UK monthly GDP disappointed all expectations by falling 0.4% m-o-m in Dec-18, which trimmed 4Q18 to 0.2% q-o-q. IP weighed most, mainly owing to ongoing car manufacturing issues, but was not the source of surprise.
Services remained resilient overall in the PMI-comparable areas with 0.55% q-o-q growth. Government and non-retail distributive trades were weaker, though.
Construction’s 2.8% contraction caused most of the surprise. Repairs and new private housing were weakest, and both are prone to positive payback. However, 1Q18 GDP growth is now tracking a low 0.3% q-o-q, in my view.
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In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
Latest January ‘flash’ data show cross-border capital returning to Asia
Asian EM and India favoured
Reinforces similar evidence in December and helps reverse big outflows a year ago
Adds support to our view that Asia is leading the Global cycle higher
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In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
The RBI (Reserve Bank of India) cut its policy rate by 25bp, with the MPC (monetary policy committee) voting 4-2 in favour of the move. It also altered its monetary stance to “neutral” from “calibrated tightening”. We had said at the time of the RBI’s rate hike last June that it was making a major policy error ( RBI Raises Rates, but Will Likely Look Foolish when Inflation Moderates) because inflation was likely to completely bely the official forecast and move down rather than up. That has duly happened, with CPI inflation at 2.19% YoY in December 2018 (versus the RBI’s June 2018 forecast of “4.7% with risks tilted to the upside”). WPI inflation (not the RBI’s main target) has also eased to 3.8% YoY in December 2018.
India’s real repo rate of +4.3% was among the highest in the world before this rate cut — and the new +4% real repo rate still remains exceptionally high. Although food prices are likely to decline less rapidly in the current quarter, headline CPI inflation is likely to edge up only slightly to 2.5-3% YoY in January-March 2019. This will allow the RBI to cut the policy rate further to 6% at its next meeting — still leaving the real repo rate above +3%.
The rational decline in nominal policy rates should provide a significant medium-term fillip to growth, allowing real GDP to grow more than 8% YoY in FY2019/20 and more in subsequent years as further structural reforms occur under a rejuvenated Modi government in its second term. After its initial negative reaction, we expect the stock market to also welcome the easier monetary conditions. We recommend staying Overweight the India equity and bond markets, especially after recent sell-offs (i.e., Buy into this weakness).
The imposition of a household energy price cap in the UK had a significant disinflationary effect in Jan-19 and lowered my CPI and RPI inflation forecasts to 1.9% and 2.5%.
These outcomes would be below the consensus again, although that is now the norm amid a heavy bias to surprises, especially relative to the RPI consensus.
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Headline inflation in January eased to 4.4%YoY (vs 5.1%YoY in December) although its annualized rate was back in positive territory (1.2%). Easing food inflation (5.6%YoY) and narrowing CPI rental & household utilities (4%YoY) supported inflation’s fade out.
Core inflation edged lower to 4.4%YoY. Still in excess of BSP’s inflation target range, the core CPI print bodes well for an unchanged policy rate in this week’s scheduled meeting of the Monetary Board.
Non-food CPI’s momentum (2.4% annualized) now in positive territory although benign, offers policymakers a good enough reason to maintain the policy rate setting.
Positive, annualized inflation rates registered by CPI restaurants and miscellaneous goods & services, and HH furnishings & equipment, since 2H18 affirm some discretionary expenditures stood resilient against peaking inflation in 4Q18 while other consumption items either wilted or stalled. As inflation fades this year, we expect resurgence in discretionary expenditures that would lead consumption recovery. With thriving discretionary demand and its potential 2019 recovery, likely shadowed by broader non-food CPI (60% of the CPI basket) upticks, policymakers bias to sustain its policy rate at 4.75% would stay intact.
A lackluster inflation backdrop augurs for a staggered bank reserve cut while allowing a positive, real interest rate condition to develop.
Tactically, we are a sell on market rallies since the favorable inflation news including the CPI’s trajectory’s downtrend this year had been widely anticipated. Likelihood of an unchanged policy rate setting in today’s Monetary Board meeting also supports our tactical recommendation.
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Headline inflation in January eased to 4.4%YoY (vs 5.1%YoY in December) although its annualized rate was back in positive territory (1.2%). Easing food inflation (5.6%YoY) and narrowing CPI rental & household utilities (4%YoY) supported inflation’s fade out.
Core inflation edged lower to 4.4%YoY. Still in excess of BSP’s inflation target range, the core CPI print bodes well for an unchanged policy rate in this week’s scheduled meeting of the Monetary Board.
Non-food CPI’s momentum (2.4% annualized) now in positive territory although benign, offers policymakers a good enough reason to maintain the policy rate setting.
Positive, annualized inflation rates registered by CPI restaurants and miscellaneous goods & services, and HH furnishings & equipment, since 2H18 affirm some discretionary expenditures stood resilient against peaking inflation in 4Q18 while other consumption items either wilted or stalled. As inflation fades this year, we expect resurgence in discretionary expenditures that would lead consumption recovery. With thriving discretionary demand and its potential 2019 recovery, likely shadowed by broader non-food CPI (60% of the CPI basket) upticks, policymakers bias to sustain its policy rate at 4.75% would stay intact.
A lackluster inflation backdrop augurs for a staggered bank reserve cut while allowing a positive, real interest rate condition to develop.
Tactically, we are a sell on market rallies since the favorable inflation news including the CPI’s trajectory’s downtrend this year had been widely anticipated. Likelihood of an unchanged policy rate setting in today’s Monetary Board meeting also supports our tactical recommendation.
The MPC was unanimous in leaving policy unchanged again in Feb-19, as expected.
Downgrades to demand projections seem excessive, in my view, with too much weight put on soft surveys. Inflation is forecast weaker in the short-term, owing to energy, but is revised up through the policy-relevant medium-term.
Inconsistent assumptions around Brexit were explored in an Inflation Report box, where the net effect of uncertainty and sterling was ambiguous for policy. A rate hike after withdrawal negotiations resolve still looks likely.
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The RBI (Reserve Bank of India) cut its policy rate by 25bp, with the MPC (monetary policy committee) voting 4-2 in favour of the move. It also altered its monetary stance to “neutral” from “calibrated tightening”. We had said at the time of the RBI’s rate hike last June that it was making a major policy error ( RBI Raises Rates, but Will Likely Look Foolish when Inflation Moderates) because inflation was likely to completely bely the official forecast and move down rather than up. That has duly happened, with CPI inflation at 2.19% YoY in December 2018 (versus the RBI’s June 2018 forecast of “4.7% with risks tilted to the upside”). WPI inflation (not the RBI’s main target) has also eased to 3.8% YoY in December 2018.
India’s real repo rate of +4.3% was among the highest in the world before this rate cut — and the new +4% real repo rate still remains exceptionally high. Although food prices are likely to decline less rapidly in the current quarter, headline CPI inflation is likely to edge up only slightly to 2.5-3% YoY in January-March 2019. This will allow the RBI to cut the policy rate further to 6% at its next meeting — still leaving the real repo rate above +3%.
The rational decline in nominal policy rates should provide a significant medium-term fillip to growth, allowing real GDP to grow more than 8% YoY in FY2019/20 and more in subsequent years as further structural reforms occur under a rejuvenated Modi government in its second term. After its initial negative reaction, we expect the stock market to also welcome the easier monetary conditions. We recommend staying Overweight the India equity and bond markets, especially after recent sell-offs (i.e., Buy into this weakness).
The imposition of a household energy price cap in the UK had a significant disinflationary effect in Jan-19 and lowered my CPI and RPI inflation forecasts to 1.9% and 2.5%.
These outcomes would be below the consensus again, although that is now the norm amid a heavy bias to surprises, especially relative to the RPI consensus.
