Daily Macro: The Shutdown-For-A-Wall: Three Reasons Why Trump Is Blundering and more

In this briefing:

1. The Shutdown-For-A-Wall: Three Reasons Why Trump Is Blundering
2. Philippines: Another CPI Downside Surprise in December
3. China Consumables in a Sluggish Economy
4. RRR Rate Cut in China
5. FX Reserves in China

1. The Shutdown-For-A-Wall: Three Reasons Why Trump Is Blundering

No end is apparent for the 18‑day‑old partial government shutdown following US President Donald Trump’s Oval Office Address today.  Rather than offering compromise, proposing new ideas or even attempting to expand public support for his position, Trump relied on familiar techniques of lurid hyperbole and base fear‑mongering.  But this doggesd pursuit of a US$5.7 billion wall seems bound to fail.  In effect, Trump is a political neophyte, with poor advisors, confronting an opposition‑controlled House for the first time – and he is blundering.

2. Philippines: Another CPI Downside Surprise in December

• Another CPI downside surprise largely due to hefty disinflation in CPI food and transport coupled with easing core inflation. Seasonally adjusted headline CPI printed another monthly drop (-0.4%MoM SA). The 2018 average inflation rate was 5.2%. 

• Assuming oil prices stay low and prevailing supply conditions persist, inflation can fade to less than 4% starting in March, based on our latest extrapolation. Average inflation in 2019 can settle at 3%.

• The updated inflation trajectory, benign oil price conditions and supply side effects of upcoming liberalization of rice imports, would sustain BSP’s neutral rate stance this year and terminate its rate hiking cycle.
• It’s still premature to talk about policy rate easing this year considering the limited policy space for flexibility as we face the risk of large macro imbalances that may require positive real rates and weaker PHP. 

• Enjoy the local market rallies following CPI’s downside surprise. We prefer to take profits on risk asset market rallies this early in the new year. 

3. China Consumables in a Sluggish Economy

The PBOC’s desire to loosen up China’s economy is relying on consumers to keep spending. However, as seen in the data below, consumers just are not spending. From cars, to cameras and retail, consumers are increasingly avoiding big ticket items, as China’s consumers look for breathing space.

4. RRR Rate Cut in China

The big news in Chinese finance was the PBOC announcing Friday that it was cutting the RRR rate. Rather than what you can read in the press, we want to focus on a variety of factors which may not be as widely recognized.

5. FX Reserves in China

FX reserves are up by about 10 billion dollars, which against a back drop of the size of FX and the Chinese economy is basically no change. They have been oddly flat over the past two years. Yet, the noise is really just that, the FX increase is so small that we believe it is a non-starter.