Asia Breakfast Briefing - 29 Jan 2018 ASIAN PREVIEWBusy week in the calend

ASIAN PREVIEW

Busy week in the calendar, coinciding with the end of the first mth of 2018

Plenty to look out for in the US with FOMC the highlight, overshadowing payrolls that come after

Q4 GDPs, CPI and unemployment rates the main releases in Europe

UK only has GfK consumer confidence of note

Australia will be busy with Q4 CPI, sees risk to the downside after NZ"s CPI miss

Busy week in Japan as well with unemployment, consumer confidence

China has official/non-official PMI readings, NZ with trade balance

Viewpoint: Japan"s Dec CPI has something for both hawks and doves

Focus Comment: The sustained USD sell-off may have been ended by Trump

New Zealand Dec Trade Balance due Tues 30 Jan; BBG f/c NZD -100 mln, last -1193 mln

New Zealand reported a trade deficit of NZD -1193 mln for Nov 2017, which greatly missed BBG consensus estimates of NZD -550 mln and deteriorated from Oct 2017"s reading of NZD -843 mln. The key driver behind"s New Zealand"s unexpectedly large Nov 2017 trade deficit was due to an unusual broad-based Nov surge in the economy"s imports from major trading partners such as China, the US, Australia and the Eurozone. That aside, BBG consensus estimates currently prime for New Zealand"s Dec 2017 trade print to come in at NZD -100 mln.

Aligned with said BBG estimates, strong seasonal trade trends tend to favour considerable month-on-month improvements to New Zealand"s trade balance in Dec months, though historical data suggests that the economy will still probably run a trade deficit despite said improvement.

It is also likely that we will continue to see New Zealand report trade deficits until the Feb 2018 print comes due.

Japan Dec jobless rate due Tues 30 Jan, f/c 2.7%, prev 2.7%

Japan"s jobless rate in Nov ticked down to a 24yr low of 2.7% (f/c steady at 2.8%), with the job-to-applicant ratio as f/c at a 44yr high of 1.56.

We are expecting the jobless rate to stay unchanged at 2.7% in Dec while the market consensus is for the job-to-applicant ratio to edge up to 1.57.

As we have mentioned previously, on the surface, it would appear that Japan"s job market is tight (even more so than in the peak 90s) and that companies are struggling to fill positions.

True in that heightened global demand has lifted Japan"s mfg output and led to a shortage of staff at labour-intensive mfg jobs.

That said, things are still patchy in the other sectors and we keep harking back to a more sobering reality.

The tight labour market is rather down to structural issues linked to an aging demographic and falling population, the lack of foreign labour, and how a lot of the new jobs created are part-time and low-paying (particularly for young Japanese and mothers returning to the labour force).

While there has been a small degree of wage growth, it"s not uniform with the bulk of it recently in contract roles and what"s even more concerning is how the big multinationals are lagging behind in this (especially in service-oriented roles).

Bonuses haven"t been significantly bumped up also, while some big corporations have instead cut bonuses

The prevailing l/t trend is also still of real incomes being barely positive.

Low productivity is also a concern although this boils down largely to small companies and an over-staffing in service roles.

Japan Dec Overall Household Spending due Tues 30 Jan, f/c 0.5% y/y, prev 1.7% y/y

Japan"s Nov overall household spending rebounded stronger than expected to 1.7% y/y (f/c 0.5% y/y) vs 0.0% y/y in Oct.

The key prop came from a 2.2% y/y bump in food spending, a sharp reversal of utility spending (2.5% y/y vs -2.7% y/y and -3.1% y/y in Oct/Sep respectively) and a 20.1% y/y spike in spending on household goods (headlined by furniture).

One reason for Nov"s headline beat was low base effects, with the other reason appearing to be a delayed rebound after inclement weather in Aug/Sep weighed on household spending.

As this factors drop off, we are expecting overall household spending to ease to 0.5% y/y in Dec. The market consensus is for a smaller drop-off to 1.5% y/y.

Again, we will focus on the prevailing l/t trend.

The average over the past 6yrs stands at -0.8% y/y while the avg since Abenomics was enacted in Dec 2012 is -1.2% y/y.

Along with low inflationary pressures, this is quite damning in the sense that Abenomics has not solved the fundamental issues lingering over from the 2 "lost decades" btwn 1991-2010, with large scale monetary easing only serving to prop up asset prices.

At the margins, the structural issues associated with the labour market that leads to subdued wage growth is a drag on household spending, and by extension a lack of durable traction in inflationary pressures.

Lets look at a comparison btwn household spending and real income.

Japan Dec Retail Sales due Tues 30 Jan, f/c 1.2% y/y, prev 2.2% y/y

Japan"s Nov retail sales rebounded stronger than expected to 1.9% m/m and 2.2% y/y (which corroborated the upturn in overall household spending released previously), vs a -0.1% m/m and -0.2% y/y contraction in Oct.

The key lift came from apparel & accessories (+4.4% y/y), fuel sales (+11.4% y/y), auto sales (+4.6% y/y), with rebounds seen in machinery & equipment (+8.2% y/y), general merchandise (+0.3% y/y) and F&B (+0.2% y/y).

While yr-end sales will prop up the Dec print, we are expecting a moderation to a 1.2% y/y pace, largely in part due to purchases in apparel and machinery & equipment having been brought forward to Nov. The market consensus is for a 2.1% y/y print.

Looking at the general retail dynamic within Japan, core spending remains sluggish. Part of this is down to subdued wage growth (bonuses haven"t been significantly bumped up also while some big corporations have instead cut bonuses) which curtails consumer demand.

OVERNIGHT SESSION WRAPS

US FX Close

EUR/USD

USD/JPY

GBP/USD

AUD/USD

USD/CAD

DOW

DXY

OPEN1.2431109.371.42440.80761.2321+223.9289.029HIGH1.2457109.591.42530.81361.2360CLOSED89.216LOW1.2406108.281.41370.80621.2293@88.860CLOSE1.2419108.721.41490.81121.232626616.7189.062

The USD Index was once again in the red Friday, capping off its worst weekly decline on a percentage basis in over 8 months while also notching a sixth consecutive weekly loss. 4Q GDP disappointed at 2.6% vs. an estimate of 3.0% while Durable Goods and Personal Consumption beat expectations (2.9% vs. 0.8% est. and 3.8% vs. 3.7% est. respectively). Markets were closed in Australia in observance of Australia Day, and Aud/Usd rose the most since July to post new 2-year 8-month highs over the 2017 high (.8125 - 8 September), outgaining all other majors in the process. Usd/Jpy extended to a 4.5-month low towards the key 2017 low (107.32 - 8 September) with BoJ Governor Haruhiko Kuroda stating the bank would continue to support the economy with quantitative easing after earlier acknowledging that prices and inflation expectations were rising. Gbp/Usd pared overnight gains despite firm UK 4Q GDP data (0.5% vs. 0.4% est.) though managed to finish higher for the 6th time in 7 days. BoC Governor Stephen Poloz said the Canadian economy was operating close to capacity, and December YoY CPI fell vs. November (1.9% vs. 2.1%), though Usd/Cad nonetheless declined for the 3rd time in 4 sessions. Usd/Chf fell for the 4th straight day while locking in the largest weekly percentage loss since February of 2016. Usd/Nok and Usd/Nok each dropped for a 4th straight session with daily RSI"s sitting at 10 and 18 respectively. Eur/Usd eased off overnight highs yet added modest gains, though Eur/Chf and Eur/Nok each fell to 2+ month lows. Monday, the week kicks off with Personal Income and Spending, Core PCE and Dallas Fed Manufacturing Activity.

US Treasury Close

10-YEAR

30YY

10YY

5YY

2YY

2/10

5/30

10Y Swap

HIGH96-26+

2.9252.6712.4802.12854.347.02.695LOW96-12+2.8832.6192.4222.08451.843.22.632LAST96-15+

2.9112.6602.4702.11654.044.02.682CHANGE- 11+/32+.031+.043+.050+.032+1.1-2.1+.046

TREASURIES CLOSE 3:00PM – Treasuries declined overnight on thin volumes with 7s leading the selloff and the long bond trailing the complex. European yield curves continued to flatten, and the US yield followed suit. Trump and Mnuchin chattered on about the economy and the Dollar, but their comments had increasingly less impact. Treasuries pushed lower into the North American session then briefly pared losses after a Q4 GDP Advance headline miss (2.6% vs. 3% f/c). The details of the report were mixed with Personal Consumption beating at 3.8% vs. 3.7% f/c and Core PCE in line at 1.9%. Durable Goods beat handily on the headline at 2.9% MoM vs. 0.8%, but the rest of the report was softer. The curve flattened with 5/30s probing 44 (17 January/September 2007 narrow) to threaten an equality target at 42 (288/184 from 146), testing levels not seen in 10 years. 10/30s narrowed to 2008 levels. Treasuries continued to grind lower, led by the belly. 5-year yields tested new 7-year 8-month highs, 3-year yields new 10-year 1-month highs and 2s new 9-year 4-month highs and remained in the vicinity into the close. FVH8 posted new contract lows as did TUH8 in moves that were looking stretched. Monday, the week kicks off with Personal Income and Spending, Core PCE and Dallas Fed Manufacturing Activity along with 4-week, 3-month and 6-month bill auctions. MO

