Asia Breakfast Briefing - 01 Feb 2018 ASIAN PREVIEWHeavy Asian docket with

ASIAN PREVIEW

Heavy Asian docket with mfg PMIs and AUS building permits; China"s Caixin the highlight

Europe to also feature run of final mfg PMIs

Payrolls day in the US, ISM mfg PMI also of note

Focus Comment: Trump"s speech notable for the lack of clear policy specifics

Focus Comment: Sterling"s Carney lift may prove temporary

Focus Comment: Mnuchin"s about-turn, could Trump"s address ring hollow?

Asia FI Strat: India - fingers crossed ahead of FY2019 budget announcement

Japan Jan final mfg PMI due Thurs 01 Feb, f/c unrevised at 54.4

The prelim print for Jan mfg PMI came in at a near 4yr high of 54.4, with the new orders sub-index rising to 56.0 while inventories fell. Markit also noted higher employment growth to boot.

We are expecting the final print for Jan to come in unrevised at 54.4.

The mfg PMI prints have been upbeat over the past few mths, driven by strong external demand (particularly in capital goods, robots, smartphone components) but the suspicion is that much of the upbeat corporate sentiment is based purely around expectation that global demand will hold up. This may need to be revised ahead, as we see the risk that demand out of China and the EZ will start to moderate and place the brakes on Japanese exports.

S. KOREA JAN CPI due Thursday 1st Feb

Just when the BOK thought they were justified to raise rates, inflation dumped to year-lows in November at 1.3% and barely recovered in December. This has forced the BOK to backpedal from talk of further rate hikes as the outlook for prices for 2018 remains weak. However overall inflation for 2017 was close enough to the central bank"s 2% target.

While the resurgence in oil prices drove up December prices slightly to 1.5%, inflationary pressure is expected to keep near 1% for the first half of 2018, with a pick-up towards 2% in the second half, which means an expected average of mid- to high-1% for the year only. It is hoped that the minimum wage increase starting this year will start to reflect in increased consumption in the coming months.

Despite the economy seeing best growth in years, demand driven inflation has been muted, likely held back by record household debt. As such, January"s CPI is unlikely to surprise on the upside, especially when base effect is taken into account. Core inflation is also expected to remain stable around the 1.5% mark.

For now, this would mean that monetary policy is unlikely to change, barring new circumstances, especially as the BOK has committed to maintaining an accommodative policy.

S. KOREA JAN TRADE due Thursday 1st Feb

South Korean trade is the data to be closely watched this year after 2017 broke records in terms of sheer volume. It was widely reported at the beginning of 2018 that 2017 exports totaled USD573.9bln, which Is almost a 16% increase from 2016 levels.

However in light of increasing evidence from regional markets, the base effect of the strong 2017 could have negative implications for 2018. Economies from Indonesia to Philippines to Singapore and Thailand have shown a softening in export growth and shrinking trade balance.

The electronics- and semicon-heavy profile of S. Korean exporters actually enhance the risk, since 2017 was a bumper year for the sector, which grew over 50% on a y/y basis. When stripped of the growth in electronics and semiconductors, exports actually declined by close to double digits y/y.

As was already in evidence in the last quarter of 2017, exports are already reflecting the drag, with Q4 exports averaging 8.5% y/y growth, whereas the first three quarters averaged 18.7% y/y growth. Chip prices and demand are forecast to have peaked for now, while ships, steel, and automobile exports face their own hurdles.

Adding to risks are the increasingly fractious relationships with its two largest trade partners—China and the US, with well-reported developments threatening to cut in to the healthy trade surplus seen with both.

While the BOK expects exports to remain buoyant for 2018 enough to justify upgrading 2018 growth to 3% from 2.9%, a careful eye should be kept on the incoming numbers.

INDONESIA JAN CPI due Thursday 1st Feb; 3.61% previous

Inflation in December picked up to 3.61% from November"s muted 3.3%, but in the overall picture still reflects a softening trend for prices, as the government and central bank continues to work hand-in-hand to keep inflation within target for another year.

For 2018, inflation target is set at the midpoint of 2.5-4.5% range after 2017"s average comes in at 3.8%, which is under the 4% targeted. To that end, the government has already said it will put off fuel and electricity increases. However there is only so much the government can do in the face of rising consumer confidence and consumption that would accompany the growth that the govt is seeking to drive.

While the main story in recent days has been the rise in rice prices, which has made it necessary for the govt to import rice in order to keep prices down, growing wages has led to pressures seen elsewhere. Recent data shows housing and processed food prices maintaining firm rise on a y/y basis for most of 2017, and continued improvement in consumer demand could drive further gains. Together with the rise in oil prices, the job to keep prices under control should be more complicated this year.

With rice prices rising 6.1% in the past two months according to BI, this month"s inflation number could reflect this jump and print towards 4%.

With regards to FX, while the BI had previously forecast the IDR at 13550 average for the year, recent comments hint that some appreciation in the IDR may be acceptable in order to achieve inflation target.

OVERNIGHT SESSION WRAPS

US FX Close

EUR/USD

USD/JPY

GBP/USD

AUD/USD

USD/CAD

DOW

DXY

OPEN1.2455108.771.41610.81071.2289+72.5088.902HIGH1.2475109.451.42330.81171.2333CLOSED89.296LOW1.2387108.711.41470.80351.2251@88.780CLOSE1.2412109.161.41940.80571.230126149.3989.105

The USD Index was nursing marginal losses heading into Wednesday"s North American Close following the FOMC rate decision in which the Fed left rates unchanged as expected and stated they anticipated inflation to rise this year citing increasing economic activity, low unemployment, rising market-based inflation compensation gauges. Earlier the Greenback pared overnight losses in the wake of mostly positive data. ADP was well above consensus while Chicago PMI was slightly better than forecast. ECI and Pending Home Sales met expectations, although the latter was offset by a miss in unadjusted Pending Sales. Aud/Usd fell for a third consecutive session, the longest such streak in nearly 2 months. Nzd/Usd pared gains after probing to a 1-week high above the 20 DMA to leave a long upper shadow. Usd/Cad briefly dipped to a 4+ month low after CN Industrial Product Prices and Raw Materials Prices both contracted less than expected. The Loonie also received a boost when US Commerce Secretary Wilbur Ross stated Nafta renegotiations were far from over.Usd/Chf fell to a 2-year 5-month low fractionally below Thursday"s .9290 spike low. Usd/Jpy finished higher for the third time in 5 days for the first time in over 3 weeks and Chf/Jpy posted a new 6-month high. The ECB"s Beonoit Coeure stated the bank is in no rush to end bond purchasing programs given inflation is not moving decisively towards its target, thoughEur/Usd managed slim gains. Gbp/Usd extended modest strength off Tuesday"s 1.3980 reaction low before minor easing. Thursday will be another busy day with Challenger Job Cuts, Nonfarm Productivity, Jobless Claims, Markit Manufacturing PMI (January Final), Construction Spending and ISM Manufacturing.

US Treasury Close

10-YEAR

30YY

10YY

5YY

2YY

2/10

5/30

10Y Swap

HIGH96-06+

2.9822.7522.5512.16160.347.12.781LOW95-232.9362.6942.4822.10056.741.32.715LAST95-31+

2.9372.7162.5212.14157.041.62.745CHANGE+ 1+/32-.034-.004+.015+.016-2.2-4.9+.005

TREASURIES CLOSE 3:00PM – Overnight, the BOJ"s increased purchases of JGBs in the 3-5-year sector and misses on Chinese PMI and Australian CPI halted the slide in Treasuries. Once the North American session got underway, decent data pushed Treasuries off overnight highs. ADP was well above consensus, ECI was on the screws, Chicago PMI was slightly better than forecast and Pending Home Sales met expectations (although this was offset by a miss in unadjusted Pending Sales). In the meantime, the Treasury announced they"d raise sizes on 2s, 3s, and 2-year FRNs by $2 bln and 5s, 7s, 10s, and 30s by $1 bln apiece which was only slightly more than expected on the long end. There was discussion of adding an October TIPS maturity which was largely unanticipated and sent breakevens lower. TYH8 and FVH8 posted new contract lows as volumes picked up. Heading into the FOMC announcement, only Bonds were in positive territory with 5s and 3s leading the move lower, flattening spreads. The Fed left rates unchanged as expected and stated that they anticipated inflation to rise this year (stabilize around 2% over the medium- term) citing increasing economic activity, low unemployment and rising market-based inflation compensation gauges. The complex cheapened following the announcement, led by the belly. 2-year yields posted new 9.25-year highs, 3s new 10-year 1-month highs, 5s new 7-year 9-month highs, 7s new 6-year 9-month highs and 10s new 3.75-year highs topping 2.750. 5/30s was pushed back to Monday"s narrows at 42 while the other spreads remained range bound. USH8 posted new contract lows following the rate decision. Thursday will be another busy day with Challenger Job Cuts, Nonfarm Productivity, Jobless Claims, Markit Manufacturing PMI (January Final), Construction Spending and ISM Manufacturing. There will also be 3 and 6-month bill supply announcements. MO

DAY AHEAD

Time (GMT)CtyEvent

SurveyPriorRevised31/1/18 21:00NZANZ Job Advertisements MoMJan---0.30%--31/1/18 22:00AUCBA Australia PMI MfgJan--57.1--31/1/18 22:30AUAiG Perf of Mfg IndexJan--56.2--31/1/18 23:00AUCoreLogic House Px MoMJan---0.40%--31/1/18 23:00SKCPI MoMJan0.70%0.30%--31/1/18 23:00SKCPI YoYJan1.30%1.50%--31/1/18 23:00SKCPI Core YoYJan1.50%1.50%--31/1/18 23:50JNJapan Buying Foreign BondsJan-26--￥411.1b--31/1/18 23:50JNJapan Buying Foreign StocksJan-26--￥379.8b--31/1/18 23:50JNForeign Buying Japan BondsJan-26---￥413.4b--31/1/18 23:50JNForeign Buying Japan StocksJan-26---￥148.2b--31-01-18HKMoney Supply M3 HKD YoYDec--11.60%--31-01-18HKMoney Supply M2 HKD YoYDec--11.70%--31-01-18HKMoney Supply M1 HKD YoYDec--13.60%--31-01-18HKBudget Balance HKDDec--22.5b--31-01-18PHMoney Supply M3 SRF YoYDec--14.00%--31-01-18PHBank Lending Net of RRPs YoYDec--19.20%19.30%31-01-18PHBank Lending YoYDec--18.30%18.40%31-01-18IDMoney Supply M2 YoYDec--9.30%--31-01-18IDMoney Supply M1 YoYDec--13.10%--01/2/18 - 14/02/18PKMoney Supply M2 YoYDec--11.80%--01/2/18 - 07/02/18JNOfficial Reserve AssetsJan--$1264.3b--30/1/18 - 02/02/18IDMotorcycle SalesDec--550303--01/2/18 - 07/02/18IDDanareksa Consumer ConfidenceJan--101.8--30/1/18 - 02/02/18IDLocal Auto SalesDec--96148--01/2/18 00:00SKExports YoYJan21.50%8.90%--01/2/18 00:00SKTrade BalanceJan$4003m$5783m$5539m01/2/18 00:00SKImports YoYJan17.80%13.00%--01/2/18 00:30AUImport Price Index QoQ4Q1.50%-1.60%--01/2/18 00:30AUExport Price Index QoQ4Q2.00%-3.00%--01/2/18 00:30AUBuilding Approvals MoMDec-7.60%11.70%--01/2/18 00:30AUBuilding Approvals YoYDec11.50%17.10%--01/2/18 00:30JNNikkei Japan PMI MfgJan F--54.4--01/2/18 00:30SKNikkei South Korea PMI MfgJan--49.9--01/2/18 00:30TANikkei Taiwan PMI MfgJan--56.6--01/2/18 00:30VNNikkei Vietnam PMI MfgJan--52.5--01/2/18 00:30IDNikkei Indonesia PMI MfgJan--49.3--01/2/18 00:30THNikkei Thailand PMI MfgJan--50.4--01/2/18 00:30PHNikkei Philippines PMI MfgJan--54.2--01/2/18 01:45CHCaixin China PMI MfgJan51.551.5--01/2/18 03:00IDCPI Core YoYJan2.80%2.95%--01/2/18 03:00IDCPI YoYJan3.33%3.61%--01/2/18 04:00IDCPI NSA MoMJan0.70%0.71%--01/2/18 05:00INNikkei India PMI MfgJan--54.7--01/2/18 05:00JNVehicle Sales YoYJan---1.00%--01/2/18 05:30AUCommodity Index AUDJan--129.4--01/2/18 05:30AUCommodity Index SDR YoYJan---5.90%--01/2/18 07:00UKNationwide House PX MoMJan0.10%0.60%--01/2/18 07:00UKNationwide House Px NSA YoYJan2.50%2.60%--01/2/18 07:30THCPI YoYJan0.80%0.78%--01/2/18 07:30THCPI NSA MoMJan0.12%-0.08%--01/2/18 07:30THBusiness Sentiment IndexJan--50.2--01/2/18 07:30THCPI Core YoYJan0.66%0.62%--01/2/18 08:15SPMarkit Spain Manufacturing PMIJan55.655.8--01/2/18 08:30HKRetail Sales Value YoYDec6.70%7.50%--01/2/18 08:30HKRetail Sales Volume YoYDec6.00%6.90%--01/2/18 08:45ITMarkit/ADACI Italy Manufacturing PMIJan57.457.4--01/2/18 08:50FRMarkit France Manufacturing PMIJan F58.158.1--01/2/18 08:55GEMarkit/BME Germany Manufacturing PMIJan F61.261.2--01/2/18 09:00ECMarkit Eurozone Manufacturing PMIJan F59.659.6--01/2/18 09:30UKMarkit UK PMI Manufacturing SAJan56.556.3--01/2/18 12:30USChallenger Job Cuts YoYJan---3.60%--01/2/18 13:30USNonfarm Productivity4Q P0.70%3.00%--01/2/18 13:30USUnit Labor Costs4Q P0.90%-0.20%--01/2/18 13:30USInitial Jobless ClaimsJan-27235k233k--01/2/18 13:30USContinuing ClaimsJan-201929k1937k--01/2/18 14:45USBloomberg Consumer ComfortJan-28--53.7--01/2/18 14:45USMarkit US Manufacturing PMIJan F55.555.5--01/2/18 15:00USConstruction Spending MoMDec0.40%0.80%--01/2/18 15:00USISM ManufacturingJan58.659.759.301/2/18 15:00USISM EmploymentJan--5758.101/2/18 15:00USISM Prices PaidJan68.869--01/2/18 15:00USISM New OrdersJan--69.467.401/2/18 17:00ITNew Car Registrations YoYJan---3.17%--01/2/18 21:00NZANZ Consumer Confidence IndexJan--121.8--01/2/18 21:00NZANZ Consumer Confidence MoMJan---1.50%--01/2/18 21:45NZBuilding Permits MoMDec--10.80%--01/2/18 21:45NZNet Migration SADec--5610--01/2/18 23:50JNMonetary Base YoYJan--11.20%--01/2/18 23:50JNMonetary Base End of periodJan--￥480.0t--01-02-18ITBudget BalanceJan--14.9b--01-02-18USWards Domestic Vehicle SalesJan13.45m13.72m--01-02-18USWards Total Vehicle SalesJan17.25m17.76m--01-02-18MUMacau Casino Revenue YoYJan--14.60%--

Central Bank Watch

Time (GMT)CtyEventVoterBias01/2/18 05:30AUCommodity Index SDR YoY

01/2/18 11:15ECECB"s Praet Speaks in BrusselsYesMildy dovish01/2/18 17:30UKBOE"s Brazier Speaks in London

Auctions

Time (GMT)CtyEventPrev Avg YieldB/C01/2/18 - 28/02/18MAMalaysia to Sell 7.5Yr Islamic Bonds Due 2025

01/2/18 - 28/02/18MAMalaysia to Sell 10Yr Bonds Due 2027 (Reopening)

01/2/18 01:05NZNew Zealand To Sell NZD100 Mln 2.5% 2040 Bonds2.11%2.14x01/2/18 03:45JNJapan to Sell 10-Year Bonds0.08%3.742x01/2/18 09:30SPSpain to Sell 0.05% 2021 Bonds-0.01%2.28x01/2/18 09:30SPSpain to Sell 0.65% I/L 2027 Bonds

01/2/18 09:30SPSpain to Sell 2.15% 2025 Bonds1.46%2.62x01/2/18 09:30SPSpain to Sell 4.7% 2041 Bonds2.43%1.61x01/2/18 09:50FRFrance to Sell 0.75% 2028 Bonds0.79%1.44x01/2/18 09:50FRFrance to Sell 1.25% 2034 Bonds1.01%1.62x01/2/18 09:50FRFrance to Sell 1.75% 2066 Bonds1.84%2.13xDestinations: