Brief Macro: Indian Election Antics and more

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%.