Ahead Today
G3: Canada CPI
Asia: Taiwan export orders, India infrastructure index
Market Highlights
Risk sentiment improved, gold prices rebounded sharply, while Asian currencies strengthened, as markets took the US-China trade talks in their stride and ahead of China’s key Fourth Plenum meeting and 15th Five-Year Plan Proposals later this week. China released its 3Q and September macro numbers which, continued to show an unbalanced growth profile of the economy (ChinaPulse: 3Q and Sept macro data). In particular, the 3Q GDP numbers surprised on the upside, but details and the composition of growth suggests a sharp deceleration on investment, coupled with a slowdown in consumption spending as the spending from cash-for-clunkers trade-in program faded. Meanwhile, exports and industrial production continued to do very well, with increasing diversification of exports towards other regions such as Africa, Southeast Asia and Latin America.
In terms of US-China trade talks, President Trump listed rare earths, fentanyl, and soybeans as some of the US’ top issues with China. While we think that a meeting between Trump and Xi later this month is still the most likely scenario and some tentative agreement, the vast gulf in expectations on both sides tells us that markets are too sanguine at the moment in their assessment of the possible outcomes.
Meanwhile in Japan, Japan’s ruling Liberal Democratic Party inked a new coalition deal with the Japan Innovation Party (or Ishin), and combined hold 231 seats in the lower house of parliament. While this is two seats shy of a majority, divisions between opposition parties mean Takaichi is almost certain to win a parliamentary vote on Tuesday to decide the prime minister. For JPY markets, what this means is that modest fiscal expansion is likely the path of least resistance from here, but with uncertainty as to the extent Takaichi could eventually push back against the Bank of Japan in terms of the pace of rate hikes moving forward. Our base case forecasts USD/JPY falling modestly below 150 over time on the back of Fed rate cuts and a weaker Dollar.
Across the rest of Asia, in what will likely be the largest banking acquisition by a foreign financial institution and largest FDI inflow into India’s banking sector, the Emirates NBD Bank signed a definitive agreement to invest US$3bn to acquire a majority stake in RBL Bank. The MD and CEO of RBL Bank told media that the proposed deal should conclude within the next 5-8 months subject to approvals, while the full US$3bn infusion will likely take place within this fiscal year itself. This should provide some support for INR later this fiscal year, and partially offset foreign portfolio outflows to some extent.