MoneyWisee

 

Note that next week in Asia will see reduced liquidity in Asian local currency bonds, with the Indonesian market closed all week, Malaysia closed Tuesday through Thursday (and possibly Friday), Singapore closed on Tuesday and India closed on Wednesday. We will still make markets but bid-offer spreads will be correspondingly wider.In EM Asia data releases next week, watch out for August inflation data from South Korea and Thailand, August Manufacturing PMI from China, and Q2 GDP from India and the Philippines. We expect core inflation in Korea and Thailand to remain elevated. In India, we expect GDP to show only a very slight ‘moderation’ to 7.6% (from 7.8% in Q1) while the Philippines Q2 GDP is expected to be at 4.0% (versus 4.9% last).

Another nervous week though price moves have been subdued, some comparing current conditions in the banking industry to the ‘start of the rot’ in August 2007. Most stock indices clung to recent ranges and above August’s lows although India’s Sensex closed under 16,000 on Friday, its lowest weekly close since September 2009, while Thursday saw the DAX slip 3.8% in an horrific 20 minutes. Similarly currencies held in tiny ranges inside this month’s established bands, the TRL strengthening a little following its move to 1.8000 earlier this month, close to its weakest ever (1.8250 in March 2009). Money market yields backed up for a second consecutive week, in marked contrast to recently DOWNGRADED Treasuries where yields are close to record lows. Benchmark 10-year Greek bonds managed a new record of 1,650 bps spread over Bunds to yield 18.25% (in theory anyway as they are NOT really trading and bid/offer spreads are terribly wide), Finland insisting on collateral against the new promised bail-out. From a record $1,911.46/oz, spot gold slipped to $1,702.44 this week, the biggest weekly fall since 1980, indicating that it may not be the ‘safe haven’ many had assumed.

Japan is approaching the end of its post-quake recovery in industrial production. The update for July is due this coming week – expect the pace of monthly gains to slow. The Markit/JMMA PMI for August will be monitored closely for any signs of a loss of growth momentum – particularly in new orders. In Brazil, central bankers should confirm that the deterioration in global financial conditions was enough to tip the balance in favour of the interruption of the tightening cycle. While the market is now pricing some risk of a cut, we feel that inflation risks remain large enough for BACEN to wait a while longer before easing again. The key event this coming week for Russia will be the CBR meeting, in which it will most likely keep rates ‘on hold’ given the fragile economic recovery and sliding inflation. China’s PMI data steals attention after its recent flirting with the boom-burst threshold of 50. The HSBC-Markit PMI for China, which closely tracks the official PMI, has remained below the 50 level for 2 consecutive months, but in August there was an improvement to 49.8 from July’s 49.3. The PMIs are a good guide to industrial production growth, which we expect will remain in the 13-15% range it has been in since mid-2010 for the rest of the year. August CPI data are due in Korea and Thailand.