Asia Morning Bites: RBA Decision and China's Caixin PMI in Focus

Asia Morning Bites

A finely balanced RBA decision as well as China's Caixin manufacturing PMI data are today's main events.

 

Global Macro and Markets

• Global markets: US stocks made feeble gains on Monday to close out July, but that still leaves stocks strongly up over the month, and indeed the prior month too. The S&P 500 is up 19.52% ytd, and the NASDAQ is up 37.07%.  Chinese stocks made firmer gains, helped by a further set of policies to help boost consumption. Once again though, the measures stopped short of direct stimulus, and instead, we have further "signals of support" and supply-side measures. The Hang Seng index rose 0.82%, while the CSI 300 rose 0.55%. US Treasury yields were almost unchanged on the day. 10Y JGBs were a little higher at 0.599%. EURUSD moved lower to 1.0998, though the AUD gained ahead of today’s RBA meeting, rising to 0.6718. The JPY was a little weaker at 142.379 while Cable was steady at 1.2835. There wasn’t much direction for most of the Asian FX pack yesterday, though the MYR gained more than a per cent against the USD moving to 4.507. The THB was softer ahead of tomorrow's BoT meeting.

• G-7 macro: Eurozone inflation data for July showed a small fall to 5.3% YoY from 5.5% for the headline index. But there was no decline in the core inflation rate, which remained at 5.5%YoY. Today is fairly quiet for macro releases, though we do get the US Manufacturing ISM for July, together with backwards-looking labour data for June from the JOLTS survey.

• Australia: A small majority of forecasters are expecting the Reserve Bank of Australia (RBA) to hike rates by 25bp today. We aren’t among them, believing that the need to hike will be more readily apparent in later months. With the RBA keen not to overdo the tightening, it seems unnecessary to hike today when in all likelihood the macro signals for hiking will look much stronger at the September meeting.

• India: The June fiscal deficit came in a lot higher than the initially reported INR1.48tr deficit for June 2022, coming in at INR2.41tr. There were some upward revisions to last year’s data, so relative to the revised figures of INR2.11tr the increase is not as startling. These numbers do need watching. Next month’s comparison is with a small surplus in 2022, so if the deficit numbers for July do not dip sharply, then the government’s 5.9% deficit target may be at risk.

• South Korea: The export contraction deepened again in July. Exports fell by 16.5% YoY (vs -6.0% in June, -15% market consensus). By export item, Semiconductor exports fell 34%, petroleum fell 42%, and chemicals also fell 25%. Unfavourable price effects dragged down the export performance of these items. Meanwhile, vehicle exports rose a robust 15% YoY.  

  Imports also fell sharply (-25.4% vs -11.7% in June, -25.0 market consensus) mainly due to falling global commodity prices (crude oil -46%, gas -61%, coal -46%). With a larger decline in imports than exports, the trade balance recorded a surplus for the second month. We believe that the trade balance will stay in surplus for most of the second half of the year, but exports will likely stay in the contraction zone for the current quarter.

• Korea's July manufacturing PMI rose to 49.4 from 47.8 in June, the highest reading since July 2022, but remains in the contraction zone where it has languished for thirteen consecutive months. With new orders and output rising, we believe that a modest recovery in manufacturing and exports can continue. We expect exports to turn positive in 4Q.

• Japan: Japan’s labour market remains tight, and this is an optimistic sign that sustainable wage growth may continue for some time. The unemployment rate edged down to 2.5% in June (vs 2.6% in May and market consensus), and labour participation also rose to 63.1% from 62.9% in May. 

  Although labour demand conditions weakened recently as the Job-to-application ratio continued to decline to 1.30 in June from the recent peak of 1.36 in December, we still think that the current level of labour demand is quite healthy. By industry, job offers for hospitality services such as hotels and restaurants rose, but those for manufacturing declined. We believe that Japan’s recovery will continue, mostly driven by the service sector.

• Indonesia:  July inflation is set for release today.  The market consensus points to a further moderation in headline inflation. July inflation is pegged to slip to 3.1%YoY from 3.5% as favourable base effects kick in.  Likewise, core inflation is set to cool further to 2.5%YoY from 2.6% in the previous month.  Despite slowing inflation, Bank Indonesia will likely remain on hold in the near term to help provide stability to the IDR which has been under pressure lately.   

 

What to look out for: RBA decision and regional PMI

• New Zealand building permits (1 August)

• Japan labour market figures (1 August)

• South Korea trade balance (1 August)

• Indonesia CPI inflation (1 August)

• PMI regional reports (1 August)

• China Caixin PMI (1 August)

• Australia RBA (1 August)

• Hong Kong retail sales (1 August)

• US ISM manufacturing and JOLTS report (1 August)

• South Korea CPI inflation (2 August)

• Thailand BoT policy (2 August)

• US ADP jobs report (2 August)

• Japan Jibun PMI (3 August)

• Australia trade balance (3 August)

• China Caixin PMI services (3 August)

• UK BoE policy meeting (3 August)

• US initial jobless claims, factory orders, durable goods orders, ISM services (3 August)

• Philippines CPI inflation (4 August)

• Singapore retail sales (4 August)

• US non-farm payrolls (4 August)