APAC: The Macro Monthly - June 2015

	17 June 2015 ASIA PACIFIC Economics
The Macro Monthly - June 2015  |  PDF
Author(s): Arup RAHA +65 6210 8412, Jarratt MA
▊ Asia faces headwinds from the global economy. While growth prospects for Europe and Japan have improved modestly, the US may present the worst of both worlds – growth improves so that the Fed moves on rates but it is not import-intensive growth so Asian exports do not benefit by much. Plus, there is MERS in Korea, the fear of El Nino in SE Asia and continued softness in growth everywhere. China may provide a silver lining as policy stimulates growth. – pg.2     Economic Focus China is fighting disinflation, something it will need to eliminate to deal with excess capacity and debt. However, the stimulus required to do so may need to be much larger than what consensus believes. In the event, the slowdown may not follow a linear path and growth, in particular, investment, may rebound for a few quarters. That, in turn, will affect commodity prices and could have significant implications for the region. Malaysia and Indonesia are likely beneficiaries. – pg.4     F/X Strategy We still like going short JPY versus the MYR and IDR to pick up yield but will get cautious if, and when, USD/JPY crosses 125 as jawboning from Japanese officials is likely to pick up at that stage. We are also recommending a long EUR/JPY trade. – pg.10         Fixed Income Strategy There are several positives for the Indonesian bond market, with stable politics, a looser policy stance and prudent fiscal spending. Indonesia may be on the verge of returning to the investment-grade world. The IDR 10Y bond enjoys a near-600bp spread over the US 10Y and we think that is an attractive option – pg.12         Central Bank Watch – pg.16   News, Data & Upcoming Calendar – pg.19   Forecasts – pg.24             |           | Previous "The Macro Monthly" reports... 5/5/15  APAC:  The Macro Monthly - May 2015 6/4/15  APAC:  The Macro Monthly - April 2015