Asia Breakfast Briefing - September 29, 2017 ASIAN PREVIEWA heavy calendar to end

ASIAN PREVIEW

A heavy calendar to end the week

Asian docket sees JP"s retail sales, ind Prod, CPI and unemployment

VN"s GDP, retail sales and AUS" prvt sector credit the other Asian highlights

Plenty of EU data as well with DE retail sales, unemployment, FR, IT, EU"s CPI

UK to see housing prices, Q2 final GDP and speeches by BOE Cunliffe, Broadbent

US has PCE prices, personal income/spdg and inflation expectations

Fed"s Harker the only US speaker

Asia FX Strat: PBOC will defend CNY more actively before inflow returns

Asia FX Strat: Let"s see how big players in INR carry trade react

Viewpoint: USD Index poised to close topside gap to 94.00/30

Focus Comment: Too early to call it the Trump reflation trade Mark II

RBNZ Review: RBNZ holds OCR at 1.75% as expected, post-meet statement largely unchanged

Japan Aug jobs report due Fri 29 Sep, jobless rate f/c steady at 2.8%

We are expecting the jobless rate to stay unchanged at the 23yr low of 2.8%, with the job-to-applicant ratio ticking up further to 1.53 vs 1.52 in Jul which would extend a 43yr high.

Jul employment rose 140k while unemployed numbers ticked up 10k.

On the surface, it would appear that Japan"s job market is tight (even more so than in the peak 90s) and that companies are struggling to fill positions. That said, the reality is somewhat more sober. The tight labour market is rather down to structural issues linked to an aging demographic and falling population, the lack of foreign labour, and how a lot of the new jobs created are part-time and low-paying (particularly for young Japanese and mothers returning to the labour force).

While there have been a small degree of wage growth, it"s not uniform and what"s concerning is how the big multinationals are lagging behind in this (especially in service-oriented roles). Low productivity is also a concern although this boils down largely to small companies and a broad over-staffing in service roles.

Japan Aug overall household spending due Fri 29 Sep, f/c 0.6% y/y, last -0.2% y/y

The market consensus for overall household spending is for it to rebound to a 0.9% y/y pace following an unexpected -0.2% y/y contraction in Jul.

Our f/c however stands at 0.6% y/y. Statistically, the rebound would be down in large part to low base effects from Aug 2016, mirroring the bounce in Mar, but our lower estimate is based on bad weather in Aug.

We would hence look past the headline figure and focus on the prevailing l/t trend. The average over the past 6yrs stands at -0.9% y/y while the avg since Abenomics was enacted in Dec 2012 is -1.4% y/y. Along with low inflationary pressures, this is quite damning in the sense that Abenomics has not solved the fundamental issues lingering over from the 2 "lost decades" btwn 1991-2010, with large scale monetary easing only serving to prop up asset prices.

At the margins, the structural issues associated with the labour market that leads to subdued wage growth is a drag on household spending, and by extension a lack of durable traction in inflationary pressures. This brings us back to why PM Abe should focus more on the 3rd arrow of structural reforms.

Japan Aug CPI due Fri 29 Sep, headline f/c 0.5% y/y , last 0.4% y/y, core f/c 0.5% y/y, last 0.5% y/y, core-core f/c 0.2% y/y, last 0.1% y/y

The market consensus is for headline CPI to rise 0.7% y/y, core to hit 0.7% y/y and core-core to tick up to 0.2% y/y.

That said, we are slightly less optimistic and see headline CPI edging up slightly to 0.5% y/y, core to stay unchanged at 0.5% y/y but core-core to tick up to 0.2% y/y.

Headline CPI

Core CPI

Core-Core CPI

The uptick would largely be down to base effects, although our lower f/cs are on the basis that crude prices declined over the mth of Aug and that Aeon"s food/grocery price cuts (which filtered down to other retailers) would act as an offset.

In truth, nothing spectacular and nowhere near the BOJ"s 2% target, but the upticks will at the very least mean the BOJ won"t deviate from an "on-hold" policy.

Note that in the Jul qtrly outlook report, the BOJ"s core CPI f/cs were revised lower.

2017 core CPI to come in at 1.1% y/y, down from 1.4% y/y prev.

