Asia Daily Update

North Asia:
** China: A further move on interest rate liberalization, more lenders allowed to issue CDs
** South Korea: A bounce in June industrial production

CHINA: PBoC yesterday approved 93 more lenders to issue certificates of deposits (CDs) to individuals and corporates. This brings the total number of approved lenders to 102 following the first batch of approvals last month. The expansion should promote the use of the floating Shanghai Interbank Offered Rate (SHIBOR), PBoC’s benchmark interest rate. The CDs are priced to SHIBOR. Currently, PBoC sets the one-year deposit and one-year lending rates which are at 2% and 4.85% respectively. Expectations are for PBoC to fully remove its deposit rate ceiling of 1.5 times the prevailing benchmark deposit rate. In effect, the latest move brings China a step closer towards completing its interest rate liberalization process. This could provide a bit more support for CNY inclusion in IMF’s SDR basket. For USD-CNY, it continued to hold steady yesterday around the 6.21 level.

SOUTH KOREA: June’s industrial production released this morning rose for the first time in three months. It gained 1.2% y/y vs -3.0% in May and above expectations of -2%. On a 3mma basis, it contracted at a slower pace of -1.1% y/y vs -1.3% in May. We get a better picture of the economic conditions when trade and inflation figures are released in the coming days. For USD-KRW, it gained 0.8% yesterday to 1,168 and opened higher to 1,170 this morning. We see the upside bias remaining intact near term.

Southeast Asia:
**Singapore: Employment growth slows but unemployment rate stays low at 2%
** Singapore: SGD NEER at -0.4% vs mid-point as USD-SGD climbs to 1.3750

SINGAPORE: Q2 employment growth released yesterday were consistent with the moderation seen in the broader economic growth. Total employment grew 15.7k from -6.1k in Q1 but lower than the +27.7k a year ago. On a sector basis, services (around 70% of employment) added 11.4k vs +25k last year, construction added 7.8k vs 4.4k a year ago, while manufacturing jobs fell by 3.5k vs -2.1k a year ago. The unemployment rate however stayed at a multi-year low of 2% from 1.8% in Q1 and unchanged compared to a year ago.

- The final Q2 GDP report should be released after the 50th National Day celebrations on 9 August. It may not differ that much from the preliminary release of 1.7% y/y given that June industrial production of -4.4% is not that far away from the average for April-May of -5.1%. The swing factor is likely to come from the services sector. Overall however, given a modest growth of 2.2% in H1, we could see the government narrow its full year growth range to 2-3% from 2-4% currently.

- For USD-SGD, it picked up steadily yesterday to 1.3750 from 1.3690. On a SGD NEER basis, we estimate it is at -0.4% vs the mid-point for USD-SGD at 1.3750, USD-MYR at 3.8190, and USD-CNY at 6.2100. The +/-2% range around the mid-point is estimated at 1.3420-1.3970, ceteris paribus.