Macro

In this briefing:

1. BoJ Steps in as ECB Exits
2. Fed Remains Unfazed by Recession Doomsayers, but Political Challenges Lurk on the Horizon
3. Japan: Upcycle Intact
4. Free Money Has Flown
5. UK Cycle: Bullish Trends Stretch Before Slowing

1. BoJ Steps in as ECB Exits

By Shweta Singh, Managing Director Global Macro

• Global central banks turning dovish
• But BoJ maybe the only DM central bank ‘properly’ injecting liquidity this year
• European debt – including Italian BTPs – could benefit the most  

2. Fed Remains Unfazed by Recession Doomsayers, but Political Challenges Lurk on the Horizon

Following the release of the December US retail sales report, recession doomsayers have become much more vocal and their calls will invariably become louder as economic deceleration unfolds.

There are currently no major signs of excesses in important sectors of the US economy to unhinge the flat Phillips Curve, while structural shifts over time have made forecasting inflexion points in the business cycle much more difficult.

Meanwhile, although the Federal Open Market Committee (FOMC) is concerned about externally-sourced headwinds, members seem content with the current behaviour of the domestic economy, at least for the time being.

The Trump Administration will be keen to ease fiscal policy again to prevent a 2020 recession if growth slows significantly this year, while the Democrats would face a tricky task obstructing if there was a sizeable infrastructure spending component included as part of the measures.

Meanwhile, some Democratic politicians have been exploring deploying Modern Monetary Theory to facilitate the greater provision of free government services, but financial markets would baulk at this prospect, particularly bond market vigilantes.

The behaviour of the bond market vigilantes have highlighted the problems facing the Fed in trying to raise the policy rate significantly above zero, but they have at least provided the FOMC with an interest rate buffer to counter economic slowdown, something conspicuously absent in the Eurozone and Japan.

3. Japan: Upcycle Intact

Following 3Q’s contraction, economic activity rebounded in the final quarter of 2018 led  by investment spending. Global trade tensions and the planned increase in the consumption tax in 2019 are headwinds but we expect the Japanese economy to sail through. The investment upcycle remains intact underpinned by rising profits and consumption spending well supported by easy monetary and fiscal policy. We reiterate our overweight call on Japanese equities.

4. Free Money Has Flown

The world will soon discover that debt matters.

The announcement of each round of QE increased asset prices, but the effect on Treasury bond prices began to fade when central bank purchases began. This unexpected behaviour revealed a little-known fact: asset prices react more to the expectation of changes in liquidity than to the experience of greater liquidity in financial markets. By contrast, economic growth is subject to the fluctuating standards of commercial bank lending, which follow variations in the demand for credit. Consequently, financial markets lead the economy. Meanwhile, central banks focus on lagging indicators, so they’re followers, not leaders. Bond markets usually predict more accurately than stock markets. To work, central bank easing policies require real risk-adjusted interest rates. However, with those rates below zero in many countries, further reductions would penalise lenders without helping borrowers. Thus, only rising inflation can save stressed debtors.

5. UK Cycle: Bullish Trends Stretch Before Slowing

• UK employment growth increased further in Dec-18 despite GDP’s yearend weakness. Higher participation has bolstered the bullish trend but tends to be temporary.
• Slower employment growth need not prevent further falls in the unemployment rate, which looks to be creating an increasingly tight labour market.
• Wage growth is also likely to ease back in the new year, although the extent should be curtailed by an unwind of the depressed bonus share, in my view.

In this briefing:

1. Fed Remains Unfazed by Recession Doomsayers, but Political Challenges Lurk on the Horizon
2. Japan: Upcycle Intact
3. Free Money Has Flown
4. UK Cycle: Bullish Trends Stretch Before Slowing
5. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

1. Fed Remains Unfazed by Recession Doomsayers, but Political Challenges Lurk on the Horizon

Following the release of the December US retail sales report, recession doomsayers have become much more vocal and their calls will invariably become louder as economic deceleration unfolds.

There are currently no major signs of excesses in important sectors of the US economy to unhinge the flat Phillips Curve, while structural shifts over time have made forecasting inflexion points in the business cycle much more difficult.

Meanwhile, although the Federal Open Market Committee (FOMC) is concerned about externally-sourced headwinds, members seem content with the current behaviour of the domestic economy, at least for the time being.

The Trump Administration will be keen to ease fiscal policy again to prevent a 2020 recession if growth slows significantly this year, while the Democrats would face a tricky task obstructing if there was a sizeable infrastructure spending component included as part of the measures.

Meanwhile, some Democratic politicians have been exploring deploying Modern Monetary Theory to facilitate the greater provision of free government services, but financial markets would baulk at this prospect, particularly bond market vigilantes.

The behaviour of the bond market vigilantes have highlighted the problems facing the Fed in trying to raise the policy rate significantly above zero, but they have at least provided the FOMC with an interest rate buffer to counter economic slowdown, something conspicuously absent in the Eurozone and Japan.

2. Japan: Upcycle Intact

Following 3Q’s contraction, economic activity rebounded in the final quarter of 2018 led  by investment spending. Global trade tensions and the planned increase in the consumption tax in 2019 are headwinds but we expect the Japanese economy to sail through. The investment upcycle remains intact underpinned by rising profits and consumption spending well supported by easy monetary and fiscal policy. We reiterate our overweight call on Japanese equities.

3. Free Money Has Flown

The world will soon discover that debt matters.

The announcement of each round of QE increased asset prices, but the effect on Treasury bond prices began to fade when central bank purchases began. This unexpected behaviour revealed a little-known fact: asset prices react more to the expectation of changes in liquidity than to the experience of greater liquidity in financial markets. By contrast, economic growth is subject to the fluctuating standards of commercial bank lending, which follow variations in the demand for credit. Consequently, financial markets lead the economy. Meanwhile, central banks focus on lagging indicators, so they’re followers, not leaders. Bond markets usually predict more accurately than stock markets. To work, central bank easing policies require real risk-adjusted interest rates. However, with those rates below zero in many countries, further reductions would penalise lenders without helping borrowers. Thus, only rising inflation can save stressed debtors.

4. UK Cycle: Bullish Trends Stretch Before Slowing

• UK employment growth increased further in Dec-18 despite GDP’s yearend weakness. Higher participation has bolstered the bullish trend but tends to be temporary.
• Slower employment growth need not prevent further falls in the unemployment rate, which looks to be creating an increasingly tight labour market.
• Wage growth is also likely to ease back in the new year, although the extent should be curtailed by an unwind of the depressed bonus share, in my view.

5. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

In this briefing:

1. Free Money Has Flown
2. UK Cycle: Bullish Trends Stretch Before Slowing
3. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data
4. Mildly Expansionary, but Socially Magnanimous While Staying Focused on Long-Term Competitiveness
5. January Headline Data for China

1. Free Money Has Flown

The world will soon discover that debt matters.

The announcement of each round of QE increased asset prices, but the effect on Treasury bond prices began to fade when central bank purchases began. This unexpected behaviour revealed a little-known fact: asset prices react more to the expectation of changes in liquidity than to the experience of greater liquidity in financial markets. By contrast, economic growth is subject to the fluctuating standards of commercial bank lending, which follow variations in the demand for credit. Consequently, financial markets lead the economy. Meanwhile, central banks focus on lagging indicators, so they’re followers, not leaders. Bond markets usually predict more accurately than stock markets. To work, central bank easing policies require real risk-adjusted interest rates. However, with those rates below zero in many countries, further reductions would penalise lenders without helping borrowers. Thus, only rising inflation can save stressed debtors.

2. UK Cycle: Bullish Trends Stretch Before Slowing

• UK employment growth increased further in Dec-18 despite GDP’s yearend weakness. Higher participation has bolstered the bullish trend but tends to be temporary.
• Slower employment growth need not prevent further falls in the unemployment rate, which looks to be creating an increasingly tight labour market.
• Wage growth is also likely to ease back in the new year, although the extent should be curtailed by an unwind of the depressed bonus share, in my view.

3. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

4. Mildly Expansionary, but Socially Magnanimous While Staying Focused on Long-Term Competitiveness

Singapore’s growth in 2017 and 2018 has been primarily productivity-driven, suggesting that the 5-year project of reducing dependence on foreign workers (of all skill levels) is finally bearing fruit. The 2019 Budget further lowered the ceiling on employing foreigners in the services sector, and withdrew the NOR scheme from 2002 that was aimed at attracting senior executives with  regional/global roles.

The healthy twin surpluses are evident even amid the fog of ultra-conservative fiscal accounting (which excludes land sales and investment income from GIC, MAS and Temasek from revenue, and only includes a small part of their past earnings as a “net investment return contribution”). The small stimulus was aimed mainly at providing a slew of health and other benefits to those born between 1950 and 1959 (the “Merdeka Generation”); the previous “Pioneer Generation” having already been rewarded previously. These are sensible interventions to reduce inequality. 

This year, we estimate that Singapore’s real GDP will decelerate to 2.8% growth (from 3.7% in 2017 and 3.2% in 2018) as the global electronics cycle turns downward — evident in the sharp slump in non-oil domestic exports in Dec18 and Jan19. But Singapore’s twin surpluses have ample room to provide a substantial fiscal stimulus should the global economy worsen substantially further. 

5. January Headline Data for China

Sometimes at Balding’s World we explore worm holes of Chinese data. Yes, granular data is awesome, but the global economic calendar should not be overlooked nor headline data taken for granted. To that end today we take a look at some key figures to recently emerge.

In this briefing:

1. UK Cycle: Bullish Trends Stretch Before Slowing
2. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data
3. Mildly Expansionary, but Socially Magnanimous While Staying Focused on Long-Term Competitiveness
4. January Headline Data for China
5. Trade Talks/Tech Trouble/ Rural Revival/Data Digest /Bad Bonds

1. UK Cycle: Bullish Trends Stretch Before Slowing

• UK employment growth increased further in Dec-18 despite GDP’s yearend weakness. Higher participation has bolstered the bullish trend but tends to be temporary.
• Slower employment growth need not prevent further falls in the unemployment rate, which looks to be creating an increasingly tight labour market.
• Wage growth is also likely to ease back in the new year, although the extent should be curtailed by an unwind of the depressed bonus share, in my view.

2. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

3. Mildly Expansionary, but Socially Magnanimous While Staying Focused on Long-Term Competitiveness

Singapore’s growth in 2017 and 2018 has been primarily productivity-driven, suggesting that the 5-year project of reducing dependence on foreign workers (of all skill levels) is finally bearing fruit. The 2019 Budget further lowered the ceiling on employing foreigners in the services sector, and withdrew the NOR scheme from 2002 that was aimed at attracting senior executives with  regional/global roles.

The healthy twin surpluses are evident even amid the fog of ultra-conservative fiscal accounting (which excludes land sales and investment income from GIC, MAS and Temasek from revenue, and only includes a small part of their past earnings as a “net investment return contribution”). The small stimulus was aimed mainly at providing a slew of health and other benefits to those born between 1950 and 1959 (the “Merdeka Generation”); the previous “Pioneer Generation” having already been rewarded previously. These are sensible interventions to reduce inequality. 

This year, we estimate that Singapore’s real GDP will decelerate to 2.8% growth (from 3.7% in 2017 and 3.2% in 2018) as the global electronics cycle turns downward — evident in the sharp slump in non-oil domestic exports in Dec18 and Jan19. But Singapore’s twin surpluses have ample room to provide a substantial fiscal stimulus should the global economy worsen substantially further. 

4. January Headline Data for China

Sometimes at Balding’s World we explore worm holes of Chinese data. Yes, granular data is awesome, but the global economic calendar should not be overlooked nor headline data taken for granted. To that end today we take a look at some key figures to recently emerge.

5. Trade Talks/Tech Trouble/ Rural Revival/Data Digest /Bad Bonds

China News That Matters

• Will tariff hike be delayed to May?
• Like rugby without the All Blacks!
• Funding the farmers – with better financial services
• Good signs, bad signs
• High time for a check-up

In this briefing:

1. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data
2. Mildly Expansionary, but Socially Magnanimous While Staying Focused on Long-Term Competitiveness
3. January Headline Data for China
4. Trade Talks/Tech Trouble/ Rural Revival/Data Digest /Bad Bonds

1. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

2. Mildly Expansionary, but Socially Magnanimous While Staying Focused on Long-Term Competitiveness

Singapore’s growth in 2017 and 2018 has been primarily productivity-driven, suggesting that the 5-year project of reducing dependence on foreign workers (of all skill levels) is finally bearing fruit. The 2019 Budget further lowered the ceiling on employing foreigners in the services sector, and withdrew the NOR scheme from 2002 that was aimed at attracting senior executives with  regional/global roles.

The healthy twin surpluses are evident even amid the fog of ultra-conservative fiscal accounting (which excludes land sales and investment income from GIC, MAS and Temasek from revenue, and only includes a small part of their past earnings as a “net investment return contribution”). The small stimulus was aimed mainly at providing a slew of health and other benefits to those born between 1950 and 1959 (the “Merdeka Generation”); the previous “Pioneer Generation” having already been rewarded previously. These are sensible interventions to reduce inequality. 

This year, we estimate that Singapore’s real GDP will decelerate to 2.8% growth (from 3.7% in 2017 and 3.2% in 2018) as the global electronics cycle turns downward — evident in the sharp slump in non-oil domestic exports in Dec18 and Jan19. But Singapore’s twin surpluses have ample room to provide a substantial fiscal stimulus should the global economy worsen substantially further. 

3. January Headline Data for China

Sometimes at Balding’s World we explore worm holes of Chinese data. Yes, granular data is awesome, but the global economic calendar should not be overlooked nor headline data taken for granted. To that end today we take a look at some key figures to recently emerge.

4. Trade Talks/Tech Trouble/ Rural Revival/Data Digest /Bad Bonds

China News That Matters

• Will tariff hike be delayed to May?
• Like rugby without the All Blacks!
• Funding the farmers – with better financial services
• Good signs, bad signs
• High time for a check-up

In this briefing:

1. Mildly Expansionary, but Socially Magnanimous While Staying Focused on Long-Term Competitiveness
2. January Headline Data for China
3. Trade Talks/Tech Trouble/ Rural Revival/Data Digest /Bad Bonds

1. Mildly Expansionary, but Socially Magnanimous While Staying Focused on Long-Term Competitiveness

Singapore’s growth in 2017 and 2018 has been primarily productivity-driven, suggesting that the 5-year project of reducing dependence on foreign workers (of all skill levels) is finally bearing fruit. The 2019 Budget further lowered the ceiling on employing foreigners in the services sector, and withdrew the NOR scheme from 2002 that was aimed at attracting senior executives with  regional/global roles.

The healthy twin surpluses are evident even amid the fog of ultra-conservative fiscal accounting (which excludes land sales and investment income from GIC, MAS and Temasek from revenue, and only includes a small part of their past earnings as a “net investment return contribution”). The small stimulus was aimed mainly at providing a slew of health and other benefits to those born between 1950 and 1959 (the “Merdeka Generation”); the previous “Pioneer Generation” having already been rewarded previously. These are sensible interventions to reduce inequality. 

This year, we estimate that Singapore’s real GDP will decelerate to 2.8% growth (from 3.7% in 2017 and 3.2% in 2018) as the global electronics cycle turns downward — evident in the sharp slump in non-oil domestic exports in Dec18 and Jan19. But Singapore’s twin surpluses have ample room to provide a substantial fiscal stimulus should the global economy worsen substantially further. 

2. January Headline Data for China

Sometimes at Balding’s World we explore worm holes of Chinese data. Yes, granular data is awesome, but the global economic calendar should not be overlooked nor headline data taken for granted. To that end today we take a look at some key figures to recently emerge.

3. Trade Talks/Tech Trouble/ Rural Revival/Data Digest /Bad Bonds

China News That Matters

• Will tariff hike be delayed to May?
• Like rugby without the All Blacks!
• Funding the farmers – with better financial services
• Good signs, bad signs
• High time for a check-up

In this briefing:

1. Trade Talks/Tech Trouble/ Rural Revival/Data Digest /Bad Bonds

1. Trade Talks/Tech Trouble/ Rural Revival/Data Digest /Bad Bonds

China News That Matters

• Will tariff hike be delayed to May?
• Like rugby without the All Blacks!
• Funding the farmers – with better financial services
• Good signs, bad signs
• High time for a check-up

In this briefing:

1. Trade Talks/Tech Trouble/ Rural Revival/Data Digest /Bad Bonds
2. FLASH: UK Consumer Is Bullish BoB in Jan-19
3. Widodo Sets GIAA Fare / Ahok In PDI-P / Prabowo Still Misfiring / Oz Cepa / KPK on Beneficial Owners

1. Trade Talks/Tech Trouble/ Rural Revival/Data Digest /Bad Bonds

China News That Matters

• Will tariff hike be delayed to May?
• Like rugby without the All Blacks!
• Funding the farmers – with better financial services
• Good signs, bad signs
• High time for a check-up

2. FLASH: UK Consumer Is Bullish BoB in Jan-19

• UK retail sales more than recovered their Dec-18 fall with a Jan-19 resurgence back above an already brisk trend. I still see the BoE as overly gloomy on demand.
• Surveys have softened amid ongoing political uncertainty, but the average British consumer appears bored of Brexit, and the so-called “BoBs” keep spending. Official data exceeded the surveys after the referendum and are doing so again.

3. Widodo Sets GIAA Fare / Ahok In PDI-P / Prabowo Still Misfiring / Oz Cepa / KPK on Beneficial Owners

Widodo intervened in the airfare pricing of Garuda Indonesia (Persero) (GIAA IJ), compelling it to drop its fares by 20%.  This serves a short-term election interest at the expense of investor confidence.  Ahok joined PDI-P, but only very peripherally.  The contradictory and hypocritical hyperbole in Prabowo’s persistent economic campaign messages still have yet to resonate with voters.  The trade agreement with Australia will happen in March, say ministers.  The KPK is prioritizing measures to disclose beneficial owners of companies. 

Politics: Jakarta Governor Basuki Tjahaja Purnama (‘Ahok’) announced that he had joined the PDI-Perjuangan party of Megawati, but officials made clear that he will not campaign for President Joko Widodo, nor does he have any status in the party other than “member” without rank.  He must work to attain the status of “cadre”.  Nonetheless, Megawati deserves credit for embracing an icon of pluralism and reform (Page 2).  Police named the hard-line Islamic leader Slamet Ma’arif as a suspect on charges of illegal campaigning.  Opposition figures decried this as yet another example of administration repression.  In fact, the charges against the cleric are sound (p. 3).  West Java Governor Ridwan Kamil rebutted accusations of campaign violations (p. 3).  Former First Lady Kristiani Herawati Yudhoyono is suffering from leukemia (p. 5).  Gerindra Chair Prabowo Subianto campaigned in Central Java and expounded on his familiar themes of wayward policymaking and economic deprivation.  Prabowo’s attempt to use hyperbole to excite voters has not worked in the four months of campaigning to date, but he has yet to alter his messaging (p. 5).  Widodo’s campaign team daily chair, Gen (ret) Moeldoko, declared that the strategy for the final 60 days of campaigning will be “total war”.  This elicited ridicule from the opposition (p. 8).  Former Constitutional Court Chief Justice Mahfud Mahmodin called on justices of the court to intervene in the leadership dispute dividing the Regional Representatives Assembly (DPD) (p. 9).  Solidarity Party (PSI) Chair Grace Natalie derided “faux‑nationalist” parties that fail to defend pluralism (p. 9). 

Justice: Anti-Corruption Commission (KPK) officials are prioritizing efforts to bring about better disclosure of the beneficial owners of companies (p. 10).

Policy News: The president prevailed upon the state airline Garuda to cut its domestic airfare after hikes last month.  The move avoids irking certain consumers prior to elections.  But ad hoc interventions by the president impose broad costs on the overall economy, by elevating perceptions of risk and deterring investment (p. 10).  The Islamic Justice Welfare Party (PKS) registered a host of objections to a proposed Bill on Sexual Abuse (p. 11).

International: The signing of the long-awaited Comprehensive Economic Part­nership Agreement (CEPA) with Australia will happen next month, say ministers (p. 11).

Economics: Investment Coordinating Board (BKPM) Chair Tom Lembong reiterated calls for revising the Negative Investment List (DNI) to allow investment in health and education (p. 11).

In this briefing:

1. Trade Talks/Tech Trouble/ Rural Revival/Data Digest /Bad Bonds
2. FLASH: UK Consumer Is Bullish BoB in Jan-19
3. Widodo Sets GIAA Fare / Ahok In PDI-P / Prabowo Still Misfiring / Oz Cepa / KPK on Beneficial Owners
4. FLASH: UK Parliamentary Theatrics Divorced from Deal

1. Trade Talks/Tech Trouble/ Rural Revival/Data Digest /Bad Bonds

China News That Matters

• Will tariff hike be delayed to May?
• Like rugby without the All Blacks!
• Funding the farmers – with better financial services
• Good signs, bad signs
• High time for a check-up

2. FLASH: UK Consumer Is Bullish BoB in Jan-19

• UK retail sales more than recovered their Dec-18 fall with a Jan-19 resurgence back above an already brisk trend. I still see the BoE as overly gloomy on demand.
• Surveys have softened amid ongoing political uncertainty, but the average British consumer appears bored of Brexit, and the so-called “BoBs” keep spending. Official data exceeded the surveys after the referendum and are doing so again.

3. Widodo Sets GIAA Fare / Ahok In PDI-P / Prabowo Still Misfiring / Oz Cepa / KPK on Beneficial Owners

Widodo intervened in the airfare pricing of Garuda Indonesia (Persero) (GIAA IJ), compelling it to drop its fares by 20%.  This serves a short-term election interest at the expense of investor confidence.  Ahok joined PDI-P, but only very peripherally.  The contradictory and hypocritical hyperbole in Prabowo’s persistent economic campaign messages still have yet to resonate with voters.  The trade agreement with Australia will happen in March, say ministers.  The KPK is prioritizing measures to disclose beneficial owners of companies. 

Politics: Jakarta Governor Basuki Tjahaja Purnama (‘Ahok’) announced that he had joined the PDI-Perjuangan party of Megawati, but officials made clear that he will not campaign for President Joko Widodo, nor does he have any status in the party other than “member” without rank.  He must work to attain the status of “cadre”.  Nonetheless, Megawati deserves credit for embracing an icon of pluralism and reform (Page 2).  Police named the hard-line Islamic leader Slamet Ma’arif as a suspect on charges of illegal campaigning.  Opposition figures decried this as yet another example of administration repression.  In fact, the charges against the cleric are sound (p. 3).  West Java Governor Ridwan Kamil rebutted accusations of campaign violations (p. 3).  Former First Lady Kristiani Herawati Yudhoyono is suffering from leukemia (p. 5).  Gerindra Chair Prabowo Subianto campaigned in Central Java and expounded on his familiar themes of wayward policymaking and economic deprivation.  Prabowo’s attempt to use hyperbole to excite voters has not worked in the four months of campaigning to date, but he has yet to alter his messaging (p. 5).  Widodo’s campaign team daily chair, Gen (ret) Moeldoko, declared that the strategy for the final 60 days of campaigning will be “total war”.  This elicited ridicule from the opposition (p. 8).  Former Constitutional Court Chief Justice Mahfud Mahmodin called on justices of the court to intervene in the leadership dispute dividing the Regional Representatives Assembly (DPD) (p. 9).  Solidarity Party (PSI) Chair Grace Natalie derided “faux‑nationalist” parties that fail to defend pluralism (p. 9). 

Justice: Anti-Corruption Commission (KPK) officials are prioritizing efforts to bring about better disclosure of the beneficial owners of companies (p. 10).

Policy News: The president prevailed upon the state airline Garuda to cut its domestic airfare after hikes last month.  The move avoids irking certain consumers prior to elections.  But ad hoc interventions by the president impose broad costs on the overall economy, by elevating perceptions of risk and deterring investment (p. 10).  The Islamic Justice Welfare Party (PKS) registered a host of objections to a proposed Bill on Sexual Abuse (p. 11).

International: The signing of the long-awaited Comprehensive Economic Part­nership Agreement (CEPA) with Australia will happen next month, say ministers (p. 11).

Economics: Investment Coordinating Board (BKPM) Chair Tom Lembong reiterated calls for revising the Negative Investment List (DNI) to allow investment in health and education (p. 11).

4. FLASH: UK Parliamentary Theatrics Divorced from Deal

• The government was defeated on a motion reiterating the approach passed on 29 January after Eurosceptics abstained in protest at the implied opposition to no deal. It does not bind the government or show no support for an amended deal.
• A state-dependent backstop break clause remains the most likely outcome, with the probabilities of a deal, no deal, and no Brexit still roughly 55:30:15, in my view. Parliamentary theatrics are not changing the facts on the ground.

In this briefing:

1. FLASH: UK Consumer Is Bullish BoB in Jan-19
2. Widodo Sets GIAA Fare / Ahok In PDI-P / Prabowo Still Misfiring / Oz Cepa / KPK on Beneficial Owners
3. FLASH: UK Parliamentary Theatrics Divorced from Deal

1. FLASH: UK Consumer Is Bullish BoB in Jan-19

• UK retail sales more than recovered their Dec-18 fall with a Jan-19 resurgence back above an already brisk trend. I still see the BoE as overly gloomy on demand.
• Surveys have softened amid ongoing political uncertainty, but the average British consumer appears bored of Brexit, and the so-called “BoBs” keep spending. Official data exceeded the surveys after the referendum and are doing so again.

2. Widodo Sets GIAA Fare / Ahok In PDI-P / Prabowo Still Misfiring / Oz Cepa / KPK on Beneficial Owners

Widodo intervened in the airfare pricing of Garuda Indonesia (Persero) (GIAA IJ), compelling it to drop its fares by 20%.  This serves a short-term election interest at the expense of investor confidence.  Ahok joined PDI-P, but only very peripherally.  The contradictory and hypocritical hyperbole in Prabowo’s persistent economic campaign messages still have yet to resonate with voters.  The trade agreement with Australia will happen in March, say ministers.  The KPK is prioritizing measures to disclose beneficial owners of companies. 

Politics: Jakarta Governor Basuki Tjahaja Purnama (‘Ahok’) announced that he had joined the PDI-Perjuangan party of Megawati, but officials made clear that he will not campaign for President Joko Widodo, nor does he have any status in the party other than “member” without rank.  He must work to attain the status of “cadre”.  Nonetheless, Megawati deserves credit for embracing an icon of pluralism and reform (Page 2).  Police named the hard-line Islamic leader Slamet Ma’arif as a suspect on charges of illegal campaigning.  Opposition figures decried this as yet another example of administration repression.  In fact, the charges against the cleric are sound (p. 3).  West Java Governor Ridwan Kamil rebutted accusations of campaign violations (p. 3).  Former First Lady Kristiani Herawati Yudhoyono is suffering from leukemia (p. 5).  Gerindra Chair Prabowo Subianto campaigned in Central Java and expounded on his familiar themes of wayward policymaking and economic deprivation.  Prabowo’s attempt to use hyperbole to excite voters has not worked in the four months of campaigning to date, but he has yet to alter his messaging (p. 5).  Widodo’s campaign team daily chair, Gen (ret) Moeldoko, declared that the strategy for the final 60 days of campaigning will be “total war”.  This elicited ridicule from the opposition (p. 8).  Former Constitutional Court Chief Justice Mahfud Mahmodin called on justices of the court to intervene in the leadership dispute dividing the Regional Representatives Assembly (DPD) (p. 9).  Solidarity Party (PSI) Chair Grace Natalie derided “faux‑nationalist” parties that fail to defend pluralism (p. 9). 

Justice: Anti-Corruption Commission (KPK) officials are prioritizing efforts to bring about better disclosure of the beneficial owners of companies (p. 10).

Policy News: The president prevailed upon the state airline Garuda to cut its domestic airfare after hikes last month.  The move avoids irking certain consumers prior to elections.  But ad hoc interventions by the president impose broad costs on the overall economy, by elevating perceptions of risk and deterring investment (p. 10).  The Islamic Justice Welfare Party (PKS) registered a host of objections to a proposed Bill on Sexual Abuse (p. 11).

International: The signing of the long-awaited Comprehensive Economic Part­nership Agreement (CEPA) with Australia will happen next month, say ministers (p. 11).

Economics: Investment Coordinating Board (BKPM) Chair Tom Lembong reiterated calls for revising the Negative Investment List (DNI) to allow investment in health and education (p. 11).

3. FLASH: UK Parliamentary Theatrics Divorced from Deal

• The government was defeated on a motion reiterating the approach passed on 29 January after Eurosceptics abstained in protest at the implied opposition to no deal. It does not bind the government or show no support for an amended deal.
• A state-dependent backstop break clause remains the most likely outcome, with the probabilities of a deal, no deal, and no Brexit still roughly 55:30:15, in my view. Parliamentary theatrics are not changing the facts on the ground.