In ” The Eurozone at 20: Will It Survive the Coming Slowdown?” I argued that the forthcoming data releases should shed some light on the future course of the Eurozone economy in 2019 and would likely result in downgrades to growth. In fact, the data was so bad, that a recession in the Eurozone should now be everyone’s base case although I doubt that is yet the case. The issue now is, with policy rates already negative in the EZ and a seemingly unyielding commitment to fiscal austerity, what sort of policy response can we expect and will the EZ be able to avoid a debt deflationary spiral?
As election campaigning enters the final 10 weeks, the Widodo administration appears intent to offer up to 500 coveted civil-service posts to military personnel, which would role back a key reform of the reformasi era. But allied parties may object. Widodo hammered Prabowo for ‘Russian propaganda’ and hiring foreign consultants. GDP remained steady in 4Q18 at 5.17% yoy. KCIC targets March for completing land acquisition for its Bandung fast train. West Java Gov Ridwan Kamil acknowledged eyeing the presidency in 2024.
Politics: Military leaders, with the apparent backing of the administration, aim to revise the landmark 2004 Military Law and place up to 500 active officers into civilian posts throughout the state bureaucracy – a throwback to Soeharto‑era policies and an unwinding of a key reformasi‑era reform. Excessively cautious advisors to the president may perceive a need to dangle sinecures before the Army, lest it align behind the challenger, Lt Gen (ret) Prabowo Subianto. In any event, President Joko Widodo may drop the plan: resistance is likely from the public, the press, NGOs, the civil service, the police and perhaps (most significantly) parties in his own nominating alliance (Page 2). A week ahead of a much‑anticipated one‑on‑one presidential debate, Widodo landed blows on Prabowo, accusing the Gerindra chair of resorting to “Russian[‑style] propaganda” and employing a foreign campaign consultant (p. 5). Prabowo reiterated complaints about foreign workers (p. 7). West Java Governor Ridwan Kamil readily acknowledged the possibility that he will run for president in 2024. The move is unorthodox but he might earn credit for candor. The prospect helps the long‑term outlook (p. 7).
Justice: Two Anti-Corruption Commission (KPK) investigators suffered assault while observing a Home Affairs conference with the Papua governor and his staff (p. 8).
Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news. The writer is Kevin O’Rourke, author of the book Reformasi. For subscription info please contact: <[email protected]>.
Infrastructure: Optimistic projections about completing land acquisition in March emanated from PT KCIC, developer of the Jakarta‑Bandung fast train. Meanwhile, a Jakarta‑Surabaya semi‑fast train project is still under study (p. 8). Construction of Soekarno‑Hatta’s third runway is on track, due in June (p. 9)
Appointments: Parliamentarians are considering 11 candidates, including two incumbents, for two seats on the nine‑member Constitutional Court. Given a record of devasting impacts from rulings from the court, the appointment process merits the utmost care. But parties appear inclined to decide along partisan lines (p. 10).
Health: A nationwide Dengue outbreak has killed 169 but Jakarta Province officials have not yet declared a crisis. The severity is still below that of 2016 (p. 10).
International: Tax officials said that a new mutual legal‑assistance agreement (MLAA) with Switzerland – Indonesia’s 10th MLAA – will help track fraud (p. 11).
Economics: GDP remained steady in the fourth quarter, bringing full‑year growth to 5.17 percent. Household demand remained firm, while fixed‑capital formation softened slightly from the preceding quarter (p. 12). Spending on Community Funds – a key component of Widodo’s program – reached Rp60 trillion again in 2018 (p. 13).
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The MPC was unanimous in leaving policy unchanged again in Feb-19, as expected.
Downgrades to demand projections seem excessive, in my view, with too much weight put on soft surveys. Inflation is forecast weaker in the short-term, owing to energy, but is revised up through the policy-relevant medium-term.
Inconsistent assumptions around Brexit were explored in an Inflation Report box, where the net effect of uncertainty and sterling was ambiguous for policy. A rate hike after withdrawal negotiations resolve still looks likely.
At the first monetary policy meeting of the new RBI Governor, the MPC reduced the policy rate by 25bps to 6.25% and changed the stance of monetary policy to ‘neutral’ from ‘calibrated tightening’. Both were as expected by analysts and the markets. The MPC also significantly lowered its inflation projection and it now expects headline CPI inflation to remain below 4% for the foreseeable future. This new revised forecast, implies that there is space for one more rate cut. I expect the MPC to use this space in its April policy review before going on pause for the subsequent few policy reviews. Today’s rate cut does not, by itself, suggest that the new Governor will be unduly dovish. That said, given the slightly surprising voting pattern, the minutes of the policy meeting (to be released after two weeks) will provide a bit more color on the changed dynamics in the MPC.
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The RBI (Reserve Bank of India) cut its policy rate by 25bp, with the MPC (monetary policy committee) voting 4-2 in favour of the move. It also altered its monetary stance to “neutral” from “calibrated tightening”. We had said at the time of the RBI’s rate hike last June that it was making a major policy error ( RBI Raises Rates, but Will Likely Look Foolish when Inflation Moderates) because inflation was likely to completely bely the official forecast and move down rather than up. That has duly happened, with CPI inflation at 2.19% YoY in December 2018 (versus the RBI’s June 2018 forecast of “4.7% with risks tilted to the upside”). WPI inflation (not the RBI’s main target) has also eased to 3.8% YoY in December 2018.
India’s real repo rate of +4.3% was among the highest in the world before this rate cut — and the new +4% real repo rate still remains exceptionally high. Although food prices are likely to decline less rapidly in the current quarter, headline CPI inflation is likely to edge up only slightly to 2.5-3% YoY in January-March 2019. This will allow the RBI to cut the policy rate further to 6% at its next meeting — still leaving the real repo rate above +3%.
The rational decline in nominal policy rates should provide a significant medium-term fillip to growth, allowing real GDP to grow more than 8% YoY in FY2019/20 and more in subsequent years as further structural reforms occur under a rejuvenated Modi government in its second term. After its initial negative reaction, we expect the stock market to also welcome the easier monetary conditions. We recommend staying Overweight the India equity and bond markets, especially after recent sell-offs (i.e., Buy into this weakness).
The imposition of a household energy price cap in the UK had a significant disinflationary effect in Jan-19 and lowered my CPI and RPI inflation forecasts to 1.9% and 2.5%.
These outcomes would be below the consensus again, although that is now the norm amid a heavy bias to surprises, especially relative to the RPI consensus.
In ” The Eurozone at 20: Will It Survive the Coming Slowdown?” I argued that the forthcoming data releases should shed some light on the future course of the Eurozone economy in 2019 and would likely result in downgrades to growth. In fact, the data was so bad, that a recession in the Eurozone should now be everyone’s base case although I doubt that is yet the case. The issue now is, with policy rates already negative in the EZ and a seemingly unyielding commitment to fiscal austerity, what sort of policy response can we expect and will the EZ be able to avoid a debt deflationary spiral?
As election campaigning enters the final 10 weeks, the Widodo administration appears intent to offer up to 500 coveted civil-service posts to military personnel, which would role back a key reform of the reformasi era. But allied parties may object. Widodo hammered Prabowo for ‘Russian propaganda’ and hiring foreign consultants. GDP remained steady in 4Q18 at 5.17% yoy. KCIC targets March for completing land acquisition for its Bandung fast train. West Java Gov Ridwan Kamil acknowledged eyeing the presidency in 2024.
Politics: Military leaders, with the apparent backing of the administration, aim to revise the landmark 2004 Military Law and place up to 500 active officers into civilian posts throughout the state bureaucracy – a throwback to Soeharto‑era policies and an unwinding of a key reformasi‑era reform. Excessively cautious advisors to the president may perceive a need to dangle sinecures before the Army, lest it align behind the challenger, Lt Gen (ret) Prabowo Subianto. In any event, President Joko Widodo may drop the plan: resistance is likely from the public, the press, NGOs, the civil service, the police and perhaps (most significantly) parties in his own nominating alliance (Page 2). A week ahead of a much‑anticipated one‑on‑one presidential debate, Widodo landed blows on Prabowo, accusing the Gerindra chair of resorting to “Russian[‑style] propaganda” and employing a foreign campaign consultant (p. 5). Prabowo reiterated complaints about foreign workers (p. 7). West Java Governor Ridwan Kamil readily acknowledged the possibility that he will run for president in 2024. The move is unorthodox but he might earn credit for candor. The prospect helps the long‑term outlook (p. 7).
Justice: Two Anti-Corruption Commission (KPK) investigators suffered assault while observing a Home Affairs conference with the Papua governor and his staff (p. 8).
Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news. The writer is Kevin O’Rourke, author of the book Reformasi. For subscription info please contact: <[email protected]>.
Infrastructure: Optimistic projections about completing land acquisition in March emanated from PT KCIC, developer of the Jakarta‑Bandung fast train. Meanwhile, a Jakarta‑Surabaya semi‑fast train project is still under study (p. 8). Construction of Soekarno‑Hatta’s third runway is on track, due in June (p. 9)
Appointments: Parliamentarians are considering 11 candidates, including two incumbents, for two seats on the nine‑member Constitutional Court. Given a record of devasting impacts from rulings from the court, the appointment process merits the utmost care. But parties appear inclined to decide along partisan lines (p. 10).
Health: A nationwide Dengue outbreak has killed 169 but Jakarta Province officials have not yet declared a crisis. The severity is still below that of 2016 (p. 10).
International: Tax officials said that a new mutual legal‑assistance agreement (MLAA) with Switzerland – Indonesia’s 10th MLAA – will help track fraud (p. 11).
Economics: GDP remained steady in the fourth quarter, bringing full‑year growth to 5.17 percent. Household demand remained firm, while fixed‑capital formation softened slightly from the preceding quarter (p. 12). Spending on Community Funds – a key component of Widodo’s program – reached Rp60 trillion again in 2018 (p. 13).
Headline inflation in January eased to 4.4%YoY (vs 5.1%YoY in December) although its annualized rate was back in positive territory (1.2%). Easing food inflation (5.6%YoY) and narrowing CPI rental & household utilities (4%YoY) supported inflation’s fade out.
Core inflation edged lower to 4.4%YoY. Still in excess of BSP’s inflation target range, the core CPI print bodes well for an unchanged policy rate in this week’s scheduled meeting of the Monetary Board.
Non-food CPI’s momentum (2.4% annualized) now in positive territory although benign, offers policymakers a good enough reason to maintain the policy rate setting.
Positive, annualized inflation rates registered by CPI restaurants and miscellaneous goods & services, and HH furnishings & equipment, since 2H18 affirm some discretionary expenditures stood resilient against peaking inflation in 4Q18 while other consumption items either wilted or stalled. As inflation fades this year, we expect resurgence in discretionary expenditures that would lead consumption recovery. With thriving discretionary demand and its potential 2019 recovery, likely shadowed by broader non-food CPI (60% of the CPI basket) upticks, policymakers bias to sustain its policy rate at 4.75% would stay intact.
A lackluster inflation backdrop augurs for a staggered bank reserve cut while allowing a positive, real interest rate condition to develop.
Tactically, we are a sell on market rallies since the favorable inflation news including the CPI’s trajectory’s downtrend this year had been widely anticipated. Likelihood of an unchanged policy rate setting in today’s Monetary Board meeting also supports our tactical recommendation.
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Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Headline inflation in January eased to 4.4%YoY (vs 5.1%YoY in December) although its annualized rate was back in positive territory (1.2%). Easing food inflation (5.6%YoY) and narrowing CPI rental & household utilities (4%YoY) supported inflation’s fade out.
Core inflation edged lower to 4.4%YoY. Still in excess of BSP’s inflation target range, the core CPI print bodes well for an unchanged policy rate in this week’s scheduled meeting of the Monetary Board.
Non-food CPI’s momentum (2.4% annualized) now in positive territory although benign, offers policymakers a good enough reason to maintain the policy rate setting.