2018 core CPI f/c revised down to 1.5% y/y from 1.7% y/y.

2019 core CPI now projected at 2.3% y/y vs 2.4% y/y prev.

Crucially, their 2% CPI timeline target was pushed back to "around FY2019" from the previous assessment of around FY2018. Looking ahead to the next qtrly outlook report in Oct, and with new BOJ member Kataoka trumpeting low inflation, there is a good chance that core CPI f/cs will again be revised lower.

Japan Aug retail sales due Fri 29 Sep, f/c -0.8% m/m and 2.4% y/y, last 1.1% m/m and 1.8% y/y

Retail sales is expected to rise in Aug on a y/y basis due to low base effects. That said, on a m/m basis, we are expecting a -0.8% decline as increment weather in Aug likely kept people indoors.

Looking at it from a fundamental perspective, the lack of wage growth traction serves as a drag, with retailers resorting to price cuts to move stock.

Japan Aug prelim IP due Fri 29 Feb, f/c 1.8% m/m and 5.2% y/y, last -0.8% m/m and 4.7% y/y

Japan"s METI (Ministry of Economy, Trade and Industry) is however forecasting a 1.4% m/m bounce in Aug.

Looking at the Jul print, it wasn"t particularly damning at first glance but closer examination paints it in a less positive light. The -0.8% m/m decline isn"t alarmingly large and comes on the back of a 2% q/q surge in Q2

Assuming the Aug rebound comes in as expected, that would only leave a marginal q/q growth which could easily turn into a decline if the Sep print disappoints (METI survey shows manufacturers are forecasting a -3.1% m/m cut).

The last time Japan"s IP contracted on a q/q basis was in Q1 2016, and that came amidst a backdrop of subdued econ growth. If so, could this be a portent that Japan"s GDP peaked in Q2 and is headed for a slow-down?

OVERNIGHT SESSION WRAPS

US FX Close

EUR/USDUSD/JPYGBP/USDAUD/USDUSD/CADDOWDXYOPEN1.1780112.651.34160.78211.2473+40.4993.235HIGH1.1804112.761.34550.78601.2480CLOSED93.328LOW1.1767112.341.34110.78121.2417@93.073CLOSE1.1779112.441.34340.78541.243422381.2093.169

It was a fairly active session as positions were rebalanced ahead of month and quarter end. Despite a slight beat on US GDP and Fed"s George endorsing additional gradual rate hikes, the Usd Index reversed lower from a 6-week high, retesting the upper bounds of a prior 6-month falling channel as support as the Greenback lost ground to its G10 peers. The biggest winner into the close was Kiwi. Nzd/Usd reversed course just ahead of the 200 DMA to form a bullish engulfing candle after the RBNZ held steady at a record low 1.75% Wednesday but scaled back its comments on a lower currency. Eur/Usd advanced after German state CPIs (on balance) beat expectations while Gbp/Usd rose to a fresh high after bouncing ahead of the 20DMA/38.2% after the EU"s chief Brexit negotiator said he welcomed a new dynamic in talks with the UK following May"s Florence speech. Usd/Cad strength was tempered after it probed the 50 DMA to test a 3-month falling trendline as real money accounts bought the Loonie ahead of the Canadian July GDP release Friday. Japanese accounts were Yen buyers overnight which kept Usd/Jpy confined to a 9-month falling channel. Aud/Usd formed a bullish hammer candle, bouncing after dipping below the 38.2% retracement of the .7329/.8125 upswing. Friday"s calendar is full with Personal Income, Personal Spending, PCE Core, Chicago PMI and University of Michigan Sentiment, and the Fed"s Harker will be speaking at a Fintech event.

US Treasury Close

10-YEARDec TENDec BONDDec S&PNov 0IL2/105/303/10/30HIGH99-18

125-18153-042507.8052.8686.697.718.6LOW99-02125-02152-012499.9051.2282.894.214.9LAST99-16

125-17+152-262506.9051.5985.297.016.7CHANGE+1/32+3/32-5/32+2.40-0.55+1.6+1.5+0.9

TREASURIES CLOSE 3:00PM After an early probe of overnight lows found willing buyers, the complex settled into a gradual but persistent climb higher. Data had no impact, but the firmer price action did set the tone for an excellent 7yr auction result. We also sense that participants are coming around to the reality of tax reform and the "swamp", accepting that the timetable will undoubtedly be long and who knows what the final package will look like. The complex finished near the best levels of the US trade, 30yr underperforming with the curve steeper again. Some techs note that trends and daily chart patterns remain negative, while oversold conditions are still in effect. Friday"s data contains top tier reports and could impact prices into month end. We favor holding new long positions overnight. JK

DAY AHEAD

Time (GMT)CtyEventPeriodSurveyPriorRevised28/9/17 21:00SKBusiness Survey ManufacturingOct--83--28/9/17 21:00SKBusiness Survey Non-ManufacturingOct--78--28/9/17 21:45NZBuilding Permits MoMAug---0.70%--28/9/17 23:00SKBoP Current Account BalanceAug--$7261.3m--28/9/17 23:00SKBoP Goods BalanceAug--$10707m--28/9/17 23:00SKIndustrial Production YoYAug1.30%0.10%--28/9/17 23:00SKIndustrial Production SA MoMAug0.50%1.90%--28/9/17 23:00SKCyclical Leading Index ChangeAug--0.2--28/9/17 23:01UKGfK Consumer ConfidenceSep-11-10--28/9/17 23:01UKLloyds Business BarometerSep--17--28/9/17 23:30JNJobless RateAug2.80%2.80%--28/9/17 23:30JNJob-To-Applicant RatioAug1.531.52--28/9/17 23:30JNOverall Household Spending YoYAug0.90%-0.20%--28/9/17 23:30JNNatl CPI YoYAug0.60%0.40%--28/9/17 23:30JNNatl CPI Ex Fresh Food YoYAug0.70%0.50%--28/9/17 23:30JNNatl CPI Ex Fresh Food, Energy YoYAug0.20%0.10%--28/9/17 23:30JNTokyo CPI YoYSep0.60%0.50%--28/9/17 23:30JNTokyo CPI Ex-Fresh Food YoYSep0.50%0.40%--28/9/17 23:30JNTokyo CPI Ex-Fresh Food, Energy YoYSep0.10%0.00%--28/9/17 23:50JNRetail Sales MoMAug-0.50%1.10%--28/9/17 23:50JNRetail Trade YoYAug2.50%1.90%1.80%28/9/17 23:50JNDept. Store, Supermarket SalesAug0.30%-0.20%--28/9/17 23:50JNIndustrial Production MoMAug P1.80%-0.80%--28/9/17 23:50JNIndustrial Production YoYAug P5.20%4.70%--28/9/17 23:50JNLoans & Discounts Corp YoYAug--3.80%--28-09-17GECPI Baden Wuerttemberg MoMSep--0.10%--28-09-17GECPI Baden Wuerttemberg YoYSep--1.90%--28-09-17CHBoP Current Account Balance2Q F--$52.9b--26/9/17 - 30/9/17KZBoP Current Account Balance2Q---1102.8m-1441.4m29/9/17 - 03/10/17KZGDP YTD YoY2Q F--4.20%--27/9/17 - 28/10/17SLImports YoYJul---8.00%-8.00%28/9/17 - 28/10/17SLExports YoYJul--9.60%9.60%29/9/17 01:30AUPrivate Sector Credit MoMAug0.50%0.50%--29/9/17 01:30AUPrivate Sector Credit YoYAug5.50%5.30%--29/9/17 02:00SICredit Card Billings SGDAug--4509.1m--29/9/17 02:00SICredit Card Bad Debts SGDAug--27.1m--29/9/17 02:00SIMoney Supply M2 YoYAug--6.70%--29/9/17 02:00SIMoney Supply M1 YoYAug--10.90%--29/9/17 02:00SKDiscount Store Sales YoYAug--1.70%--29/9/17 02:00SKDepartment Store Sales YoYAug---1.30%--29/9/17 02:00SIBank Loans and Advances YoYAug--5.90%--29/9/17 02:00VNGDP YTD YoY3Q6.10%5.73%--29/9/17 02:00VNExports YTD YoYSep19.50%17.90%--29/9/17 02:00VNImports YTD YoYSep22.00%22.30%--29/9/17 02:00VNTrade BalanceSep$850m$400m--29/9/17 02:00VNCPI YoYSep3.40%3.35%--29/9/17 02:00VNRetail Sales YTD YoYSep--10.30%--29/9/17 02:00VNIndustrial Production YoYSep--8.40%--29/9/17 03:30THMfg Production Index ISIC NSA YoYAug2.40%3.73%--29/9/17 03:30THCapacity Utilization