Macro

In this briefing:

1. UK: 1Q19 GDP Growth Tracking up to 0.5%
2. Defying Doomsayers: Making the Case for Continued US Economic Growth
3. Indian Election Antics
4. Brexit: No Soft-Touch Extension
5. Trade War/China Strategy/Credit Growth/Bonds/Taiwan

1. UK: 1Q19 GDP Growth Tracking up to 0.5%

• UK monthly GDP stayed surprisingly strong in Feb-19, growing 0.2% m-o-m after 0.5% in Jan-19. Services matched my bullish forecast and show no signs of matching the collapse in the PMI, but finance’s downward trend looks to be re-establishing.
• Manufacturing and construction caused the upside surprise and are set to be highly supportive of GDP growth. With the economy firing on all cylinders, despite the prophecies of doom, I raise my bullish 1Q19 GDP growth forecast by 0.1pp to 0.5%.

2. Defying Doomsayers: Making the Case for Continued US Economic Growth

Despite the recent and transient inversion of the yield curve, incoming US economic data suggests continued growth as the most likely baseline outlook for risky assets.

Easier financial conditions due to the Fed’s dovish tilt  in 2019 should be supportive for the real economy and risky assets, but they have not prevented a decline in real yields on Treasury Inflation Protected Securities (TIPS) and a flatter yield curve.

Hitherto, despite a flattening yield curve, US bank lending standards have not tightened significantly due to a rise in net interest margins, an outcome at variance with recent history.

US corporate bond market and leverage loan conditions have improved since 2018 Q4, thereby easing concerns about the credit cycle, while legislative changes in Japan could impact liquidity in the AAA-rated collateralised loan obligations (CLO) market.

President Trump continues to exert pressure on the Fed by demanding an immediate policy shift towards easing, as well as nominating political allies to serve on the Board of Governors, thereby raising the ante on Chair Powell.

3. Indian Election Antics

India is in an election year. Sensibility has gone out of the window, replaced by fantastical promises and irresponsible spending. If the Modi government is desperate hold on to power, the Congress Party is equally determine to wrest power away. And then there is the RBI, which working hand in glove with the government, cut policy rates again this month. We hope that cooler heads and more importantly objectivity will prevail once the elections are over, but further interest rate cuts cannot be ruled out at this stage. It follows that the rupee is vulnerable. We reiterate our underweight Indian equities call.

4. Brexit: No Soft-Touch Extension

• The European Council will consider the UK’s latest request for an extension at its 10 April meeting. It is not a soft touch seeking to reward failure, so I expect an extension to be longer and conditional on passing a substantive vote soon.
• Fundamental market-relevant factors have changed little over the past fortnight, in my view, despite all the domestic political noise. I still subjectively see the routes and relative probabilities of a deal, no deal, and no Brexit at 45:35:20.

5. Trade War/China Strategy/Credit Growth/Bonds/Taiwan

China News That Matters

• Praying the US-China end-game is near
• What to do about China?
• Stability, phew. Or just a false dawn?
• OTC bonds sell like hot cakes 
• Even worse than a trade war…

In this briefing:

1. Preview: UK Fiscal Spring Statement Beside Brexit

1. Preview: UK Fiscal Spring Statement Beside Brexit

• The Spring Statement is intended to be more of a fiscal update than a significant event, and limited forecast changes further shrink its relevance, especially relative to Brexit. However, I expect the new remit for 2019-20 to be £128bn.
• Reforms to the RPI have become a market concern again, but now would be a terrible time for the Chancellor to rock the boat. A consultation could be launched into reforms of the index’s use, rather than construction, though.

In this briefing:

1. Defying Doomsayers: Making the Case for Continued US Economic Growth
2. Indian Election Antics
3. Brexit: No Soft-Touch Extension
4. Trade War/China Strategy/Credit Growth/Bonds/Taiwan
5. Widodo Withstands Prabowo’s Debate Pressure / BI Hints at Lower 1Q CAD / Gerindra Prepares Dispute

1. Defying Doomsayers: Making the Case for Continued US Economic Growth

Despite the recent and transient inversion of the yield curve, incoming US economic data suggests continued growth as the most likely baseline outlook for risky assets.

Easier financial conditions due to the Fed’s dovish tilt  in 2019 should be supportive for the real economy and risky assets, but they have not prevented a decline in real yields on Treasury Inflation Protected Securities (TIPS) and a flatter yield curve.

Hitherto, despite a flattening yield curve, US bank lending standards have not tightened significantly due to a rise in net interest margins, an outcome at variance with recent history.

US corporate bond market and leverage loan conditions have improved since 2018 Q4, thereby easing concerns about the credit cycle, while legislative changes in Japan could impact liquidity in the AAA-rated collateralised loan obligations (CLO) market.

President Trump continues to exert pressure on the Fed by demanding an immediate policy shift towards easing, as well as nominating political allies to serve on the Board of Governors, thereby raising the ante on Chair Powell.

2. Indian Election Antics

India is in an election year. Sensibility has gone out of the window, replaced by fantastical promises and irresponsible spending. If the Modi government is desperate hold on to power, the Congress Party is equally determine to wrest power away. And then there is the RBI, which working hand in glove with the government, cut policy rates again this month. We hope that cooler heads and more importantly objectivity will prevail once the elections are over, but further interest rate cuts cannot be ruled out at this stage. It follows that the rupee is vulnerable. We reiterate our underweight Indian equities call.

3. Brexit: No Soft-Touch Extension

• The European Council will consider the UK’s latest request for an extension at its 10 April meeting. It is not a soft touch seeking to reward failure, so I expect an extension to be longer and conditional on passing a substantive vote soon.
• Fundamental market-relevant factors have changed little over the past fortnight, in my view, despite all the domestic political noise. I still subjectively see the routes and relative probabilities of a deal, no deal, and no Brexit at 45:35:20.

4. Trade War/China Strategy/Credit Growth/Bonds/Taiwan

China News That Matters

• Praying the US-China end-game is near
• What to do about China?
• Stability, phew. Or just a false dawn?
• OTC bonds sell like hot cakes 
• Even worse than a trade war…

5. Widodo Withstands Prabowo’s Debate Pressure / BI Hints at Lower 1Q CAD / Gerindra Prepares Dispute

Prabowo performed forcefully in the 30 March presidential debate, but Widodo remained unflustered and debunked the Gerindra chair’s particularly dark realpolitik vision.  Prabowo fell ill later in the week but apparently recovered, and a major rally will occur in Jakarta on 7 April.  But virtually all polls show Widodo maintaining his large lead through mid-March and no developments seem likely to alter the standings.  But if Widodo’s 17 April margin of victory is unexpectedly narrow, Prabowo campaign officials seem certain to allege fraud and contest the outcome.  This scenario would present prolonged tension and uncertainty through 8 August. 

Politics: Gerindra Chair Prabowo Subianto missed three successive campaign appearances due to an unspecified malady (Page 2).  Supporters of Prabowo – namely, his brother Hashim Djojohadikusumo and the National Mandate Party (Pan) founder Amien Rais – warned of potential electoral fraud and threatened to mobilize “people power” after election day.  This highlights the importance of Widodo winning by a wide margin, lest a narrow victory lends credence to claims of fraud (p. 2).  Prabowo pressured President Joko Widodo more aggressively in the fourth presidential debate on 30 March, but he also lost his temper and appeared condescending – while Widodo coolly parried incessant jabs.  Prabowo sought to portray Widodo as being innocently out of touch with harsh realities in security, diplomacy and governance.  He depicted foreigners – including diplomats, journalists and investors – as duplicitous, disrespectful and untrustworthy.  For his part, Widodo chided Prabowo for being fearful and lacking confidence in Indonesian institutions, especially the military.  Prabowo insisted that willful leadership is essential to make Indonesia strong, prosperous and self‑sufficient.  He closed by reiterating his pledge to end food imports.  While his display of mettle may help his appeal among some voters, his bluster – debunked with effect by Widodo – may have alienated others (p. 3).  While scrutinizing the Golkar parliamentarian Bowo Pangarso regarding dealings with a state fertilizer firm, personnel from the Anti-Corruption Commission (KPK) discovered Rp8 billion in his company’s basement – neatly sorted in 400,000 envelopes.  He was allegedly preparing a vote‑buying operation in his Central Java electoral district (p. 13). 

Surveys: Indobarometer corroborated findings from other polls and measured Widodo’s lead at 18 percentage points as of mid‑March (p. 14). 

Security: Counter‑terror police apprehended a figure in West Java whom they suspect is a leader of the formidable Jemaah Ansharut Daulah (JAD) terrorist group (p. 15). 

Economics: A Bank Indonesia (BI) deputy governor cited the possibility of a significantly lower current account deficit for the first quarter of 2019, but warned that it could widen again in the second quarter (p. 16).  Oil production fell short of the government’s target again (p. 16).  

Jakarta: The public works minister openly rebuked Governor Anies Baswedan for making no progress on a ‘naturalization’ project to rectify drainage in the Ciliwung River.  Baswedan has refused to evict riverbank squatters who obstruct the work (p. 16). 

In this briefing:

1. National People’s Congress/Political Loyalty/Trade War/Huawei Sues

1. National People’s Congress/Political Loyalty/Trade War/Huawei Sues

China News That Matters

• Still faster than most of the world
• Stick with Xi, if y’know what’s good for ya
• Trade deficit grows as war drags on 
• I’ll see you and raise you: Huawei sues Washington

In this briefing:

1. National People’s Congress/Political Loyalty/Trade War/Huawei Sues
2. US 5Y-1Y Yield Curve Inverts, but 10Y-2Y Suggests US Will Narrowly Avert 2020 Recession

1. National People’s Congress/Political Loyalty/Trade War/Huawei Sues

China News That Matters

• Still faster than most of the world
• Stick with Xi, if y’know what’s good for ya
• Trade deficit grows as war drags on 
• I’ll see you and raise you: Huawei sues Washington

2. US 5Y-1Y Yield Curve Inverts, but 10Y-2Y Suggests US Will Narrowly Avert 2020 Recession

The 5Y-1Y section of the US yield curve inverted sharply last week (aided by Friday’s weak NFP release), with the 5-year yield 11bp below the 1-year yield of 2.53%. (That yield spread was +1bp a week earlier). An inverted yield curve is a precursor of a recession 12-18 months later, so the probability of a US recession by 3Q 2020 is rising. However, the key predictor of a US recession is not the 5Y-1Y spread, but the 10Y-2Y spread — which remained rock-solid at 17bp last week (having fallen to that level on Monday 4th March from 23bp on Friday 1st March). The key predictor of US recessions has not yet inverted, so the most likely outcome still is that the US economy will weaken, but narrowly avert recession in 2020. 

The weak non-farm payrolls (NFP) report for February 2019 was largely in line with that outcome. Although February’s NFP increase of 20,000 was far below target, January was revised up to 311000, and the 3-month moving average of 186,000 is healthy for this late stage of the recovery. The US labour market remains tight, with the unemployment rate at 3.8% (and the broadest measure of unemployment falling to 7.3% from 8.1% in January). So wages rose 3.4% YoY in February 2019, the fastest during this 10-year recovery. Although the core PCE inflation rate is still tame at 1.9% YoY, wages are likely to exert mild upward pressure on core PCE inflation in the months ahead. But there will be little need for the Fed to raise rates in the next half year. 

The key cyclical component of the economy, manufacturing, lost momentum in February, with the ISM manufacturing PMI weakening to a 2-year low of 54.2, and the forward-looking new orders weakening to 55.5 — a moderation, but not a catastrophic number. December too was a soft month for manufacturing (with new orders at 51.3) so this bears watching. But the cyclical component of the US economy is still likely to be growing at just below potential in 3Q 2019. The ISM non-manufacturing PMI hit a 3-month high of 59.7 and its new orders component soared to 65.2 — suggesting that the services sector in the US remains in rude health. The weak February NFP will likely mean the continuance of mild weakness for the US$ against Asian and EM currencies (less so against the Euro). The US economy remains on course to lose momentum in 2020, growing less than 2% for the year — with 2H 2020 growth likely to be closer to 1%. The US will narrowly avert recession in 2020, but the economy will not be strong enough to ensure Trump’s re-election. 

In this briefing:

1. National People’s Congress/Political Loyalty/Trade War/Huawei Sues
2. US 5Y-1Y Yield Curve Inverts, but 10Y-2Y Suggests US Will Narrowly Avert 2020 Recession
3. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

1. National People’s Congress/Political Loyalty/Trade War/Huawei Sues

China News That Matters

• Still faster than most of the world
• Stick with Xi, if y’know what’s good for ya
• Trade deficit grows as war drags on 
• I’ll see you and raise you: Huawei sues Washington

2. US 5Y-1Y Yield Curve Inverts, but 10Y-2Y Suggests US Will Narrowly Avert 2020 Recession

The 5Y-1Y section of the US yield curve inverted sharply last week (aided by Friday’s weak NFP release), with the 5-year yield 11bp below the 1-year yield of 2.53%. (That yield spread was +1bp a week earlier). An inverted yield curve is a precursor of a recession 12-18 months later, so the probability of a US recession by 3Q 2020 is rising. However, the key predictor of a US recession is not the 5Y-1Y spread, but the 10Y-2Y spread — which remained rock-solid at 17bp last week (having fallen to that level on Monday 4th March from 23bp on Friday 1st March). The key predictor of US recessions has not yet inverted, so the most likely outcome still is that the US economy will weaken, but narrowly avert recession in 2020. 

The weak non-farm payrolls (NFP) report for February 2019 was largely in line with that outcome. Although February’s NFP increase of 20,000 was far below target, January was revised up to 311000, and the 3-month moving average of 186,000 is healthy for this late stage of the recovery. The US labour market remains tight, with the unemployment rate at 3.8% (and the broadest measure of unemployment falling to 7.3% from 8.1% in January). So wages rose 3.4% YoY in February 2019, the fastest during this 10-year recovery. Although the core PCE inflation rate is still tame at 1.9% YoY, wages are likely to exert mild upward pressure on core PCE inflation in the months ahead. But there will be little need for the Fed to raise rates in the next half year. 

The key cyclical component of the economy, manufacturing, lost momentum in February, with the ISM manufacturing PMI weakening to a 2-year low of 54.2, and the forward-looking new orders weakening to 55.5 — a moderation, but not a catastrophic number. December too was a soft month for manufacturing (with new orders at 51.3) so this bears watching. But the cyclical component of the US economy is still likely to be growing at just below potential in 3Q 2019. The ISM non-manufacturing PMI hit a 3-month high of 59.7 and its new orders component soared to 65.2 — suggesting that the services sector in the US remains in rude health. The weak February NFP will likely mean the continuance of mild weakness for the US$ against Asian and EM currencies (less so against the Euro). The US economy remains on course to lose momentum in 2020, growing less than 2% for the year — with 2H 2020 growth likely to be closer to 1%. The US will narrowly avert recession in 2020, but the economy will not be strong enough to ensure Trump’s re-election. 

3. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

• Capital flows are strongly Granger causal
• Gross capital flows lead World shipping activity by 4 months
• Capital flows have been slowly rising since June 2018: in February they jumped
• Reinforces out pro-Asia and pro-China investment message

In this briefing:

1. Indian Election Antics
2. Brexit: No Soft-Touch Extension
3. Trade War/China Strategy/Credit Growth/Bonds/Taiwan
4. Widodo Withstands Prabowo’s Debate Pressure / BI Hints at Lower 1Q CAD / Gerindra Prepares Dispute
5. A Solid U.S. Employment Report For March

1. Indian Election Antics

India is in an election year. Sensibility has gone out of the window, replaced by fantastical promises and irresponsible spending. If the Modi government is desperate hold on to power, the Congress Party is equally determine to wrest power away. And then there is the RBI, which working hand in glove with the government, cut policy rates again this month. We hope that cooler heads and more importantly objectivity will prevail once the elections are over, but further interest rate cuts cannot be ruled out at this stage. It follows that the rupee is vulnerable. We reiterate our underweight Indian equities call.

2. Brexit: No Soft-Touch Extension

• The European Council will consider the UK’s latest request for an extension at its 10 April meeting. It is not a soft touch seeking to reward failure, so I expect an extension to be longer and conditional on passing a substantive vote soon.
• Fundamental market-relevant factors have changed little over the past fortnight, in my view, despite all the domestic political noise. I still subjectively see the routes and relative probabilities of a deal, no deal, and no Brexit at 45:35:20.

3. Trade War/China Strategy/Credit Growth/Bonds/Taiwan

China News That Matters

• Praying the US-China end-game is near
• What to do about China?
• Stability, phew. Or just a false dawn?
• OTC bonds sell like hot cakes 
• Even worse than a trade war…

4. Widodo Withstands Prabowo’s Debate Pressure / BI Hints at Lower 1Q CAD / Gerindra Prepares Dispute

Prabowo performed forcefully in the 30 March presidential debate, but Widodo remained unflustered and debunked the Gerindra chair’s particularly dark realpolitik vision.  Prabowo fell ill later in the week but apparently recovered, and a major rally will occur in Jakarta on 7 April.  But virtually all polls show Widodo maintaining his large lead through mid-March and no developments seem likely to alter the standings.  But if Widodo’s 17 April margin of victory is unexpectedly narrow, Prabowo campaign officials seem certain to allege fraud and contest the outcome.  This scenario would present prolonged tension and uncertainty through 8 August. 

Politics: Gerindra Chair Prabowo Subianto missed three successive campaign appearances due to an unspecified malady (Page 2).  Supporters of Prabowo – namely, his brother Hashim Djojohadikusumo and the National Mandate Party (Pan) founder Amien Rais – warned of potential electoral fraud and threatened to mobilize “people power” after election day.  This highlights the importance of Widodo winning by a wide margin, lest a narrow victory lends credence to claims of fraud (p. 2).  Prabowo pressured President Joko Widodo more aggressively in the fourth presidential debate on 30 March, but he also lost his temper and appeared condescending – while Widodo coolly parried incessant jabs.  Prabowo sought to portray Widodo as being innocently out of touch with harsh realities in security, diplomacy and governance.  He depicted foreigners – including diplomats, journalists and investors – as duplicitous, disrespectful and untrustworthy.  For his part, Widodo chided Prabowo for being fearful and lacking confidence in Indonesian institutions, especially the military.  Prabowo insisted that willful leadership is essential to make Indonesia strong, prosperous and self‑sufficient.  He closed by reiterating his pledge to end food imports.  While his display of mettle may help his appeal among some voters, his bluster – debunked with effect by Widodo – may have alienated others (p. 3).  While scrutinizing the Golkar parliamentarian Bowo Pangarso regarding dealings with a state fertilizer firm, personnel from the Anti-Corruption Commission (KPK) discovered Rp8 billion in his company’s basement – neatly sorted in 400,000 envelopes.  He was allegedly preparing a vote‑buying operation in his Central Java electoral district (p. 13). 

Surveys: Indobarometer corroborated findings from other polls and measured Widodo’s lead at 18 percentage points as of mid‑March (p. 14). 

Security: Counter‑terror police apprehended a figure in West Java whom they suspect is a leader of the formidable Jemaah Ansharut Daulah (JAD) terrorist group (p. 15). 

Economics: A Bank Indonesia (BI) deputy governor cited the possibility of a significantly lower current account deficit for the first quarter of 2019, but warned that it could widen again in the second quarter (p. 16).  Oil production fell short of the government’s target again (p. 16).  

Jakarta: The public works minister openly rebuked Governor Anies Baswedan for making no progress on a ‘naturalization’ project to rectify drainage in the Ciliwung River.  Baswedan has refused to evict riverbank squatters who obstruct the work (p. 16). 

5. A Solid U.S. Employment Report For March

The U.S. employment report for March was solid and should be viewed as reassuring about the state of the economy in the first quarter of 2019.  Nonfarm payrolls rose 196,000 in March and t he unemployment rate held at 3.8%.

In this briefing:

1. US 5Y-1Y Yield Curve Inverts, but 10Y-2Y Suggests US Will Narrowly Avert 2020 Recession
2. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

1. US 5Y-1Y Yield Curve Inverts, but 10Y-2Y Suggests US Will Narrowly Avert 2020 Recession

The 5Y-1Y section of the US yield curve inverted sharply last week (aided by Friday’s weak NFP release), with the 5-year yield 11bp below the 1-year yield of 2.53%. (That yield spread was +1bp a week earlier). An inverted yield curve is a precursor of a recession 12-18 months later, so the probability of a US recession by 3Q 2020 is rising. However, the key predictor of a US recession is not the 5Y-1Y spread, but the 10Y-2Y spread — which remained rock-solid at 17bp last week (having fallen to that level on Monday 4th March from 23bp on Friday 1st March). The key predictor of US recessions has not yet inverted, so the most likely outcome still is that the US economy will weaken, but narrowly avert recession in 2020. 

The weak non-farm payrolls (NFP) report for February 2019 was largely in line with that outcome. Although February’s NFP increase of 20,000 was far below target, January was revised up to 311000, and the 3-month moving average of 186,000 is healthy for this late stage of the recovery. The US labour market remains tight, with the unemployment rate at 3.8% (and the broadest measure of unemployment falling to 7.3% from 8.1% in January). So wages rose 3.4% YoY in February 2019, the fastest during this 10-year recovery. Although the core PCE inflation rate is still tame at 1.9% YoY, wages are likely to exert mild upward pressure on core PCE inflation in the months ahead. But there will be little need for the Fed to raise rates in the next half year. 

The key cyclical component of the economy, manufacturing, lost momentum in February, with the ISM manufacturing PMI weakening to a 2-year low of 54.2, and the forward-looking new orders weakening to 55.5 — a moderation, but not a catastrophic number. December too was a soft month for manufacturing (with new orders at 51.3) so this bears watching. But the cyclical component of the US economy is still likely to be growing at just below potential in 3Q 2019. The ISM non-manufacturing PMI hit a 3-month high of 59.7 and its new orders component soared to 65.2 — suggesting that the services sector in the US remains in rude health. The weak February NFP will likely mean the continuance of mild weakness for the US$ against Asian and EM currencies (less so against the Euro). The US economy remains on course to lose momentum in 2020, growing less than 2% for the year — with 2H 2020 growth likely to be closer to 1%. The US will narrowly avert recession in 2020, but the economy will not be strong enough to ensure Trump’s re-election. 

2. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

• Capital flows are strongly Granger causal
• Gross capital flows lead World shipping activity by 4 months
• Capital flows have been slowly rising since June 2018: in February they jumped
• Reinforces out pro-Asia and pro-China investment message

In this briefing:

1. Brexit: No Soft-Touch Extension
2. Trade War/China Strategy/Credit Growth/Bonds/Taiwan
3. Widodo Withstands Prabowo’s Debate Pressure / BI Hints at Lower 1Q CAD / Gerindra Prepares Dispute
4. A Solid U.S. Employment Report For March
5. Hong Kong FX

1. Brexit: No Soft-Touch Extension

• The European Council will consider the UK’s latest request for an extension at its 10 April meeting. It is not a soft touch seeking to reward failure, so I expect an extension to be longer and conditional on passing a substantive vote soon.
• Fundamental market-relevant factors have changed little over the past fortnight, in my view, despite all the domestic political noise. I still subjectively see the routes and relative probabilities of a deal, no deal, and no Brexit at 45:35:20.

2. Trade War/China Strategy/Credit Growth/Bonds/Taiwan

China News That Matters

• Praying the US-China end-game is near
• What to do about China?
• Stability, phew. Or just a false dawn?
• OTC bonds sell like hot cakes 
• Even worse than a trade war…

3. Widodo Withstands Prabowo’s Debate Pressure / BI Hints at Lower 1Q CAD / Gerindra Prepares Dispute

Prabowo performed forcefully in the 30 March presidential debate, but Widodo remained unflustered and debunked the Gerindra chair’s particularly dark realpolitik vision.  Prabowo fell ill later in the week but apparently recovered, and a major rally will occur in Jakarta on 7 April.  But virtually all polls show Widodo maintaining his large lead through mid-March and no developments seem likely to alter the standings.  But if Widodo’s 17 April margin of victory is unexpectedly narrow, Prabowo campaign officials seem certain to allege fraud and contest the outcome.  This scenario would present prolonged tension and uncertainty through 8 August. 

Politics: Gerindra Chair Prabowo Subianto missed three successive campaign appearances due to an unspecified malady (Page 2).  Supporters of Prabowo – namely, his brother Hashim Djojohadikusumo and the National Mandate Party (Pan) founder Amien Rais – warned of potential electoral fraud and threatened to mobilize “people power” after election day.  This highlights the importance of Widodo winning by a wide margin, lest a narrow victory lends credence to claims of fraud (p. 2).  Prabowo pressured President Joko Widodo more aggressively in the fourth presidential debate on 30 March, but he also lost his temper and appeared condescending – while Widodo coolly parried incessant jabs.  Prabowo sought to portray Widodo as being innocently out of touch with harsh realities in security, diplomacy and governance.  He depicted foreigners – including diplomats, journalists and investors – as duplicitous, disrespectful and untrustworthy.  For his part, Widodo chided Prabowo for being fearful and lacking confidence in Indonesian institutions, especially the military.  Prabowo insisted that willful leadership is essential to make Indonesia strong, prosperous and self‑sufficient.  He closed by reiterating his pledge to end food imports.  While his display of mettle may help his appeal among some voters, his bluster – debunked with effect by Widodo – may have alienated others (p. 3).  While scrutinizing the Golkar parliamentarian Bowo Pangarso regarding dealings with a state fertilizer firm, personnel from the Anti-Corruption Commission (KPK) discovered Rp8 billion in his company’s basement – neatly sorted in 400,000 envelopes.  He was allegedly preparing a vote‑buying operation in his Central Java electoral district (p. 13). 

Surveys: Indobarometer corroborated findings from other polls and measured Widodo’s lead at 18 percentage points as of mid‑March (p. 14). 

Security: Counter‑terror police apprehended a figure in West Java whom they suspect is a leader of the formidable Jemaah Ansharut Daulah (JAD) terrorist group (p. 15). 

Economics: A Bank Indonesia (BI) deputy governor cited the possibility of a significantly lower current account deficit for the first quarter of 2019, but warned that it could widen again in the second quarter (p. 16).  Oil production fell short of the government’s target again (p. 16).  

Jakarta: The public works minister openly rebuked Governor Anies Baswedan for making no progress on a ‘naturalization’ project to rectify drainage in the Ciliwung River.  Baswedan has refused to evict riverbank squatters who obstruct the work (p. 16). 

4. A Solid U.S. Employment Report For March

The U.S. employment report for March was solid and should be viewed as reassuring about the state of the economy in the first quarter of 2019.  Nonfarm payrolls rose 196,000 in March and t he unemployment rate held at 3.8%.

5. Hong Kong FX

We will be the first to admit some of our best ideas for reports come from subscribers. That is the story of today’s report on Hong Kong FX. Regular readers know we write extensively on China FX, but rarely touch on Hong Kong. To that end we got a request to look into FX currency and to a less extent rates in Hong Kong. At this point in history, while the HKD is tied directly to the USD, it more accurately reflects the CNY leaving the whole thing in a bit of a bind.

In this briefing:

1. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

1. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

• Capital flows are strongly Granger causal
• Gross capital flows lead World shipping activity by 4 months
• Capital flows have been slowly rising since June 2018: in February they jumped
• Reinforces out pro-Asia and pro-China investment message