributions and assistance from bilateral donors, as long as they are within the policy framework agreed by Mongolia and IMF," he said. "That gives us confidence that both the international community and Mongolia can agree on the program."
Calendar
Tugrik Hit All-Time Low Tuesday
Economics Asia 6 Nov. 9, 2016
Calendar
TIME COUNTRY RELEASE PERIOD SURVEY PRIOR SCORE*
07:00 South Korea Unemployment rate SA Oct 4.00% 4.00% 83
07:30 Australia Westpac Consumer Conf Index Nov — 102.4 22
07:30 Australia Westpac Consumer Conf SA MoM Nov — 1.10% 83
07:50 Japan BoP Current Account Balance Sep ¥2020.0b ¥2000.8b 96
07:50 Japan BoP Current Account Adjusted Sep ¥1630.0b ¥1975.7b 38
07:50 Japan Trade Balance BoP Basis Sep ¥668.8b ¥243.2b 67
07:50 Japan Bank Lending Incl Trusts YoY Oct 2.20% 2.20% 35
07:50 Japan Bank Lending Ex-Trusts YoY Oct — 2.20% 31
09:30 China CPI YoY Oct 2.10% 1.90% 97
09:30 China PPI YoY Oct 0.90% 0.10% 92
12:00 South Korea Bloomberg Economic Survey Nov — — —
12:30 Japan Bankruptcies YoY Oct — -3.41% 34
13:00 Japan Eco Watchers Survey Current Oct 44.4 44.8 62
13:00 Japan Eco Watchers Survey Outlook Oct 47.8 48.5 55
15:00 Thailand BoT Benchmark Interest Rate 9-Nov 1.50% 1.50% 96
16:00 Singapore Automobile COE Open Bid Cat A 9-Nov — 50,991 62
16:00 Singapore Automobile COE Open Bid Cat B 9-Nov — 56,410 55
16:00 Singapore Automobile COE Open Bid Cat E 9-Nov — 56,340 41Source: Bloomberg ECO;<go> Surveys updated at 5:29 a.m. Hong Kong time.
*Measure of the popularity of the economic index, calculated by the number of alerts set for an economic event relative to all alerts set for all events in that country.
Today's Data ReleasesChina's National Bureau of Statistics will update on consumer prices for October. The consensus forecast is for CPI inflation to pick up to 2.1 percent year on year from 1.9 percent in September. That may partially reflect rising food prices. The Bloomberg China food tracker showsfood inflation may have accelerated to 3.9percent from 3.3 percent in September, reflecting a low base a year earlier. Meanwhile, stronger domestic demand and firmer PPI inflation may have underpinned non-food inflation, which was low at 1.6 percent in September.
— Tom Orlik and Fielding Chen, Bloomberg
Intelligence Economists
The Bank of Thailand may leave its policyrate unchanged at 1.5 percent, accordingto a Bloomberg survey. Stronger first-halfgrowth allowed the central bank to sidestep mounting external risks. Now external and domestic risks are both rising, darkening the outlook for consumption, investment and exports. Still, the BOT may be inclined to hold off with more support until risks show signs of materializing. The central bank has signaled a preference for preserving policy space. Also, baht weakness has been supportive.
— Tamara Henderson, Bloomberg Intelligence
Economist
China CPI
Thailand Monetary Policy
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Market Indicators
Economics Asia 7 Nov. 9, 2016
Market Indicators
Source: Bloomberg. Updated at 5:44 a.m. Hong Kong time.