Asia Daily Update

North Asia:
** China: Trade surplus falls sharply in March
** South Korea: BOK forecasts a 1.9% decline in exports for 2015

CHINA: The trade balance for March released yesterday reported a surplus of US$3.08 bn down from a surplus of US$60.6 bn in February and below expectations of a surplus of US$40.1bn. Exports attracted attention, declining by 14.6% YoY following the 48.9% surge in February. The fluctuations in the trade surplus are due to the irregular seasonality of the Lunar New Year holidays. Businesses shut for a long period during the Lunar New Year holidays, with orders rushed before the holidays after which factories run idle. Exports lag imports due to the nature of processing trade, causing big shifts in the trade balance. Still, the three-month moving average is US$41 bn up from US$5.8bn last year and is historically relative high, off the peak of US$56bn in February. We be-lieve China’s trade surplus will continue to trend widen this year on the back of a domestic slowdown and a US economic recovery. The PBoC set a higher USD-CNY fix today at 6.13950 up from 6.1370 on Friday. USD-CNY spot is trading higher at 6.2146 up from 6.2087 on Friday. We think USD-CNY will trade with an upward bias as the Fed contemplates lifting interest rates and as the PBoC runs looser monetary policy.

Q1 GDP is due on Wednesday and consensus is for 7.0% YoY, down from 7.3% in Q4. Such a result would be consistent with our relatively bearish forecast for 6.5% over 2015. Monthly activity data for March such as retail sales, fixed asset investment and industrial production are also due.

SOUTH KOREA: The Bank of Korea yesterday forecast that exports in 2015 would decline by 1.9% to US$562b. Exports have already declined by 4.2% YoY in the first quarter of this year. The forecast comes after a downward revision to its GDP and inflation forecasts to 3.1% and 0.9% last week.

South/Southeast Asia:
** India: Former Finance Minister Chidambaram calls for further rate cuts
** Singapore: MAS left everything unchanged; USD-SGD dipped to 1.3640
** Indonesia: BI to leave rates unchanged at 7.50% today

INDIA: March inflation released yesterday came in slightly lower than expected yesterday at 5.2% y/y (market: 5.4%) from 5.4% in February. This is still well within RBI’s target of below 6% by January 2016. The medium term target is 4% +/-2%. With inflation moderating and the government taking steps to open up the economy to FDI in more sectors and containing the fiscal deficit, we see it as a conducive environment for RBI to lower rates further this year. We look for another 75bp of rate cut this year to 6.75%. We get March WPI inflation today which is expected to remain in negative territory at -2.2% y/y from -2.1% previously. We should also get the March trade numbers sometime this week.

- In other news, former Finance Minister Chidambaram reiterated the preference from the current government for even lower rates. He said ‘growth was sluggish, but it has recovered, and one must ensure that the recovery is sustainable’. On the February Union Budget, he said it was a ‘workman-like budget’ as opposed to one that laid the foundations for triggering a period of high growth. In calling for lower rates, he said this will help to revive investment as the ‘recovery will fizzle out if new investments don’t take place’. For USD-INR, it closed slightly higher yesterday at 62.51 from the 62.32 level but still largely within the 61-63 consolidation range.

SINGAPORE: In today’s policy statement, MAS kept everything unchanged. There was no change to slope, bandwidth, centre of the SGD NEER, and it maintained the ‘gradual and modest appreciation’ bias for the SGD NEER. The market was split 50/50 going into the meeting for some sort of policy easing given the drop in inflation due to lower oil prices and signs of cooling in the domestic economy, namely the property sector.

- On the SGD NEER, MAS noted that:
“Since the Monetary Policy Statement (MPS) in January, the SGD NEER has fluctuated within the lower half of the policy band. It depreciated over February to mid-March amid the broad-based strength of the USD. More recently, the SGD NEER has strengthened.”

- On inflation, MAS kept the headline and core CPI inflation forecasts for 2015 unchanged at -0.5 to 0.5% and 0.5-1.5% respectively. For 2015 growth, it still sees 2-4% expansion. The advance Q1 GDP came in slightly firmer than expected at 2.1% y/y and unchanged from Q4 vs consensus sof 1.7%. On an q/q annualized basis, it was firmer at 1.1% vs consensus of 0.2%.

- Overall, it is seen as a surprise with USD-SGD falling to 1.3650 from the 1.3730 level before the announcement. However, with inflation expected to remain subdued and growth seen around the middle or lower half of the 2-4% forecast, our bias remains to the upside longer out. We have a target of 1.42 by year-end and still prefer to buy on dips for USD-SGD.

INDONESIA: Bank Indonesia (BI) is widely expected to leave rates unchanged at 7.50% once again today. Inflation has moderated to around the 6.4% y/y level in February-March after spiking to 8.4% in December 2014 after the fuel hikes. The sharp plunge in oil prices has helped to curtail inflation. However, this is unlikely to spur BI to lower rates anytime soon despite sluggish growth of around 5% as well. The main reason is due to the potential fallout on IDR. After BI cut rates by 25bp in February, USD-IDR has gained nearly 4% since the start of February. In Q1 2015, IDR was the 2nd weakest Asian currency vs USD, it lost 5.3% behind MYR which fell 5.6%. BI’s FX reserves fell by USD nearly USD4bn in March to USD111.6bn from USD115.5bn at the end of February on reports of BI intervention to help defend the currency. We expect BI to focus on FX stability near term with continued efforts to contain the upside under the recent high of just under 13,300.