ISICAug--60.22--29/9/17 04:00JNVehicle Production YoYAug--1.40%--29/9/17 05:00JNHousing Starts YoYAug0.60%-2.30%--29/9/17 05:00JNAnnualized Housing StartsAug0.970m0.974m--29/9/17 05:00JNConstruction Orders YoYAug--14.90%--29/9/17 06:00GERetail Sales MoMAug0.50%-1.20%--29/9/17 06:00GERetail Sales YoYAug3.20%2.70%--29/9/17 06:00UKNationwide House PX MoMSep0.10%-0.10%--29/9/17 06:00UKNationwide House Px NSA YoYSep1.90%2.10%--29/9/17 06:45FRCPI EU Harmonized MoMSep P-0.20%0.60%--29/9/17 06:45FRCPI EU Harmonized YoYSep P1.00%1.00%--29/9/17 06:45FRCPI MoMSep P-0.20%0.50%--29/9/17 06:45FRCPI YoYSep P1.00%0.90%--29/9/17 06:45FRPPI MoMAug--0.10%--29/9/17 06:45FRPPI YoYAug--1.50%--29/9/17 06:45FRConsumer Spending MoMAug0.20%0.70%--29/9/17 06:45FRConsumer Spending YoYAug1.70%2.10%--29/9/17 07:30THForeign ReservesSep-22--$200.1b--29/9/17 07:30THForward ContractsSep-22--$31.1b--29/9/17 07:30THExports YoYAug--8.00%--29/9/17 07:30THExportsAug--$18743m--29/9/17 07:30THImports YoYAug--18.30%--29/9/17 07:30THImportsAug--$17400m--29/9/17 07:30THTrade BalanceAug--$1344m--29/9/17 07:30THBoP Current Account BalanceAug$3000m$2768m--29/9/17 07:30THBoP Overall BalanceAug--$2312m--29/9/17 07:55GEUnemployment Change (000"s)Sep-5k-5k--29/9/17 07:55GEUnemployment Claims Rate SASep5.70%5.70%--29/9/17 08:00SPCurrent Account BalanceJul--1.4b2.2b29/9/17 08:30UKCurrent Account Balance2Q-15.9b-16.9b--29/9/17 08:30UKNet Consumer CreditAug1.4b1.2b--29/9/17 08:30UKNet Lending Sec. on DwellingsAug3.6b3.6b--29/9/17 08:30UKMortgage ApprovalsAug67.3k68.7k--29/9/17 08:30UKMoney Supply M4 MoMAug--0.50%--29/9/17 08:30UKM4 Money Supply YoYAug--4.40%--29/9/17 08:30UKM4 Ex IOFCs 3M AnnualisedAug--3.30%--29/9/17 08:30UKGDP QoQ2Q F0.30%0.30%--29/9/17 08:30UKGDP YoY2Q F1.70%1.70%--29/9/17 08:30UKIndex of Services MoMJul0.10%0.40%--29/9/17 08:30UKIndex of Services 3M/3MJul0.70%0.50%--29/9/17 08:30UKTotal Business Investment QoQ2Q F0.00%0.00%--29/9/17 08:30UKTotal Business Investment YoY2Q F0.00%0.00%--29/9/17 09:00ITCPI NIC incl. tobacco MoMSep P-0.20%0.30%--29/9/17 09:00ITCPI NIC incl. tobacco YoYSep P1.30%1.20%--29/9/17 09:00ITCPI EU Harmonized MoMSep P1.80%0.10%--29/9/17 09:00ITCPI EU Harmonized YoYSep P1.40%1.40%--29/9/17 09:00ECCPI Estimate YoYSep1.60%1.50%--29/9/17 09:00ECCPI Core YoYSep A1.20%1.20%--29/9/17 09:30SLCPI YoYSep5.90%6.00%--29/9/17 09:30SLCPI Moving Average YoYSep5.60%5.50%--29/9/17 10:00ITPPI MoMAug--0.00%--29/9/17 10:00ITPPI YoYAug--0.90%--29/9/17 11:00INFiscal Deficit INR CroreAug--63211--29/9/17 12:30USPersonal IncomeAug0.20%0.40%--29/9/17 12:30USPersonal SpendingAug0.10%0.30%--29/9/17 12:30USReal Personal SpendingAug-0.10%0.20%--29/9/17 12:30USPCE Deflator MoMAug0.30%0.10%--29/9/17 12:30USPCE Deflator YoYAug1.50%1.40%--29/9/17 12:30USPCE Core MoMAug0.20%0.10%--29/9/17 12:30USPCE Core YoYAug1.40%1.40%--29/9/17 13:45USChicago Purchasing ManagerSep58.758.9--29/9/17 14:00USU. of Mich. SentimentSep F95.395.3--29/9/17 14:00USU. of Mich. Current ConditionsSep F--113.9--29/9/17 14:00USU. of Mich. ExpectationsSep F--83.4--29/9/17 14:00USU. of Mich. 1 Yr InflationSep F--2.70%--29/9/17 14:00USU. of Mich. 5-10 Yr InflationSep F--2.60%--09/29/2017PHMoney Supply M3 SRF YoYAug--13.50%--09/29/2017PHBank Lending Net of RRPs YoYAug--19.70%--09/29/2017PHBank Lending YoYAug--18.70%--09/29/2017PKSBP Rate Decision (Target)Sep-295.75%5.75%--09/29/2017IDMoney Supply M2 YoYAug--9.20%9.40%09/29/2017IDMoney Supply M1 YoYAug--12.20%12.90%09/29/2017MUHotel Occupancy RateAug--90.4--09/29/2017HKBudget Balance HKDAug---2.5b40.1b09/29/2017HKMoney Supply M1 HKD YoYAug--18.40%--09/29/2017HKMoney Supply M2 HKD YoYAug--15.80%--09/29/2017HKMoney Supply M3 HKD YoYAug--15.80%--

Central Bank Watch

Time (GMT)CtyEventVoterStance28/9/17 23:50JNBOJ Summary of Opinions at Sept.20-21 Meeting

28/9/17 00:00UKCarney Speaks at BOE Independence Conference, LondonYesModerate to hawkish29/9/17 01:10JNBOJ Outright Bond Purchase 5~10 Years

29/9/17 01:10JNBOJ Outright Bond Purchase 25 Years~

29/9/17 01:10JNBOJ Outright Bond Purchase 10~25 Years

29/9/17 08:45UKBank of Israel"s Flug Speaks at BOE Conference, London

29/9/17 08:45UKSouth Africa"s Kganyago Speaks at BOE Conference, London

29/9/17 10:30UKIMF"s Lagarde Speaks at BOE Conference, London

29/9/17 12:00UKBOE"s Cunliffe speaks at conference in BrusselsYesDovish29/9/17 12:30UKBOE"s Broadbent Speaks at Conference in LondonYesModerate to dovish29/9/17 15:00USFed"s Harker Speaks at Fintech Event on Consumers and BankingYesHawkish

Auctions

Time (GMT)CtyEventPrev Avg YieldB/C29/9/17 01:00AUAustralia Plans to Sell AUD800 Mln 2.75% 2028 Bonds2.74%4.03x29/9/17 02:05NZNew Zealand Plans to Sell NZD150 Mln 3.5% 2033 Bonds3.29%2.23x29/9/17 09:30INIndia to Sell INR30 Bln FRB 2024 Bonds on Sept. 29

29/9/17 09:30INIndia to Sell INR80 Bln 6.79% 2027 Bonds on Sept. 296.66%

29/9/17 09:30INIndia to Sell INR20 Bln 7.73% 2034 Bonds on Sept. 29 (New Issue)

29/9/17 09:30INIndia to Sell INR20 Bln 7.72% 2055 Bonds on Sept. 29 (New Issue)

Destinations: