Asia Daily Update

North Asia
** China: Relatively big events next week: GDP and Fourth Plenum
** China: Finance ministry ordered local government to report outstanding debt by 5 Jan 2015

CHINA: Next week GDP for Q3 is due on Tuesday and we forecast growth of 7.2% year-on-year, in line with consensus and down from 7.5% in Q2. Our forecast is consistent with quarter-on-quarter growth (non-annualised) of 1.7%. We expect industrial production for September, also due on Tuesday, to rebound to 7.4%, following the slump to 6.9% the month prior. Our forecasts are consistent with 2014 GDP growth of 7.3%.

The Fourth Plenum will also be held Oct 20-23 in Beijing. The date had been announced on Sept 30. While the Third Plenum focuses on economic policy, the Fourth Plenum focuses on internal matters for the Communist Party. The theme for the plenum is ‘the rule of law’. The anti-corruption fight will likely continue. The background issue of the future of PBoC Governor Zhou is unlikely to be decided at this meeting (there has been rumours of his imminent retirement).

The PBoC set the USD-CNY midpoint fix at 6.14070 this morning, up slightly from 6.13950 yesterday but still on a gradual downward trend. USD-CNY spot is trading at 6.1263, little changed from yesterday's close of 6.1233. CNH is trading at a slight discount to CNY spot as it has done since mid-August. This probably reflects economic uncertainty in China and the fact that CNH is fully convertible with other currencies. We think the CNY will gradually appreciate this year against the USD on the back of a trend widening trade surplus.

The finance ministry has ordered local governments to report the outstanding debt in 2014 by 5 Jan 2015, the Economic Daily reports today. It reported that the Ministry of Finance has issued a draft rule on local government outstanding debt management recently. The draft rule advised local governments to include outstanding debts in budget management. It also stated that the local governments could only raise debts via province-level bonds issuance from 2016 onwards. The central government will impose quotas on province-level bond sales.

Total social financing rose CNY1.05tn in September, lower than the expectations of CNY 1.15tn but was higher than CNY 960bn previously. New yuan loans rose more than expected by CNY 860bn (consensus: CNY 750bn). M2 money supply grew by 12.9% y/y, up slightly from 12.8% previously. The FX reserves shrank in Q3 to USD 3.89tn from a revised USD 3.99tn at the end of Q2.

South/Southeast Asia
** India: RBI Governor Rajan sees FY2014-15 growth around 5.5% or a bit more
** Singapore: Sep NODX remains unimpressive, electronics continues to slump
** Malaysia: Focus is today’s Sep CPI which could dip below 3% y/y
** Thailand: BoT Governor Prasarn sees stabilization household debt

INDIA: RBI Governor Raghuram Rajan said yesterday that RBI’s monetary policy aim is to curb inflation and the recent drop in bond yield is indicative of RBI’s success in curbing inflation. On the current account deficit, he said it has been brought down considerably and running a current account deficit is not necessarily a bad thing. He said RBI has no desire to fix the level of the long end rates. On growth, he said GDP for FY2014-15 is seen around 5.5% or a little more but the hope is a return to 7%. On subsidies, he once again sounded that he is not in favour of subsidies other than to the very needy. On the US, he said he hopes the US will look to exit QE as the economy strengthens.

- Looking at the 1Y OIS (overnight index swaps), it has fallen sharply since the start of October, from 8.46% to 8.20% yesterday. This is spurred by the continued slide in inflation in the past few months, for both CPI and WPI to under 7% and 3% y/y respectively in September. Lower oil prices have been a factor along with lower food prices. We look for RBI to leave rates unchanged to year-end but if inflation remains well behaved, the next RBI move could well be a cut rather than a hike. This could possibly come in 2015 but much will also depend on the global backdrop and the path of Fed normalization. For USD-INR, it continued to climb yesterday from the 61.40 low to 61.86. It is back to the upper end of the 60-62 range over the past three months and even above 62, it may encounter stronger selling pressures around the 63-64 area.

SINGAPORE: September non-oil domestic exports (NODX) released this morning came in lower than expected at 0.9% y/y (market: 2.9%) from 6% previously. The 3mma trend was slightly higher however at 1.1% vs -0.7% previously. Looking at the breakdown, 1) electronics (30% share) remained disappointing and fell by another 4% y/y. This represents the 26th consecutive month of contraction, since August 2012; and 2) non-electronics (70% share) eased to 3% y/y from 12.1% previously. Overall, it is another lackluster report reflecting 1) the continued hollowing out of Singapore’s electronics industry, due to high costs, product make-up; and 2) weak global demand.

- For USD-SGD, it was range yesterday between 1.2700-1.2760. For the SGD NEER, we estimate it is holding steady at +0.5% above the mid-point for USD-SGD at 1.2730, USD-MYR at 3.2840, and USD-CNY at 6.1230.

MALAYSIA: The key focus today is September CPI due at 09:00GMT. The market is looking for a dip below 3% to 2.6% y/y vs the average of 3.3% in the first eight months of the year. The higher base from September 2013 onwards should see the annual rate moderate. This may encourage the doves looking for BNM to at least hold off any further rate hikes, albeit not necessarily vouching for any cuts. At best, we see BNM paring back hawkish expectations, particularly if market volatility remains elevated. A lower than expected reading will reinforce growing expectations that BNM will leave rates unchanged at 3.25% at the next meeting on 9 November. For USD-MYR, it remained well supported yesterday above he 3.2650 and closed slightly higher at 3.2835. Our bias remains to the upside, at the upper end of the 3.25-3.30 range.

THAILAND: BoT Governor Prasarn said yesterday that household debt to GDP should stabilize as the economy growth. Even though the pace of growth in household debt has slowed, he acknowledged that it may not decline rapidly near term. The rapid surge in household debt is a major concern for the authorities, given the rise from 63% at end-2010, to 70.6% end-2011, 77.3% end-2012, and 82.3% at end-2013. The elevated level has probably contributed to BoT’s reluctance to lower rates further on fears of fueling consumer leverage even further. On growth, Prasarn seen growth below 6% in 2015 with the official forecast at 4.8%. For USD-THB, it eased back from the intraday high of 32.55 yesterday to close slightly lower around 32.42. We look for the 32.30-32.70 range near term.