DAY AHEAD

Time (GMT)CtyEventPeriodSurveyPriorRevised26-01-18PKSBP Rate Decision (Target)4602300%6%6%--24/1/18 - 31/01/18IDMotorcycle SalesDec--55030300%--24/1/18 - 31/01/18IDLocal Auto SalesDec--9614800%--24/1/18 - 31/01/18SLExports YoYNov--14%--24/1/18 - 31/01/18SLImports YoYNov--0%--27/1/18 - 03/02/18GERetail Sales MoMDec-1%2%2%27/1/18 - 03/02/18GERetail Sales YoYDec2%4%--27/1/18 - 03/02/18UKNationwide House PX MoMJan0%1%--27/1/18 - 03/02/18UKNationwide House Px NSA YoYJan3%3%--29/1/18 08:00SPRetail Sales YoYDec--3%--29/1/18 08:00SPRetail Sales SA YoYDec--2%--29/1/18 09:00ITPPI MoMDec--0%--29/1/18 09:00ITPPI YoYDec--3%--29/1/18 13:30USPersonal IncomeDec0%0%--29/1/18 13:30USPersonal SpendingDec1%1%--29/1/18 13:30USReal Personal SpendingDec--0%--29/1/18 13:30USPCE Deflator MoMDec0%0%--29/1/18 13:30USPCE Deflator YoYDec2%2%--29/1/18 13:30USPCE Core MoMDec0%0%--29/1/18 13:30USPCE Core YoYDec2%2%--29/1/18 15:30USDallas Fed Manf. ActivityJan2530%2970%--29/1/18 21:00SKBusiness Survey ManufacturingFeb------29/1/18 21:00SKBusiness Survey Non-ManufacturingFeb--7800%--29/1/18 21:45NZTrade Balance NZDDec-125m-1193m--29/1/18 21:45NZExports NZDDec5.00b4.63b--29/1/18 21:45NZImports NZDDec5.10b5.82b--29/1/18 21:45NZTrade Balance 12 Mth YTD NZDDec-3420m-3439m--29/1/18 22:30AUANZ Roy Morgan Weekly Consumer Confidence Index4675300%--11940%--29/1/18 23:30JNJobless RateDec3%3%--29/1/18 23:30JNJob-To-Applicant RatioDec157%156%--29/1/18 23:30JNOverall Household Spending YoYDec2%2%--29/1/18 23:50JNRetail Sales MoMDec0%2%2%29/1/18 23:50JNRetail Trade YoYDec2%2%2%29/1/18 23:50JNDept. Store, Supermarket SalesDec1%1%--29/1/18 - 30/01/18GEImport Price Index MoMDec0%1%--29/1/18 - 30/01/18GEImport Price Index YoYDec1%3%--29/1/18 - 02/02/18SKDepartment Store Sales YoYDec--9%--29/1/18 - 02/02/18SKDiscount Store Sales YoYDec--0%--29/1/18 - 31/01/18PHBudget Balance PHPDec---8.6b--29/1/18 - 31/01/18VNTrade BalanceJan---$500m--29/1/18 - 31/01/18VNExports YTD YoYJan28%21%--29/1/18 - 31/01/18VNImports YTD YoYJan22%21%--29/1/18 - 31/01/18VNCPI YoYJan3%3%--29/1/18 - 31/01/18VNIndustrial Production YoYJan--11%--29/1/18 - 31/01/18VNRetail Sales YTD YoYJan--11%--

Central Bank Watch

Time (GMT)CtyEventPrior29/1/18 01:10JNBOJ Outright Bond Purchase 5~10 Years

29/1/18 09:00SZTotal Sight Deposits CHF574.7b29/1/18 09:00SZDomestic Sight Deposits CHF468.9b

Auctions

Time (GMT)CtyEventPrev Avg Yield29/1/18 01:30SKKorea Central Bank to Sell KRW 800Bln 1-Year Bond

29/1/18 02:30SKKorea to Sell KRW 700Bln 20-Year Bond2%Destinations: