Asia Breakfast Briefing - Oct 16 2017 ASIAN PREVIEWChina's twice-a-dec

ASIAN PREVIEW

China"s twice-a-decade NPC Congress starting Oct 18th the w/e focus with CPI on Monday

Japan"s industrial production the other Asian highlight

Light calendar in Europe and US with only EU trade balance and US NY empire mfg index

Focus Comment: Euro traders unmoved for now by ECB taper speculation

Focus Comment: Brexit optimism to prompt paring of Sterling bearishness

China Sept Inflation rate (surv 1.6%y/y, prev 1.8%; surv 0.4%m/m, prev 0.4%) and Sept PPI (surv 6.3%y/y, prev 6.3%) due on 16 Oct 2017

China"s Aug CPI grew by 1.8%y/y (prev 1.4%, exp 1.6%) and 0.4%m/m with both readings coming in at the highest since Jan. The improvement in prices came mainly from food prices as the decline in the price of meat slowed, while the price of eggs grew. Other than food and tobacco, transport and health care also grew at faster rates. For PPI, the index surged by 6.3% to the highest since Apr after 3 previous mths of unchanged 5.5% growth and notable drivers were seen in quarrying and mining (18.2%), raw materials (11.1%), while consumer goods as a whole also grew at a marginally faster rate.

Looking ahead to Sept, upside momentum has been building in pork prices after bottoming in June with August"s reading, although still in contraction, an improvement at -13.4%. Meanwhile, the continuous strength in PPI, which has a 4-5mth lag to CPI, will continue to provide tailwinds to CPI, although to that end, the downturn from peak iron ore prices since the end of Aug means that PPI in Oct (base metal prices have a 1mth lag with PPI) should be softer. For Sept, however, price pressure is expected to remain as suggested by the PPI subcomponent of the official mfg PMI, which came in at 59.4 (from 57.4) while raw materials PPI came in at 68.4 (from 65.3) . This is also supported by the Caixin mfg PMI that saw output prices and input costs hitting their highest level in years.

Overall, CPI is expected to remain alleviated, albeit a tad softer from Aug"s reading, while PPI is expected to come in unchanged.

Japan Aug final Industrial Production due Mon 16 Oct, f/c unrevised at 2.1% m/m and 5.4% y/y

Japan"s Aug final IP is f/c to come in unrevised from the prelim print of 2.1% m/m and 5.4% y/y. Recall the prelim print came in above expectations of 1.8% m/m and 5.2% y/y. Mostly in line with the strong export numbers seen in Aug.

We would highlight that the METI"s updated f/cs released on 29 Sep is for Sep IP to fall -1.9% m/m (vs the prior f/c of a -3.1% m/m decline) but for Oct"s output to rebound 3.5% m/m. Using this for extrapolation, that could mean a seasonally adj IP average of 102.23 for Q3 as compared to the Q2 average of 102.07, which would represent a mere 0.17% q/q expansion.

This would bring the IP q/q expansion back to the pace of Q1 2017 (0.2% q/q) where GDP expanded 0.3% q/q, and given the strong correlation btwn both, that could be a signal that Japan"s econ growth peaked in Q2 and is set to moderate ahead.

Assuming the LDP does coast to an election victory on 22 Oct, a Q3 growth slowdown does bring up the spectre of the govt mulling over a supplementary budget for early 2018.

OVERNIGHT SESSION WRAPS

US FX Close

EUR/USDUSD/JPYGBP/USDAUD/USDUSD/CADDOWDXYOPEN1.1825112.141.32900.78451.2472+30.7193.081HIGH1.1875112.271.33380.78971.2520CLOSED93.239LOW1.1806111.691.32640.78251.2453@92.749CLOSE1.1821111.871.32900.78851.248322871.7293.085

The Dollar initially dropped to a fresh 2.5-week low on the release of lesser-than-forecast CPI and Retail Sales data, only to eliminate losses into the close for a second consecutive session with better-than-expected U of Mich Consumer Sentiment data assisting bulls. Despite treading water over the last two sessions, the USD Index snapped a 4-week winning streak, the longest such move in more than seven months. Eur/Usd received a boost on the initial soft US data, rising towards Thursday"s 1.1880 1.5-week high, before reverting back to the Open near the 20 DMA. Gbp/Usd moved higher for a fifth straight day, its longest winning streak since June, while approaching the 20 DMA at 1.3340 with BoE Governor Mark Carney reiterating a Sterling rate hike might be necessary in the “coming months". Usd/Jpy extended under the 20 DMA for the first time in 2-months to offer immediate scope for the 25 September 111.48 higher low. Nzd/Usd extended gains off Monday"s .7051 4.5-month low to test the 20 DMA as the RSI rose to a near-3 week high. Aud/Usd probed to a 2.5-week high above the 20 DMA while the MACD projects to signal a buy next session. Monday"s calendar includes only Empire Manufacturing data.

US Treasury Close

10-YEARDec TENDec BONDDec S&PNov 0IL2/105/303/10/30HIGH99-26

125-23154-042555.5051.7181.392.213.7LOW99-09125-10152-302547.0050.7077.490.09.9LAST99.-25

125-24154-012553.0051.4077.990.810.5CHANGE+13/32+11/32+29/32+3.25+0.80-2.1+0.9-1.6

TREASURIES CLOSE 3:00PM Prices put in their best rally attempt of the past few weeks early, and were able to maintain those gains through the close. Volume was solid, while real money buyers emerged early and put pressure on short covers. The complex finished with significant gains, belly outperforming the front end and about even with the 30yr. After a disappointing set of economic data - both retail sales and CPI came in below expectations - the 10yr Treasury yield fell 5bp to 2.28%, while the 30s fell from 2.86% to 2.81%. KJ

DAY AHEAD

Time (GMT)CtyEventPeriodSurveyPrior13/10/17 - 17/10/17KZIndustrial Production YoYSep--14.40%13/10/17 - 16/10/17CHMoney Supply M2 YoYSep8.90%8.90%13/10/17 - 16/10/17CHMoney Supply M1 YoYSep13.50%14.00%13/10/17 - 16/10/17CHMoney Supply M0 YoYSep6.60%6.50%13/10/17 - 16/10/17CHNew Yuan Loans CNYSep1200.0b1090.0b13/10/17 - 16/10/17CHAggregate Financing CNYSep1572.7b1480.0b13/10/17 - 16/10/17INTrade BalanceSep-$11700.0m-$11644.0m13/10/17 - 16/10/17INExports YoYSep--10.30%13/10/17 - 16/10/17INImports YoYSep--21.00%13/10/17 - 20/10/17USMonthly Budget StatementSep$6.0b$33.4b15/10/17 21:30NZPerformance Services IndexSep--57.315/10/17 23:01UKRightmove House Prices MoMOct---1.20%15/10/17 23:01UKRightmove House Prices YoYOct--1.10%16/10/17 01:30CHCPI YoYSep1.60%1.80%16/10/17 01:30CHPPI YoYSep6.40%6.30%16/10/17 03:00SKBank Lending To Household TotalSep--KR744.2t16/10/17 04:00IDImports YoYSep19.70%8.89%16/10/17 04:00IDExports YoYSep17.88%19.24%16/10/17 04:00IDTrade BalanceSep$1267m$1720m16/10/17 04:00JNTokyo Condominium Sales YoYSep--6.90%16/10/17 04:30JNIndustrial Production MoMAug F--2.10%16/10/17 04:30JNIndustrial Production YoYAug F--5.40%16/10/17 04:30JNCapacity Utilization MoMAug---1.80%16/10/17 06:00GEWholesale Price Index MoMSep--0.30%16/10/17 06:00GEWholesale Price Index YoYSep--3.20%16/10/17 06:30INWholesale Prices YoYSep3.30%3.24%16/10/17 09:00ECTrade Balance SAAug--18.6b16/10/17 09:00ECTrade Balance NSAAug23.3b23.2b16/10/17 12:30USEmpire ManufacturingOct2024.416/10/17 21:45NZCPI QoQ3Q0.40%0.00%16/10/17 21:45NZCPI YoY3Q1.80%1.70%16/10/17 22:30AUANZ Roy Morgan Weekly Consumer Confidence IndexOct-15--113.816-10-17PHOverseas Remittances YoYAug5.30%7.10%16-10-17PHOverseas Workers RemittancesAug$2532m$2283m16/10/17 - 20/10/17IDLocal Auto SalesSep--9646116/10/17 - 20/10/17IDMotorcycle SalesSep--554923

Central Bank Watch

Time (GMT)CtyEventVoterStance10/10/17 - 15/10/17USAnnual Meetings of the IMF and the World Bank

14/10/17 17:30ECECB"s Lautenschlaeger speaks at roundtable in WashingtonYesHawkish15/10/17 13:00USYellen, Zhou, Kuroda, Constancio on G-30 Panel in Washington

15/10/17 15:20INCohn, Patel, Carstens, Weidmann on G-30 Panel in Washington

Auctions

Time (GMT)CtyEventPrev Avg YieldB/C01/10/17 - 31/10/17MAMalaysia to Sell 30-Year Bonds (MZ160002)

16/10/17 01:30SKKorea to Sell KRW 450Bln 10-Year Bond

16/10/17 02:30SKKorea to Sell KRW 750 Bln 10-Year Bond2.25%

Destinations: