In this briefing:
- IDR, CPI, Oil, Trans-Java & Freeport Strengthen Widodo / Lippo Case Escalates / Efta Cepa / Debates
- India Monthly Report Nov-Dec 2018
- Japan – Policymakers Panicking, We Are Not
- FLASH: BoE Blocked by Brexit Uncertainty
- FLASH: UK Retail Surges into Christmas 2018
1. IDR, CPI, Oil, Trans-Java & Freeport Strengthen Widodo / Lippo Case Escalates / Efta Cepa / Debates
Prabowo has yet to dent Widodo’s 20-point lead in polls and, meanwhile, certain key macro-economic figures are finally swinging in the incumbent’s favor. Jakarta and Surabaya are linked by toll road — after decades of work. The Freeport mine nationalization went through, benefiting Widodo (but possibly no one else). The Efta Cepa bodes well for other trade agreements in the works. The Lippo Group scandal is escalating, but not yet affecting James Riady. PT Toba Sejahtera Tbk suffered damaging NGO scrutiny. Electoral authorities set the presidential debate schedule.
Politics: Recent economic trends, such as inflation, the exchange rate and the price of oil, are benefiting President Joko Widodo. Employment is an area where the president remains vulnerable, but Prabowo Subianto’s new television ads on the topic may be backfiring. Prabowo has focused on lamenting the lack of professional careers for college graduates – a remote concern for the bulk of voters (Page 2). The General Election Commission (KPU) has secured agreements from the two presidential campaigns regarding topics and formats for televised debates in the coming months. The challenge for Widodo will be to shield his running mate from questions on matters beyond his narrow field of Islamic jurisprudence (p. 2). After prolonged wrangling with Gerindra, the Islamic Justice Welfare Party (PKS) finally named two nominees for vice governor of Jakarta; neither seem dynamic (p. 4).
Surveys: President Joko Widodo’s 20 percentage-point lead remained intact through the second week of December, according to a credible poll (p. 5).
Justice: Anti-Corruption Commission (KPK) officials are scrutinizing State Minister for Sports and Youth Imam Nahrawi, after having arrested a deputy state minister for alleged kickbacks on grants to the National Sports Committee (Koni). The affair could become an embarrassment for Widodo (p. 5). KPK officials indicated the likelihood of pursuing a former Lippo Cikarang president director, but they have not yet conveyed any such signals about investigating group owner James Riady (p. 6). An NGO alliance highlights conflicts of interest on the part of Coordinating Maritime Affairs Minister Luhut Panjaitan (p. 7).
Policy News: Officials signed a comprehensive partnership (Cepa) with four European states (including Switzerland and Norway) (p. 9). The transaction to nationalize the Freeport mine concluded on 21 December. The deal will benefit Widodo (and perhaps him alone) (p. 10).
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Infrastructure: The linkage of the Trans Java Toll Road – first envisioned in 1978 – finally occurred on 20 December. Opposition figures, noting that previous administrations had put the plans in place, dispute how much credit should accrue to Widodo; in fact, he was the first to expedite land acquisition and thereby overcome the chief obstacle (p. 12).
2. India Monthly Report Nov-Dec 2018
The Indian indices have been seeing an ebb and flow with bearish indicators accounting for market dips with a recovery towards the end of the period. Overall the Indian indices have outperformed the global market this month with positive returns across sectors except for pharma and the metal sector.
Returns in USD
3. Japan – Policymakers Panicking, We Are Not
Japanese policymakers are panicking. Economic activity contracted in 3Q. Inflation is slowing, up 0.8% YoY in December vs 1.4% YoY previously. Exports are flat lining. Unsurprisingly the BoJ left monetary policy unchanged this month while Abe’s cabinet, taking no chances approved a record initial budget for fiscal 2019 this week. We see few real signs of the economy slowing yet though. We remain overweight Japanese equities and are forecasting 1% nominal GDP growth in 2019, the same as the first three quarters of 2018.
4. FLASH: BoE Blocked by Brexit Uncertainty
- The MPC voted unanimously for no policy change in December, as widely expected.
- Near-term GDP growth and inflation forecasts were both trimmed, but the extent may have been exaggerated by missing some recent news.
- Judging the appropriate policy stance was deemed to depend on the data in light of Brexit clarity. That should have occurred in time for a May-19 hike, in my view.
5. FLASH: UK Retail Surges into Christmas 2018
- UK retail sales surged by 1.2% m-o-m in Nov-18, which takes the level well above trend. Black Friday sales helped but discounting is not responsible.
- Sales in December have had a strong positive correlation with November since 2014. I pencil in +0.5% m-o-m before sales normalise lower in the new year.
- The latest rise raises my Nov-18 monthly GDP forecast to 0.2% m-o-m and removes the downside risk to my 0.3% q-o-q forecast for 4Q18.