Positive, annualized inflation rates registered by CPI restaurants and miscellaneous goods & services, and HH furnishings & equipment, since 2H18 affirm some discretionary expenditures stood resilient against peaking inflation in 4Q18 while other consumption items either wilted or stalled. As inflation fades this year, we expect resurgence in discretionary expenditures that would lead consumption recovery. With thriving discretionary demand and its potential 2019 recovery, likely shadowed by broader non-food CPI (60% of the CPI basket) upticks, policymakers bias to sustain its policy rate at 4.75% would stay intact.
A lackluster inflation backdrop augurs for a staggered bank reserve cut while allowing a positive, real interest rate condition to develop.
Tactically, we are a sell on market rallies since the favorable inflation news including the CPI’s trajectory’s downtrend this year had been widely anticipated. Likelihood of an unchanged policy rate setting in today’s Monetary Board meeting also supports our tactical recommendation.
The MPC was unanimous in leaving policy unchanged again in Feb-19, as expected.
Downgrades to demand projections seem excessive, in my view, with too much weight put on soft surveys. Inflation is forecast weaker in the short-term, owing to energy, but is revised up through the policy-relevant medium-term.
Inconsistent assumptions around Brexit were explored in an Inflation Report box, where the net effect of uncertainty and sterling was ambiguous for policy. A rate hike after withdrawal negotiations resolve still looks likely.
At the first monetary policy meeting of the new RBI Governor, the MPC reduced the policy rate by 25bps to 6.25% and changed the stance of monetary policy to ‘neutral’ from ‘calibrated tightening’. Both were as expected by analysts and the markets. The MPC also significantly lowered its inflation projection and it now expects headline CPI inflation to remain below 4% for the foreseeable future. This new revised forecast, implies that there is space for one more rate cut. I expect the MPC to use this space in its April policy review before going on pause for the subsequent few policy reviews. Today’s rate cut does not, by itself, suggest that the new Governor will be unduly dovish. That said, given the slightly surprising voting pattern, the minutes of the policy meeting (to be released after two weeks) will provide a bit more color on the changed dynamics in the MPC.
When one is looking for something in an economy it is usually not difficult to find corroborating evidence, any economy and at any time. Economists and analysts are masters of massaging data to suit their own agendas. China’s car sales in 2018 are a case in point.
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We reiterate our overweight call on Indian equities. Our December Austrian Stress Indicator update suggested that the business cycle was still stuck but the economy is gathering momentum. Fiscal policy has turned expansionary and will support consumption, particularly rural spending. Monetary conditions are easing and we expect the next move in policy rates to be down. The private investment cycle should be turning up by the end of the year. Strengthening economic activity together with an improvement in the current account balance should also underpin a recovery in the rupee.
Confirmation that the Federal Open Market Committee (FOMC) has adopted a patient approach to policy conduct provoked an unjustified rally in risky assets due to the earlier hints from Fed officials, but incoming economic data may not necessarily guarantee that the next move in the federal funds rate will be in a downward direction.
Furthermore, markets also rallied due to an intimation that the Fed will consider stopping balance sheet shrinkage at an early juncture, but Chair Powell indicated that the federal funds rate remains the prime policy tool to alter monetary conditions in a normal economic environment, not balance sheet size.
Due to potential downside risks in the economic outlook, the FOMC has seemingly raised the bar for increasing the federal funds rate, thereby indicating a dovish tilt in its prospective policy conduct.
Some commentators believe Fed Chair Powell has downgraded the role of the Phillips Curve in setting policy by announcing a patient policy approach at full employment, thus additionally raising the possibility that the FOMC is prepared to tolerate an overshooting of its 2% inflation target.
Meanwhile, other observers are hinting that the Fed’s dovish policy tilt simply reflects damage inflicted on Chair Powell and the FOMC in the aftermath of the recent spat with President Trump.
Some commentators are citing poor communication to financial markets by the FOMC since last September for creating excessive volatility during 2018 Q4, and this has consequently forced the adoption of the patient policy approach to rectify past mistakes.
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