DBdaily: AsiaPac Edition - 29 August 2013
28 August 2013 (7 pages/ 271 kb)

Download the complete report: http://pull.db-gmresearch.com/p/2196-29D6/86543842/DB_DbDailyAPAC_2013-08-28_0900b8c08734ab44.pdf

HEADLINES...
Markets: Equities down in Asia yesterday and most of Europe overnight (Italy rebounds) as Syrian worries continue, US bourses rise modestly even as Treasuries weaken, WTI crude falls back after hitting intraday high above $112/bbl.
US:  Pending home sales down 1.3%mom in July, below mkt, up 8.6%yoy.
US:  MBA new mortgage applications up 2.4% last week.
EMU:  M3 up 2.2%yoy in July, above mkt, but private sector loans fall 1.9% yoy.
UK:  BoE’s Carney says will consider further easing if financial conditions tighten and lead to short-fall in economic recovery.
UK:  CBI reported retail sales up 10pts to 27 in August, well above mkt.
DEU:  GfK consumer confidence down 0.1pt to 6.9 in September, below mkt.
ITA:  Retail sales down 0.2%mom/3.0%yoy in June, below mkt.
SWE:  Economic tendency survey up 2.8pts to 98.8 in August.

THE DAY AHEAD...
US:  Fed's Bullard & Lacker to speak, GDP Annualized (Q2 S), Initial Jobless Claims, Bloomberg Consumer Comfort, Treasury Auction 7 Yr
CAN:  Current Account Balance (Q2), Industrial Product Price (Jul)
EMU:  ECB's Nowotny & Mersch to speak
DEU:  Unemployment Rate (Aug), HICP (Aug P)
FRA:  INSEE Business Survey (Aug)
ITA:  Consumer Confidence (Aug), Economic Sentiment (Aug), Hourly Wages (Jul)
ESP:  GDP (Q2 F), HICP (Aug P)
DNK:  Unemployment Rate (Jul)
SWE:  Current Account Balance (Q2), Retail Sales (Jul)
NOR:  Manufacturing Wage Index (Q2)
JPN:  Retail Trade (Jul)
AUS:  Private Capital Expenditure (Q2)
NZL:  ANZ Business Confidence (Aug)

Markets show sign of stabilising ahead of expected action in Syria
Over the past 24 hours markets have shown some first signs of stabilization ahead of what is now a very widely expected attack on President al-Assad’s military assets in Syria. Bourses were weak across the board in Asia yesterday, although losses were moderated towards the end of the session (stocks in the Philippines closing down 3% after being down 6% at one point). A stronger yen helped lead the Nikkei to a 1.5% loss. Tin currency markets the Indian Rupee slumped to a record low near 69 per USD, experiencing its worst fall in 18 years. In Europe the Stoxx600 fell 0.4%, led by a 1.0% decline in the major German bourses (Chancellor Merkel having joined UK PM Cameron in a joint statement calling for the punishment of Syria). Italian bourses actually rebounded 1%, however (and Italian bond yields declined) after the Italian government reached a deal to can a very unpopular housing tax on first homes (albeit to be replaced with a Service Tax, the details of which will be announced in October). In the US the S&P500 has nudged up 0.3%, helped by a 1.8% rise in oil and gas stocks, even as Treasuries gave back much of the previous day’s gains with 10-year yields rising 6bps to 2.77%. Most emerging market bourses have suffered further losses (Mexico declining 1%). WTI crude surpassed $112/bbl at one point but has now settled back at a little over $109/bbl.

The timing of military action remains uncertain. Russia has rejected a draft UK UN Security Council resolution calling for action against Syria, saying it is premature in advance of a final report from UN weapons inspectors (the UN has said it needs a further 4 days to complete its inspections in Syria). Please note that Deutsche Bank’s Head of Public Affairs, Frank Kelly, will be holding a conference call titled “Crisis in Syria: The View from Washington” in early NY time today (Thursday). For call details (including access to a replay at a friendlier hour for Asia-Pacific clients) please contact your DB salesperson.

As far as the data flow was concerned, in the euro area the latest money and credit aggregates continue to paint a weak picture. Lending to households was positive in July (EUR4.8bn). However, lending to corporates (adjusted for securitisation) fell EUR21.1bn, the largest negative since the heightened pressure on banking system funding at the end of 2011 (see Figure 2). Even so, when one looks at the credit impulse – the rate of change in credit growth – this has shown some improvement in recent months. As Figure 3 reminds, it is the credit impulse which is correlated with GDP growth. Within the money aggregates, growth in M3 was again dominated by growth in M1 which can be interpreted as bullish if one believes this reflects increasing transactions demand for money. In other news German consumer confidence was a touch lower this month according to the Gfk survey, although household’s claimed to be more willing to spend (see Figure 4). In Italy retail spending in July was down 3% from a year earlier (see Figure 5).  

In the UK BoE Governor Carney delivered his maiden speech. Our UK Chief Economist, George Buckley, noted that the Governor seemed optimistic about a broad based recovery – a view that was not challenged by a solid looking CBI Distributive Trades Survey overnight (see Figure 6). However, that view was expressed with some caveats, notably that it will require "robust growth" to sufficiently reduce spare capacity. Carney said that that unemployment at 7% was only a "staging post" - not a "trigger" - for higher rates, and that "rates will not rise too soon". On the market reaction to guidance, Carney suggested that the rise in short-rate expectations would be welcome only if the markets are right and that unemployment comes down to 7% by mid-2015 (the Bank believes there's only a one-third chance of that scenario playing out, and even if it did, it need not trigger higher rates). A key point made by Carney related to the potential need for policy easing: if rising market rates meant a worsening of financial conditions, leading to the recovery "falling short of the strong growth we need", then "we will consider carefully whether, and how best, to stimulate the recovery further"

In the US the main data point of note was a 1.3% mom decline in pending home sales in July. Whilst this represents a second consecutive small, at this stage you would be hard pressed to discern a break in the uptrend trend in house sales depicted in Figure 7.  

In China my colleague Jun Ma wrote that the CCP's 3rd plenary session will be held in November, about one month later than market expectations. The statement announcing the date also highlighted three other issues: 1) implementing a more aggressive anti-corruption program in the next five years; 2) deepening administrative reform at the local level via further deregulation so that to enhance growth potential; 3) endorsing the idea of setting up the Shanghai's Free Trade Zone as a major pilot program for economic reform, capital account liberalization, and further integration into the world economy. As for the likely contents of the reform package, Jun’s expectation is that they should cover at least the following areas: 1) deregulation, to allow private sector to participate in sectors previously dominated by SOEs; 2) financial liberalization, including a timetable for interest rate liberalization and capital account convertibility; 3) pricing reforms, to raise the tariffs of water, gas, and rail transportation in a significant way; 4) further opening up of the domestic economy, by removing restrictions on foreign investments in many sectors such as services and agriculture; 5) Hukou reform and improving public services for migrant workers, as part of the urbanization strategy; 6) fiscal reform, which will include the nationwide implementation of the VAT reform and measures to improve budget transparency.

Looking at the day ahead, in Australia there will be plenty of interest in the ABS Q2 CAPEX report, especially the latest reading on investment intentions (my Australian colleagues expect the third reading for ‘13/14 to print some 11.6% below the comparable reading for ‘12/13). In New Zealand we receive the latest ANZ business survey (confidence should remain well above average – the main point of interest will be any signs that inflation has begun to move higher). In Europe we receive national business survey readings in France and Italy and labour market and inflation readings in Germany. In the US we and the market expect Q2 GDP growth to be revised up 0.5pps to 2.2% saar. The latest weekly jobless claims report will also be of interest, as will speeches given by Fed President Bullard and Fed President Lacker. Clearly developments in Syria will be monitored closely.