Quarterly Global Outlook Q3 2019 Navigating trade cross-currents CONTENT

04 EXECUTIVE SUMMARY CHINA � 32 Navigating Trade Cross-Currents HONG KONG � 33

10 INDIA � 34 FX, INTEREST RATE & COMMODITIES FORECASTS INDONESIA � 35

11 JAPAN � 36 ASEAN FOCUS I Signs Of Rising FDI Into ASEAN MALAYSIA � 37 With Vietnam The Top Beneficiary MYANMAR � 38

14 PHILIPPINES � 39 ASEAN FOCUS II Demographic Dividends SINGAPORE � 40 For A Growing Population SOUTH KOREA � 41

19 TAIWAN � 42 INDONESIA FOCUS Breathing Life Into Indonesia’s Manufacturing Exports THAILAND � 43 VIETNAM � 44

21 FX STRATEGY AUSTRALIA � 45 Tug Of War Between Dovish FED And Rising Global Trade Tensions EUROZONE � 46

NEW ZEALAND � 47 25 RATES STRATEGY UNITED KINGDOM � 48 The Broader Rates Environment During A FED Easing Cycle UNITED STATES OF AMERICA � 49

28 FX TECHNICALS � 50 COMMODITIES STRATEGY Gold Outperforms In A Difficult COMMODITIES TECHNICALS � 55 Macro Environment For Commodities

Information as of 21 June 2019

[email protected] www.uob.com.sg/research Bloomberg: UOBR

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U.S. Recession Probability - Is The Recession Finally Upon US?

Source: Bloomberg, UOB Global Economics & Markets Research

Possible Scenarios For The Trade Tensions

Implication On FX and China’s Monetary Scenarios Probability Policy BEST CASE Trade Truce post-G20 10% USD/CNY pulls back to 6.70

Negotiations result in eventual removal of most One or no further RRR cut for the rest of additional tariffs imposed by both countries the year

BASE CASE Trade Truce post-G20 60% USD/CNY drifts higher to 7.10

Uncertainties remain and a breakdown in talks may Maintain our call for two more broad- still occur during the negotiations. Any agreement based RRR cuts this year. may not remove most existing additional tariffs

WORST No agreement on trade truce at G20 30% USD/CNY threatens to trade above 7.30 CASE US makes good on its threat to impose tariff of Two more broad-based RRR cuts this 25% on additional US$325bn of Chinese exports year and at least one time cut to the to the US which are currently not subject to benchmark 1-year lending rate additional tariff. This brings all China’s exports to US (US$540bn in 2018) under additional tariff. Retaliations may involve restrictions on technology transfer and other measures

Source: UOB Global Economics & Markets Research

Taking stock of 2019 so far, growth numbers softened. June’s US recession probability global trade & investment outlook while while weaker for some economies, did (as measured by New York Fed) has now the calls for more central bank action have not turn out as bad as initially feared. touched 30%, implying the likelihood of a grown louder. WTO downgraded global For developed economies like the US US recession by May 2020. International merchandise trade growth lower to 2.6% in and Japan, 1Q growth beat expectations organizations like IMF and World Bank 2019, the slowest since the global financial although the growth drivers were of the have been downgrading global growth crisis. In short, the outlook is gloomier and “unhealthy” type (import decline and forecasts due to growing trade policy the world needs central banks to come to inventory buildup) and consumer spending uncertainties which have weakened the the rescue.

Quarterly Global Outlook 3Q2019 04 UOB Global Economics & Markets Research EXECUTIVE SUMMARY US-led trade policies against China But if talks break down, then the risk of an Rates Strategy and its major trading partners/allies all-out trade war will look imminent. We The Rates Tide Is continue to be the focus of the markets see that probability at 30%, a significant Slowly Turning Lower and are singled out as the key factor risk. Given the escalating global trade tensions responsible for exacerbating the global and resultant growth and inflation growth slowdown. US President Donald Central banks to the rescue again? slowdown, we now expect the US Federal Trump has found his calling or his weapon Needless to say, normalization of easy Reserve to cut twice in Sep and Dec, of choice: trade tariffs. It can be used for monetary policy among the major central bringing Federal Funds Rate down from any occasion and almost any reason: from banks is nearly (or already) out of the the current level of 2.5% to 2.0% by the the US-China trade conflict to stemming window, and there is growing expectations end of this year. As such, the 3 month USD illegal immigration on the US southern that everyone will re-join the easing Libor rate will also drop from about 2.40% border. (We remain wary of the risk that bandwagon soon. The US Federal now to 1.95% by the end of this year. US may still slap auto tariffs against Reserve in its latest June FOMC signaled major car producing countries before the clearly that it will cut rates soon, possibly However, in Singapore, local rates may end of 2019.) But trade is only the tip of in Sep or earlier in July. In the face of prove to be sticky and not drop by the the “iceberg” of issues between US and rising global risks, we think the BOJ will same magnitude as the US rate cuts. This China. It is also about rivalry in technology, ease monetary policy further via buying is simply because the weaker external intellectual property rights, industrial more JGBs to push its bond buying closer environment and export contraction may practices, the CNY policies, geopolitics, to the JPY80trn annual pace. A defiantly trigger further Singapore Dollar weakness and more. So is it all doom and gloom dovish ECB President Draghi could in the months ahead, thereby giving local between US and China? Perhaps not, signal another big boy joining the easing rates some support. Overall, we expect especially now with the confirmation that bandwagon, possibly his final act before both 3 month SOR and 3 month Sibor President Trump will have an “extended” exiting ECB in Oct. Several major Asia- to drift lower from their current levels of meeting with Chinese President Xi Jinping Pacific central banks have already cut around 2% to 1.95% by end of this year. at the G20 Leaders’ summit in Japan policy interest rates and could do more in In the back end, the 10 year US Treasury (28/29 Jun). 2H while PBOC will also implement more yield will drop to 1.9% by 4Q19, pulling 10 easing measures if the trade conflict with year SGS lower to 1.8%. Consequently, We are not expecting US-China trade the US continue to takes its toll on growth. as renewed monetary policy easing take relations to suddenly become hunky- shape, yield curves may steepen anew dory, but we do see the prospect of Beyond the already well-telegraphed trade and SG yields will continue to converge another ceasefire outcome following conflict, another risk is the re-emerging with US yields. the G20 meeting in Osaka, much like geopolitical tensions in the Middle East last December’s G20 in Argentina. But following the oil tanker attacks in the Gulf ______the stakes are much higher now, as the of Oman in early June. While we do not prospect of all Chinese goods to US being expect a full-blown war to erupt in Middle FX Strategy put on tariffs should the trade tensions East in 2H 2019, any miscalculation Tug Of War Between Dovish FED escalate further post-G20. Our base leading to even a limited conflict could still And Rising Global Trade Tensions case (at 60% probability) is that the trade have an outsized spike in crude oil prices. Picking the top in the USD simply because negotiation will be long-drawn, well into And in the UK, the Conservative Party the US Federal Reserve is about to cut 2H 2019 before some resolution. A trade is close to choosing a new leader and rates has been a hazardous affair. In deal between the world’s two biggest Prime Minister. Boris Johnson remains the Majors FX space, irrespective of the economies if concluded will certainly be the frontrunner and could be the one to upcoming FED rate cuts that are well cheered by the global economy but we lead UK out of EU without a deal, as the priced in, the USD maintained its strength. believe a comprehensive agreement 31 Oct deadline looms. Back in the US, This is mainly because other leading (covering trade, technology, FX and lawmakers will scrabble to resolve the central banks like the European Central everything US is asking for) is unlikely Budget appropriations and the US debt Bank (ECB) and Reserve Bank of Australia to be reached this year. We anticipate ceiling limit to avoid another government (RBA) have made it very clear that they a partial agreement on trade with shutdown and an unprecedented US are on renewed aggressive monetary enforcement measures could be feasible default. But brinkmanship is now the policy easing path. As such, both the EUR while the rest of the most difficult structural norm in US politics and we may have and AUD remain depressed over the near issues including intellectual property to brace for fireworks in Sep/Oct. But term. protection, technology transfer and other lest one gets overly pessimistic about issues, could take years to resolve to trade developments; ASEAN is seeing Elsewhere in Asia FX, intensifying growth the satisfaction of both sides. Trump has signs of rising FDI inflows as businesses slowdown and export contraction have started his 2020 re-election campaign manage trade uncertainties by diversifying kept the RMB and most Asian currencies and while he does not necessarily need a production bases and expanding market on the defensive. In particular, unless good trade deal immediately in June, he reach to other countries and ASEAN fits there is truly a positive and substantial cannot afford to be seen by his supporters well into this risk diversification strategy. breakthrough in the upcoming Osaka that he is accepting a sub-par China trade talks between the US and China, the RMB agreement. looks set to weaken past 7.0 against the

Quarterly Global Outlook 3Q2019 EXECUTIVE SUMMARY UOB Global Economics & Markets Research 05 USD. We have been down the path before above USD1,400 / oz, we see gold rallying further improvement in its manufacturing when Trump drums up expectations further to USD 1,500 / oz by mid-2020. exports is indeed necessary, but it has yet before a summit, only to walk away with to step up to the challenge and one of the little progress. In Singapore, given the Hereafter is a brief synopsis of key Focus key reasons for the stagnant performance weaker growth and softer inflation mix, the pieces as well as key FX and Rates views. was that Indonesia’s manufacture SGD will likely weaken past 1.4 against exports are too focused on resource- the USD as well. In particular, it is worth based manufactured products. Thus, noting that despite the increasing external ASEAN Focus I in order to breathe life into Indonesia’s challenges, the S$NEER remains rich on a Signs Of Rising FDI Into ASEAN export industry, the country needs to trade weighted basis. Amidst the on-going With Vietnam The Top Beneficiary embark on multi-pronged approaches USD strength amongst both the Majors FDI flows into several ASEAN countries including identifying its areas of absolute/ and Asian FX, the JPY stands out due to especially Vietnam, Indonesia, Thailand competitive advantages, focusing its renewed safe haven demand. Lower and Malaysia have increased since US- investments with high local raw materials US Treasuries yield also helped the JPY China tensions first intensified in 2018. inputs, and forming strategic partnerships fight back against the USD. As such, we with the private sectors. drop our USD/JPY forecast to 106 by end It appears that Vietnam has benefited 2019 versus 113 in our previous quarterly from higher export orders from the US, ______forecast. while Malaysia, Thailand and Singapore have also benefited from higher export GLOBAL FX ______demand from China. Although Malaysia’s USD/JPY: In-line with our expectations economic fundamentals remain strong of lower 10-yr US Treasury yields going Commodities Strategy and ranks higher than most regional peers forward (1.90% at end-2019), downside Gold Outperforms In A in terms of competitiveness and ease in USD/JPY would probably continue. Difficult Macro Environment of doing business, we noted that other Overall, we have updated our forecasts At the half way point of 2019, it is clear countries particularly Vietnam, Indonesia to 108 in 3Q19, 106 in 4Q19 and 105 for to global investors that the global and Thailand are fast catching up. Based 1Q20 and 2Q20. On the downside, support macroeconomic backdrop has taken a on the heat map to assess the competitive for the USD/JPY pair could come in the turn for the worse as US-China trade talks advantages of the five key developing form of BOJ reasserting its easy monetary broke down in May. As such, global growth ASEAN members, Vietnam is the top policy and bring the pace of JGB buying related commodities like 3M LME Copper beneficiary, placed at pole position. closer to its official target of JPY80tn. and Brent Crude oil continued to face selling pressure. In particular, 3M LME ______EUR/USD: Going forth, the tug-of-war Copper succumbed to the latest round between the ECB and Fed on the degree of higher tariffs between US and China, ASEAN Focus II of dovishness would be key for EUR/USD. falling from USD 6,500 / MT in late April Demographic Dividends For now, we expect 50bps of rate cuts to USD 5,800 / MT in early June. We turn For A Growing Population from the Fed in 2H19 while the ECB is only negative on Copper and now see further Using a series of charts and infographics, cutting by 10bps if data out of the Euro- weakness to USD 5,200 / MT by 3Q20. we highlight the demographic trends in area continues to deteriorate. As such, the Brent crude oil also corrected across ASEAN. As a bloc, ASEAN is expected to interest rate gap between Euro-area and 2Q, from USD 75 / bbl to USD 60 / bbl. reap demographic dividends for the next US should continue to narrow (as it had At the moment of writing, both OPEC and few decades ahead, but some countries since Nov), giving EUR/USD a modest Russia remain undecided as to whether within the region are greying faster support. On balance, we remain positive they will extend their production cuts. than others, and that presents different on EUR/USD but the resulting trajectory However, with geopolitical risks swirling opportunities and challenges to each is shallower than that of in the previous in the background, it is likely that USD ASEAN member country. quarterly report where we envisaged a 60 / bbl will provide ample support on the hawkish ECB. Our point forecasts are 1.12 downside. As such, we see Brent Crude ______in 3Q19 and 4Q19, 1.14 in 1Q20 and 1.16 Oil gyrating around USD 60 to 70 / bbl, in 2Q20. whipsawing in-between fears of global Indonesia Focus growth slowdown and rising middle east Breathing Life Into GBP/USD: Odds of a no-deal Brexit have risks. As such, Gold remains our key Indonesia’s Manufacturing Exports also risen on increasing prospects of Boris conviction call as it is a clear beneficiary of Indonesia’s exports grew significantly Johnson, a hardline Brexiter being voted renewed monetary policy easing from not and consistently from 2003 to 2011, by the Conservatives to be the next PM. just the US Federal Reserve but other key underpinned by the global commodity Consequently, markets are aggressively central banks like European Central Bank price boom. Since 2011, however, exports rebuilding short GBP/USD positions since and Reserve Bank of Australia. Upcoming slumped, driven by sharp declines in mid-May, putting pressure on spot. As with rate cuts and lower bond yields are key global commodity prices and subsequently the previous quarterly report, we maintain positive drivers for gold. Global central reduced Indonesia’s commodity export our cautious near term view on the GBP/ bank allocation and ETF buying provide a revenues. The end of the commodities USD, below 1.30 in the immediate two further boost for gold. Gold has now traded boom has made Indonesia realize that quarters. In terms of point forecasts, we

Quarterly Global Outlook 3Q2019 06 UOB Global Economics & Markets Research EXECUTIVE SUMMARY see GBP/USD at 1.25 in 3Q19, 1.28 in and 2Q20, we maintain our expectations USD/PHP: Our expectations for further 4Q19, and 1.30 in both 1Q20 and 2Q20. of 7.80. policy rate cuts in 2H19 together with the persistent twin deficits continue to put AUD/USD: The specter of more RBA rate USD/TWD: Though the weakness of TWD pressure on the PHP. Overall, we foresee cuts together with escalating US-China is expected to persist, the pressure on a further 3.6% depreciation of the PHP trade tensions will continue to weigh on the domestic currency is not as intense against the USD in the next 4 quarters. the AUD. As such, it is likely that AUD/ compared to other regional peers as Our point forecasts for USD/PHP are USD will trade heavily around 0.69 for the markets have not priced in aggressive 53.00 for 3Q19, 53.50 for 4Q19, and 54.00 immediate 3Q19 and in 4Q19. However, interest rate cuts by CBC. In all, we for both 1Q20 and 2Q20. we reiterate our longer term view that once maintain a moderate upward trajectory for the USD turns against the Majors, the USD/TWD for the next few quarters, with USD/VND: We continue to reiterate a AUD will also find some form of support. point forecasts at 31.70 at 3Q19, 32.00 at modestly higher USD/VND trajectory, with As such we maintain a modest upwards 4Q19, and 32.40 for both 1Q20 and 2Q20. point forecasts at 23,600 in 3Q19, 23,800 trajectory in AUD/USD starting next year, in 4Q19, and 24,000 in 1Q20 and 2Q20. looking at forecasts of 0.70 and 0.72 for USD/KRW: As uncertainties in global 1Q20 and 2Q20 respectively. trade protectionism are expected to stay USD/MMK: Going forward, we still expect elevated, pressure on the KRW would the MMK to remain under pressure from NZD/USD: Similar to its antipodean peer likely persist. The key 1,200 level in USD/ a persistent current account deficit which (AUD), the NZD will continue to face KRW would eventually give way as USD/ will widen from 5.3% of GDP in 2018 to pressure from further rate cuts. As such, CNY trades above 7.0 by early 2020. Our 5.7% in 2019 and 5.9% in 2020. As such, it is likely that NZD/USD will stay weak at point forecasts for USD/KRW are at 1,200 USD/MMK is forecast to be at 1,540 in around 0.65 for the immediate 3Q19 and in at 3Q19, 1,210 at 4Q19, and 1,230 for 3Q19, 1,550 in 4Q19, and 1,570 in 1Q20 4Q19. Further out, we maintain a modest both 1Q20 and 2Q20. and 2Q20. upwards trajectory in NZD/USD starting next year, looking at forecasts of 0.66 and USD/MYR: In line with CNY weakening USD/INR: With the weak outlook for 0.68 for 1Q20 and 2Q20 respectively. beyond 7.0 against the USD in early India’s growth and inflation together with 2020, our USD/MYR point forecasts are trade related uncertainties, it is likely that 4.22 in 3Q19, 4.25 in 4Q19, and 4.29 the INR will trade softer against the USD ASIAN FX in both 1Q20 and 2Q20. Other factors going forth. However, losses in INR may be USD/CNY: The challenges of reaching underpinning MYR weakness include cushioned by the passing of the elections- a trade deal together with the recent moderating domestic economy, weaker related risks, continued inflows to India’s weakness in China’s macroeconomic energy prices and dovish BNM. equities and bonds markets, and lower oil data means that monetary policy in China prices. Overall, we maintain a moderately would stay accommodative, putting USD/IDR: Overall, we still foresee the higher bias in USD/INR, expecting the pressure on the CNY. Overall, we expect IDR to weaken against the USD, albeit currency pair at 70.00 in 3Q19, 70.50 in a measured up move in USD/CNY going at a moderate pace. Our point estimates 4Q19, and 70.90 in both 1Q20 and 2Q20. forth, eventually beyond the 7.00 handle are 14,500 for 3Q19, 14,600 for 4Q19 and by early 2020. Our point forecasts are 14,800 for both 1Q20 and 2Q20. Should ______6.95, 6.99, 7.10 and 7.10 respectively for BI brings forward its rate cut or cuts rates the next 4 quarters starting 3Q19. further in 2020, this may lend upside GLOBAL INTEREST RATES pressure for our USD/IDR forecasts. FOMC: The FOMC kept its policy Fed USD/SGD: Owning to the rich SGD NEER Funds Target Rate (FFTR) unchanged at at about +1.5% above the policy midpoint USD/THB: Going forth, we are of the view the 2.25%-2.50% range in Jun (2019) as in the context of softer-than-expected core that further gains in THB are unlikely. widely expected, but the key change in the inflation, moderating domestic growth Particularly, 31.0 in USD/THB is a very Fed June FOMC statement is the removal and rising external risks, we see SGD strong support level in the last 2 years. of “patient” and the inclusion to “act as underperforming against most of its trade Also, it is getting clear that Thailand would appropriate to sustain the expansion” partners in 2H19, with the SGD NEER not be spared by slowing global demand which opens the door to Fed rate cuts. expected to retreat to about midpoint by due to increased trade protectionism. From the latest June FOMC Dotplot, the end-2019. Specifically, USD/SGD is likely Thailand’s macroeconomic indicators are bias has clearly shifted to rate cuts as there to stabilize at around 1.37 currently before moderating in a similar fashion as with are now 8 Fed policy makers that expect rallying towards 1.40 by end-2019. its regional peers. Together with markets rate cuts in 2019 (from none previously in gradually unwinding earlier bets of a BoT Mar). We think the Fed will cut rates for USD/HKD: Going forth, the USD/HKD hike in 2H19, the sails of THB may soon two reasons: 1) US trade policy direction & forwards curve is likely to stay flat, reverse and catch up with other Asian developments, and 2) weakening inflation especially with Fed rate cuts in 2H19. This FX weakness. Overall, we see THB expectations, which dwindled to a 40-year is likely to further lessen the appeal of weakening to 32.00 in 3Q19, 32.20 in low. We expect the Fed to cut its FFTR by long USD/HKD trades. As such, we have 4Q19, and 32.50 in 1Q20 and 2Q20. 25bps in Sep, followed by another 25bps lowered forecasts for USD/HKD to 7.83 for cut in Dec, bringing the upper bound 3Q and 4Q19, from 7.85 previously. For 1Q of FFTR to 2.00% by end-2019, which

Quarterly Global Outlook 3Q2019 EXECUTIVE SUMMARY UOB Global Economics & Markets Research 07 matches the Fed’s 2% inflation target. We is because RBA Governor Phillip Lowe MAS: Our base case is for MAS to keep acknowledge the risk that rate cuts could has pointed to an ambitious objective for policy unchanged at its upcoming October be brought forward to the July FOMC. the labour market, with an unemployment MPS meeting, although the risk to “slightly” While we currently do not price in further rate of 4.5% seen as necessary to bring reduce the appreciation of the S$NEER cuts in 2020, we do see the risk of another inflation back to target. This is despite policy band could play out if economic 25bps cut in 1Q 2020 and Fed will leave the RBA’s forecasts indicating a 5.0% conditions and/or market confidence the door open to do more if needed. unemployment rate on the basis of two deteriorate quicker than expected. We rate cuts. note that the slowing economic prospects ECB: In light of ECB President Mario seen since the start of this year has Draghi’s comments at the ECB Forum at RBNZ: We see the RBNZ as “balanced”, brought the level of real output closer to Sintra, Portugal, we now expect the ECB for now, and the rate cut in May as a Singapore’s underlying potential. to review all policy options, including rate pre-emptive move against a further cuts, changes to forward guidance and deterioration in economic conditions. RBI: Policy-makers appeared more asset purchases (i.e., quantitative easing, On the face of better growth numbers in dovish at its latest rhetoric, identifying that QE). At present, the forward guidance the first quarter, the RBNZ may not need domestic economic activity has slowed currently states that rates will “remain at to move as quickly again. The current amid uncertainties in the financial market. their present levels at least through 1H20”. RBNZ's projections of the OCR suggest it As seen from its recent MPC statement, We think this language will be changed is slightly more probable that we see a rate RBI has removed its “neutral” stance and in July to either “at present levels for an cut sometime in the next 12 months. At this replaced it was being “accommodative”, extended period”, which would be less juncture, we are not seeing any change in leading market-watchers to expect further time-contingent, or to “at present levels the OCR over the forecast horizon, but rate cuts into the year ahead. Accounting or lower” to include the possibility of lower note that the risk of another rate cut could for the dovish rhetoric, benign inflation interest rates. From there, we believe still happen if economic fundamentals expectations and slower-than-expected additional QE is the more probable option deteriorate further. growth, we think that RBI could cut rates for the ECB, especially since further by one more time this year likely in its negative rates will lead to potentially BOJ: There is growing expectation that October or December meeting this year. negative consequences for banks in the BOJ will re-join the easing bandwagon terms of profitability, and in turn, lending soon and the increased emphasis of BI: In its June meeting, BI kept its policy conditions. risks from overseas impacting Japan’s rate unchanged and announced it will economy adds further to the easing view. lower bank’s reserve requirements by BOE: As expected, the BoE left the We believe the gap between BOJ’s actual 50bps in July to boost liquidity. And Bank Rate unchanged at 0.75%, whilst bond buying and the official JPY80trn according to BI Governor Perry Warjiyo, maintaining its guidance that rates will target presents an opportunity to increase BI is monitoring global financial market need to move higher if the economy monetary policy easing without changing conditions and the balance of payments continues to evolve on par with the the policy targets. Assume that the Japan and affirmed that “cutting rate is an action Bank’s latest projections. However, it government follows through on its Oct we will take in the future. It is a matter of was clear the MPC is becoming more sale tax, that may be enough to “convince” time and magnitude.” We believe that BI concerned about the possibility of a no the BOJ that the government is keeping has room for rate cuts to support growth deal Brexit. After all, Boris Johnson looks its pledge to fiscal discipline and the BOJ especially if external conditions become set to replace Theresa May as PM, and may “allow” the Ministry of Finance to less volatile (and may result into more he has expressed his willingness to pull issue more debt (JGBs) which the BOJ sustained capital inflows) while, by 4Q19, the UK out of the EU without a deal. The in turn will buy so as to push the central at least 2 of quarterly Balance of Payment more “dovish” tone was reflected in the bank’s JGB buying closer to the policy (BOP) data would be available, which statement and minutes, which softened JPY80trn annual pace. gives more assurance that CAD is more when compared to May, but also against manageable. We keep our BI rate forecast recent more “hawkish” speeches. Overall, to remain unchanged at 6.00% till Q3 2019 the BoE’s “new” gear simply reinforces ASIAN INTEREST RATES before normalization occur in Q4 2019 by our view that until the BoE sees clarity PBoC: The focus will remain on ensuring a cumulative 50bps rate cuts to 5.50%. from Brexit, an imminent move in rates is sufficient credit and market liquidity through However, there is now risk to our view unlikely. cuts to banks’ reserve requirement ratio that the cut may come sooner amidst a (RRR) and via tools such as open market potential Fed rate cut in Q3 2019. We also RBA: The RBA has left the door open operations and the Standing lending facility see a risk that BI may cut rates further in for further action, confirmed by minutes (SLF) and Medium-term lending facility 2020, if the external risks intensify further. to the RBA’s June meeting, that “it was (MLF). However, as PBoC moves towards more likely than not that a further easing market-based interest rates, there will be BOK: The monetary policy stance has in monetary policy would be appropriate less emphasis on benchmark lending and turned more dovish in May where one in the period ahead”, and “developments deposit rates though we still see possibility dissenting BOK monetary policy board in the labour market would be particularly of rate cuts if China’s growth comes under member (out of seven) had voted for a 25 important”. We are expecting another cut in greater pressure. bps rate cut. A rate cut is also supported the official cash rate (OCR) this year. This by subdued domestic inflation. We now

Quarterly Global Outlook 3Q2019 08 UOB Global Economics & Markets Research EXECUTIVE SUMMARY expect the BOK to deliver a 25 bps rate BOT: The Bank of Thailand (BOT) is US Fed striking a more dovish tone, we cut by 4Q19 which will undo their hike in expected to keep the policy rate unchanged project a measured 25bps rate cut each November 2018. The BOK may time any at 1.75% for the rest of this year as the Thai in 3Q19 and 4Q19, bringing the overnight potential rate cut to prevent increasing economy will likely grow more slowly than reverse repo rate to 4.00% by end-2019. downside risk to the KRW. its potential amid uncertainties stemming from the US-China trade tensions. There SBV: The State Bank of Vietnam (SBV) is BNM: Bank Negara Malaysia (BNM) is no urgency to tighten monetary policy, expected to maintain refinancing rate at stays ahead of the curve with a 25bps whilst headline inflation would stay near 6.25% until Jun 2020. At the current policy cut in the Overnight Policy Rate (OPR) to the lower bound of the official inflation rate, the monetary policy stance remains 3.00% in May. This comes amid signs of target range of 1% to 4%. conducive to the continuation of economic slower growth and tightening of financial growth, while preserving financial stability. conditions. Going forward, we projected BSP: The Bangko Sentral ng Pilipinas The strong growth eases pressure on the a flat trajectory for OPR in 2H19. Given a (BSP) is expected to resume its policy SBV to add more stimuli to achieve 2019 muted outlook on Malaysia’s growth and normalisation in 2H19 after keeping rates growth target of 6.7%. inflation, while real interest rates hover on hold in Jun. With Philippine inflation around 2.5%, there is clearly room for expected to continue its downward trend more monetary easing if needed. in 2H19, prolonged trade tensions, and

Real GDP Growth Trajectory

y/y% change 2018 2019F 2020F 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19F 3Q19F 4Q19F

China 6.6 6.3 6.3 6.8 6.7 6.5 6.4 6.4 6.3 6.2 6.2

Eurozone 1.9 1.2 1.3 2.4 2.1 1.7 1.2 1.2 1.1 1.3 1.3

Hong Kong 3.0 2.0 2.3 4.6 3.6 2.8 1.2 0.6 1.9 2.5 2.8

Indonesia 5.3 5.2 5.4 5.1 5.3 5.2 5.3 5.1 5.3 5.2 5.2

Japan 0.8 0.5 -0.8 1.3 1.5 0.1 0.3 0.9 0.1 1.5 -0.5

Malaysia 4.7 4.6 4.7 5.3 4.5 4.4 4.7 4.5 4.6 4.7 4.5

Philippines 6.2 6.2 6.5 6.5 6.2 6.0 6.3 5.6 5.8 6.4 6.8

India 6.8 6.8 7.0 8.0 7.0 6.6 5.8 7.1 8.7 7.8 4.0

Singapore 3.1 2.0 2.0 4.6 4.2 2.6 1.3 1.2 1.0 2.2 3.5

South Korea 2.7 2.2 2.3 2.8 2.9 2.1 2.9 1.7 1.9 2.4 2.7

Taiwan 2.6 2.0 2.3 3.2 3.3 2.4 1.8 1.7 1.7 2.1 2.4

Thailand 4.1 3.5 3.8 5.0 4.7 3.2 3.6 2.8 3.3 3.7 4.0

US (q/q SAAR) 2.9 2.3 1.3 2.2 4.2 3.4 2.2 3.1 1.5 1.2 0.9

Note that India’s annual growth refers to its fiscal year print Source: CEIC, UOB Global Economics & Markets Research

Quarterly Global Outlook 3Q2019 EXECUTIVE SUMMARY UOB Global Economics & Markets Research 09 FX, INTEREST RATE & COMMODITIES FORECASTS

FX 21 Jun 19 3Q19F 4Q19F 1Q20F 2Q20F RATES 21 Jun 19 3Q19F 4Q19F 1Q20F 2Q20F

USD/JPY 107 108 106 105 105 US Fed Funds Rate 2.50 2.25 2.00 2.00 2.00

EUR/USD 1.13 1.12 1.12 1.14 1.16 USD 3M LIBOR 2.39 2.20 1.95 1.95 1.95

GBP/USD 1.27 1.25 1.28 1.30 1.30 US 10Y Treasuries Yield 2.01 2.00 1.90 1.80 1.80 JPY Policy Rate -0.10 -0.10 -0.10 -0.10 -0.10 AUD/USD 0.69 0.69 0.69 0.70 0.72 EUR Refinancing Rate 0.00 0.00 0.00 0.00 0.00 NZD/USD 0.66 0.65 0.65 0.66 0.68 GBP Repo Rate 0.75 0.75 0.75 0.75 0.75 DXY 96.6 97.6 96.8 95.4 94.4 AUD Official Cash Rate 1.25 1.25 1.00 1.00 1.00

USD/CNY 6.85 6.95 6.99 7.10 7.10 NZD Official Cash Rate 1.50 1.50 1.50 1.50 1.50

USD/HKD 7.81 7.83 7.83 7.80 7.80 CNY 1Y Benchmark Lending 4.35 4.35 4.35 4.35 4.35

USD/TWD 31.16 31.70 32.00 32.40 32.40 HKD Base Rate 2.75 2.50 2.25 2.25 2.25

USD/KRW 1,162 1,200 1,210 1,230 1,230 TWD Official Discount Rate 1.38 1.38 1.38 1.38 1.38

USD/PHP 51.65 53.00 53.50 54.00 54.00 KRW Base Rate 1.75 1.75 1.50 1.50 1.50

PHP O/N Reverse Repo 4.50 4.25 4.00 4.00 4.00 USD/MYR 4.15 4.22 4.25 4.29 4.29 SGD 3M SIBOR 2.00 2.00 1.95 1.95 1.95 USD/IDR 14,187 14,500 14,600 14,800 14,800 SGD 3M SOR 1.88 2.00 1.95 1.95 1.95 USD/THB 30.92 32.00 32.20 32.50 32.50 SGD 10Y SGS 1.93 1.90 1.80 1.70 1.70 USD/MMK 1,518 1,540 1,550 1,570 1,570 MYR O/N Policy Rate 3.00 3.00 3.00 3.00 3.00 USD/VND 23,305 23,600 23,800 24,000 24,000 IDR 7D Reverse Repo 6.00 6.00 5.50 5.50 5.50 USD/INR 69.44 70.00 70.50 70.90 70.90 THB 1D Repo 1.75 1.75 1.75 1.75 1.75

USD/SGD 1.36 1.39 1.40 1.41 1.41 VND Refinancing Rate 6.25 6.25 6.25 6.25 6.25

EUR/SGD 1.53 1.56 1.57 1.61 1.64 INR Repo Rate 5.75 5.75 5.50 5.50 5.50

GBP/SGD 1.72 1.74 1.79 1.83 1.83 COMMODITIES 21 Jun 19 3Q19F 4Q19F 1Q20F 2Q20F AUD/SGD 0.94 0.96 0.97 0.99 1.02 Gold (USD/oz) 1,393 1,420 1,450 1,480 1,500 SGD/MYR 3.06 3.04 3.04 3.04 3.04 Brent Crude Oil (USD/bbl) 65 60-70 60-70 60-70 60-70 SGD/CNY 5.05 5.00 4.99 5.04 5.04

JPY/SGDx100 1.26 1.29 1.32 1.34 1.34 LME Copper (USD/mt) 5,973 5,800 5,600 5,400 5,200

Quarterly Global Outlook 3Q2019 10 UOB Global Economics & Markets Research ASEAN FOCUS I Signs Of Rising FDI Into ASEAN With Vietnam The Top Beneficiary

Based on preliminary data, FDI flows into several ASEAN countries especially Vietnam, Indonesia, Thailand and Malaysia have increased since US-China tensions first intensified in 2018. Key ASEAN countries recorded higher FDI flows in 3Q18-4Q18 after the 10% tariffs was imposed on USD200bn worth of Chinese goods exports to the US which took effect on 24 September 2018.

A survey conducted by Bain & Co. showed that 40.7% of 250 US companies have or are in the midst of relocating production out of China, while 60% of 200 US companies are rethinking their supply chains. We think the recent turn of events after trade talks broke down between the US and China in early May (2019) is likely to accelerate business plans to divert and diversify.

Today, Vietnam has the advantages of a large labour force and low wages, similar to China 20-30 years ago. As operating costs in China rose, foreign investors adopted a “China plus one” strategy which is to establish a new, secondary market and production base elsewhere in Asia as an alternative to China. Investors adopting this approach made Vietnam one of their top choices due to the low wages and higher productivity compared to other countries in the region. Also, Vietnam’s shares borders with China, Laos and Cambodia, and its long coastline from north to south, make its geography an ideal location for factories and logistics hubs.

Based on trade flows since 2018, the US has significantly reduced its imported goods from China, with its import share fromChina plunging to a 6-year low of 15.0% in March 2019. The goods were substituted with higher imports from Mexico, EU, Canada, Vietnam, Singapore and Japan. The share of US imports from Malaysia remained steady, averaging 1.5% between January 2018 and March 2019. Similarly, as a result of higher tariffs on imported US goods, China slashed its imports from the US, with its import share from the US dropping to 5.8% in April 2019 from an average of around 8-9% before the trade disputes started. Instead, China raised its imports from Japan, Malaysia, Thailand and Singapore. As such, the share of China’s imports from Malaysia increased to 3.2% in April 2019 from 2.9% in early 2018.

In sum, among ASEAN members, it appears that Vietnam has benefited from higher export orders from the US, while Malaysia, Thailand and Singapore have also benefited from higher export demand from China. Although Malaysia’s economic fundamentals remain strong and ranks higher than most regional peers in terms of competitiveness and ease of doing business, we noted that other countries particularly Vietnam, Indonesia and Thailand are fast catching up. We used a heat map to assess the competitive advantages of the five key developing ASEAN members. Based on the heat map below, countries that have more “green” are deemed more competitive, and that places Vietnam at pole position.

Heat Map Of Key Demographic Statistics And Cost Of Doing Business In ASEAN-5 Members

Indicator (2018/YTD 2019) Indonesia Malaysia Philippines Thailand Vietnam

Population (million persons) 264 32 107* 68* 95*

Labour Force (million persons) 131 16 44 39 54

Median Age (years old) 28 29 24 38 30

Labour Cost (monthly minimum wage, US$) 103 - 258 229 - 249 144 - 288 276 - 295 120 - 173

Labour Productivity Growth (%) 3.8 3.1 4.2 3.0 5.6

Corporate Tax Rate (max, %) 25 24 30 20 20

Average Industrial Electricity Tariff (US$/kWh)* 7.92 8.03 8.36 11.66 7.61

Policy Rate (% p.a.) 6.50 3.00 4.50 1.75 6.25

Ratified CPTPP Non-Signatory Pending Non-Signatory Non-Signatory Yes

Global Competitiveness Ranking 2019 (2018) 32nd (43th) 22nd (22nd) 46th (50th) 25th (30th) n.a.

Footnote: Colour Scale Very Strong Strong Moderate Fairly Weak Weak

* Data as of July 2018 Source: CEIC, ILO, Wikipedia, ASEAN Database, WEF, ESDM, UOB Global Economics & Markets Research

Quarterly Global Outlook 3Q2019 ASEAN FOCUS I UOB Global Economics & Markets Research 11 Overall FDI Inflows Into Developing ASEAN-5 FDI Inflows From US Into Developing ASEAN-4 (Vietnam=1st, Indonesia =2nd , Philippines=3rd) (Thailand=1st, Malaysia=2nd, Vietnam=3rd)

Source: CEIC, UOB Global Economics & Markets Research Source: CEIC, UOB Global Economics & Markets Research Note: Index based on cumulative FDI flows Note: Index based on cumulative FDI flows

Index Index (1Q18=100) (1Q18=100) 1,000 700

600 800 500

600 400

300 400 200

200 100

0 0 1Q18 2Q18 3Q18 4Q18 1Q19 1Q18 2Q18 3Q18 4Q18 1Q19 Malaysia Indonesia Thailand Vietnam Malaysia Indonesia Thailand Vietnam Philippines Note: No data available for Philippines

FDI Inflows From China Into Developing ASEAN-4 FDI Inflows From EU Into Developing ASEAN-4 (Indonesia=1st, Vietnam=2nd, Thailand=3rd) (Indonesia=1st,Vietnam=2nd, Malaysia=3rd)

Source: CEIC, UOB Global Economics & Markets Research Source: CEIC, UOB Global Economics & Markets Research Note: Index based on cumulative FDI flows Note: Index based on cumulative FDI flows

Index Index (1Q18=100) (1Q18=100) 2,000 700

600 1,600 500

1,200 400

800 300 200 400 100

0 0 1Q18 2Q18 3Q18 4Q18 1Q19 1Q18 2Q18 3Q18 4Q18 1Q19 Malaysia Indonesia Thailand Vietnam Malaysia Indonesia Thailand Vietnam Note: No data available for Philippines Note: No data available for Philippines

FDI Inflows From Japan Into Developing ASEAN-4 FDI Inflows From Singapore Into Developing ASEAN-4 (Vietnam=1st, Indonesia=2nd, Thailand=3rd) (Indonesia=1st, Vietnam=2nd,Malaysia=3rd)

Source: CEIC, UOB Global Economics & Markets Research Source: CEIC, UOB Global Economics & Markets Research Note: Index based on cumulative FDI flows Note: Index based on cumulative FDI flows

Index Index (1Q18=100) (1Q18=100) 3,000 1,000

2,500 800

2,000 600 1,500 400 1,000 200 500

0 0 1Q18 2Q18 3Q18 4Q18 1Q19 1Q18 2Q18 3Q18 4Q18 1Q19 Malaysia Indonesia Thailand Vietnam Malaysia Indonesia Thailand Vietnam Note: No data available for Philippines Note: No data available for Philippines

Quarterly Global Outlook 3Q2019 12 UOB Global Economics & Markets Research ASEAN FOCUS I US Imports From ASEAN-5, Indexed US Imports By Source Country (ASEAN-6), % Share

Source: CEIC, UOB Global Economics & Markets Research Source: CEIC, UOB Global Economics & Markets Research

3MMA, Index % Share Of Total (Jan-18=100) US Imports 140 8.0 7.0 130 2.5 6.0 2.0

120 5.0 1.3 1.4 4.0 110 0.9 1.1 3.0 0.5 0.5 100 2.0 1.4 1.6 1.0 90 0.9 0.8 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 0.0 Indonesia Malaysia Philippines Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Thailand Vietnam Threshold Indonesia Malaysia Philippines Singapore Thailand Vietnam

China Imports From ASEAN-6, Indexed China Imports By Source Country (ASEAN-6), % Share

Source: CEIC, UOB Global Economics & Markets Research Source: CEIC, UOB Global Economics & Markets Research

3MMA, Index % Share Of Total (Jan-18=100) China Imports 120 14

110 12 2.4 100 10 3.4 90 2.2 2.3 8 80 1.8 2.0 6 0.9 1.0 70 2.9 4 3.2 60 1.7 1.5 50 2 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 0 Indonesia Malaysia Philippines Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Thailand Vietnam Threshold Singapore Indonesia Malaysia Philippines Singapore Thailand Vietnam

Quarterly Global Outlook 3Q2019 ASEAN FOCUS I UOB Global Economics & Markets Research 13 ASEAN FOCUS II Demographic Dividends For A Growing Population

Demographic dividend can be ASEAN Population

described as economic growth Source: Macrobond (United Nations Data), UOB Global Economics & Markets Research that is attributed to shifts in the age structure of a country's population, when the share of the working-age population is bigger than the non-working-age share. The shifts are usually brought on by fall in fertility and mortality rates. As a bloc, ASEAN is the 3rd most populous, after China and India, and it is still growing. But ASEAN is greying too, facing similar demographic trends in many parts of the world.

In Asia, it is already well known that Maximum Turning Points In Population

Japan’s population has already Source: Macrobond, UOB Global Economics & Markets Research started to decline in early 2010. China’s population is projected to start to shrink by 2029 while the population in India and ASEAN will continue to grow in the next few decades, and only start to shrink after 2060.

ASEAN Population Age 34 & Below (% of total) - As a percentage of the total Still Above 50% In 2030 But Some Places Greying Faster

population, ASEAN’s share of Source: Macrobond, UOB Global Economics & Markets Research population aged 34 and below Age 34 & below % share of total population in respective geographic region has declined between 1998 and 2018, but it is still expected to stay above 50% by 2030. However, some countries within ASEAN and the broader Asian region is expected to age faster.

Quarterly Global Outlook 3Q2019 14 UOB Global Economics & Markets Research ASEAN FOCUS II In terms of absolute numbers for Population Age 34 & Below

the population aged 34 and below, Source: Macrobond, UOB Global Economics & Markets Research ASEAN & India is still expected to hold it together relatively steady in the next decade, but it will drop dramatically in China by 2030.

Population in ASEAN Countries Growing Population

continues to grow and will Source: Macrobond, UOB Global Economics & Markets Research peak in vastly different years. million person 2094 Philippines will likely enjoy demographic dividends for the longest period while it will be least 2070 173.3 2062 favorable for Thailand. 2059 2052 2046 43.7 324.8 115.7 62.4 2027 6.6

69.7

2018

Thailand Singapore Myanmar Vietnam Indonesia Malaysia Philippines 69.2 5.8 53.9 96.5 266.8 32.0 106.5

Looking at the population Population Profile By Median Age

median age, many of the Asian Source: Macrobond, UOB Global Economics & Markets Research countries are very youthful compared to most developed economies. But by 2040, China’s median age will have risen markedly to 47 years while the population in South East Asia will stay below 40 years.

Quarterly Global Outlook 3Q2019 ASEAN FOCUS II UOB Global Economics & Markets Research 15 And while Malaysia’s median Population Profile By Median Age

age is expected to hit 40 years Source: Macrobond, UOB Global Economics & Markets Research (from the current 29 by 2048 2018 2048 years), it is interesting to note that Laos 22 32 Vietnam will reach that milestone Cambodia 24 33 Philippines 24 31

ahead of Malaysia and the median India 27 36 age is expected to be significantly Myanmar 28 37 higher in Singapore and Thailand, Indonesia 28 35 Malaysia 29 40

according to projections. Vietnam 30 41

Brunei 31 44

China 37 48

Australia 37 41

Thailand 38 50

Taiwan 40 52

Singapore 40 52

S.Korea 41 53

0210 030405060

Using GDP per capita as a Nation's Living Standards

guide, living standards is set Source: Macrobond, UOB Global Economics & Markets Research to improve for ASEAN in the GDP per Capita, US Dollar years ahead although there is a widening gap between the emerging economies and high income economies. 80,970

65,106

40,631 37,351 33,786

15,102 15,456 2024 9,949 5,705 3,932 4,188 4,697 1,895 2,264 3,277 2018 1,298 1,509 2,036 2,551 2,720 3,104 3,871 7,187 9,608 10,942 24,971 31,346 32,414 56,352 64,041 Myanmar Cambodia India Vietnam Laos Philippine Indonesia Thailand China Malaysia Taiwan S.Korea Brunei Australia Singapore

A key concern in the era of ageing Population Profile: Old-Age Dependency Ratio

population Is the worsening old Source: Macrobond, UOB Global Economics & Markets Research age dependency ratio (defined as the ratio of population aged 65 and above per 100 of the population aged between 20 and 64 years). Among most ASEAN countries, the ratio has stayed relatively low and stable between 2008 and 2018. While there is an expected rise by 2030, the ratio remains low relative to Japan (above 50 by 2030) and Europe (above 30 in most of Europe by 2030, not shown in chart).

Quarterly Global Outlook 3Q2019 16 UOB Global Economics & Markets Research ASEAN FOCUS II Excluding Singapore, the key Old Age Dependency Ratio – Longer Term Trends For Selected ASEAN Countries.

exception in ASEAN is Thailand Source: Macrobond, UOB Global Economics & Markets Research which will experience a rapid *Working age persons refer to those between 20 and 64 years old. rise in dependency ratio. As an example, an old age dependency ratio of 10 means 10 working

age persons supporting 1 aged 1990 2018 2048 2100 dependent while a ratio of 25 Malaysia 7.5 9.8 22.6 58.4 means just 4 working age persons Philippines 6.9 8.6 15.7 38.1 supporting 1 aged dependent. Indonesia 7.8 8.7 20.8 42.8 Thailand 8.3 16.4 51.5 67.7

Vietnam 12.4 10.8 33.2 60.6

Population Pyramids: ASEAN Population By Age Group

Indonesia (2018: 268 million persons) Philippines (2018: 107 million persons)

Source: Macrobond, UOB Global Economics & Markets Research Source: Macrobond, UOB Global Economics & Markets Research

Vietnam (2018: 95.5 million persons) Thailand (2018: 69.4 million persons)

Source: Macrobond, UOB Global Economics & Markets Research Source: Macrobond, UOB Global Economics & Markets Research

Quarterly Global Outlook 3Q2019 ASEAN FOCUS II UOB Global Economics & Markets Research 17 Malaysia (2018: 31.5 million persons) Singapore (2018: 5.8 million persons)

Source: Macrobond, UOB Global Economics & Markets Research Source: Macrobond, UOB Global Economics & Markets Research

Myanmar (2018: 53.7 million persons) Cambodia (2018: 16.2 million persons)

Source: Macrobond, UOB Global Economics & Markets Research Source: Macrobond, UOB Global Economics & Markets Research

Laos (2018: 7.1 million persons) Brunei (2018: 0.4 million persons)

Source: Macrobond, UOB Global Economics & Markets Research Source: Macrobond, UOB Global Economics & Markets Research

Quarterly Global Outlook 3Q2019 18 UOB Global Economics & Markets Research ASEAN FOCUS II INDONESIA FOCUS Breathing Life Into Indonesia’s Manufacturing Exports

The End Of Indonesia’s Commodity Exports Boom Has World Bank calculations (Fig. 4), Indonesia’s manufacturing share Resulted In Declining Export Revenue Over The Years in global markets stagnated at about 0.6 percent over the past Indonesia’s exports grew significantly and consistently from 2003 15 years. Currently, Indonesia is overshadowed by Vietnam (at to 2011, underpinned by the global commodity price boom (Fig. about 1.5% of global manufacturing market share). Vietnam was 1). The expansion was briefly halted in 2009 during the global hardly present in global manufacturing market in early 1990s while financial crisis but picked up sharply when the commodity price Indonesia stood at 0.4 percent at that time. This increasingly more boom resumed. During those periods, coal has replaced oil-and- competitive environment also indicated that firms are constrained gas as the top export product with China taking over Japan as in their ability to set prices, and thus becoming price takers Indonesia’s main export destination. instead. For that matter, this could potentially result in slower total value growth. Since 2011, however, exports slumped, driven by sharp declines in global commodity prices in which subsequently reduced On the other hand, manufacturers are still concerned about the Indonesia’s commodity export revenues. The slowdown in ease of doing business in Indonesia, particularly about starting China‘s growth rate has also directly resulted in slower demand or formally operate a business, taxation issues, higher labor of Indonesia exports, especially the demand of raw commodities. cost, and lack of transport infrastructure. Indonesia ranks 134 on Moreover, oil-and-gas trade balance has turned into deficit starting business and 112 on paying taxes out of 190 countries. from the long-standing surplus, pressuring the current account Meanwhile, the increase in labor costs across sectors seemed balance into persistent deficit; as the maturing of oil-and-gas to have affected sectoral export value growth to certain extent. fields, insufficient infrastructure investment, and higher domestic Moreover, unreliable infrastructure is costly for exporters and demand have turned Indonesia into a oil-and-gas net importer manufacturers. These factors can lead to difficulties in assessing (Fig. 2). Despite the downturn of commodity prices, mining sector the outcome of business decisions, especially on riskier projects. still distinguished itself as the biggest trade surplus contributor as And as a result, manufacturers tend to delay their investments compared to agriculture and manufacturing sectors. or shorten them in favor of smaller, unsustainable investment projects. Manufacturing Export Has Yet Been Able To Become Solution For The Current Account Deficit Persistence Breathing Life Into Indonesia’s Manufacturing Exports As lower global commodity prices drove Indonesia’s export revenue The end of the commodities boom has made Indonesia realize lower, the current account deficit (CAD) has remained relatively that further improvement in its manufacturing exports is indeed sticky, latest at 2.6 percent of GDP in Q1 2019. The manufacturing necessary. To achieve the sustainable export growth, huge effort sector, which accounted for more than 60% of Indonesia’s total must be taken including identifying certain areas where Indonesia export, has yet been able to emerge as a sustainable solution for may have absolute and/or competitive advantage over other CAD persistence (Fig 3). One of the key factors for the stagnancy country peers , focusing investments with high local raw materials in Indonesia’s manufacture exports is that exports are too focused which target foreign markets. A strategic partnership with the on resource-based manufactured products. Palm-oil and rubber, private sector is also important; as this could enable Indonesia to for example, are the 2nd and 4th biggest exports from Indonesia; not only improve the manufacturing export sector, but also help to accounting for about 18% of Indonesia’s total manufacturing reduce knowledge and skills gaps (i.e. via knowledge and skills exports. Therefore, the fall of commodity prices is has directly led transfer) and undertake research and development – targeting to the decline of manufacturing exports value. Moreover, despite promising sectors (See Macro Note – Indonesia: Reigniting Public the rising exports demand from China, India, and other countries in Private Partnership (PPP) In Indonesia For Sustainable Growth). the past, most of those demand were unprocessed commodities, Finally, continued policy reform for the promising sector in trade, which suggests a weak link between Indonesia’s manufacturing investment, and labor related by the government, as well as and commodities sectors. This is exactly the sector that Indonesia proper implementation by all related stakeholders, could support needs to put more attention in reforming the most. According to the country’s international competitiveness.

Quarterly Global Outlook 3Q2019 INDONESIA FOCUS UOB Global Economics & Markets Research 19 Fig 1. Indonesia Trade Balance (USD bn) Fig 2. Oil & Gas Trade Balance (USD bn)

Source: Central Bureau of Statistics, Bloomberg, UOB Global Economics & Markets Research Source: Central Bureau of Statistics, Bloomberg, UOB Global Economics & Markets Research

20.0 6.0 1.0

16.0 4.0 0.5

12.0 2.0 0.0

-0.5 8.0 0.0

-1.0 4.0 -2.0

-1.5 0.0 -4.0 2001 2004 2007 2010 2013 2016 2019 -2.0 Trade Balance (RHS) Export Import 2001 2004 2007 2010 2013 2016 2019

Fig 3. Non-Oil & Gas Trade Balance (USD bn) Fig 4. Global Manufacturing Market Share (percent)

Source: Central Bureau of Statistics, Bloomberg, UOB Global Economics & Markets Research Source: World Bank, UOB Global Economics & Markets Research

40 2.5 20

30 2.0 16 20

10 1.5 12

0 1.0 8

-10 0.5 4 -20

-30 0.0 0 2010 2012 2014 2016 2018 1990 1995 2000 2005 2010 2015 Agricultural Manufacture Mining Indonesia Vietnam Malaysia China (RHS)

Quarterly Global Outlook 3Q2019 20 UOB Global Economics & Markets Research INDONESIA FOCUS FX STRATEGY Tug Of War Between Dovish FED And Rising Global Trade Tensions

Volatility returned to the FX markets in 2Q after a quiet 1Q. The weighted volatility on the Asia Dollar Index (ADXY) surged from a Chart 1: Asia FX Volatility Spiked In May As Trade Tensions Escalated

55-month low of 4.2% on 12-April to a high of 5.6% a month later. Source: Bloomberg, UOB Global Economics & Markets Research Asian FX weakened anew in May, led by the CNY after US-China trade talks broke down and tariffs on USD 200 bn of China goods 6.5 were increased from 10% to 25%. Since early May, the CNY has weakened against the USD from 6.70 to 6.93, weighing on most 6.0 Asian FX against the USD. Some Asian central banks have also commenced (BNM, BSP) or furthered (RBI) rate cuts to cushion 5.5 their respective economies against growth slowdown from trade headwinds. 5.0

Apart from the escalation in US-China trade tensions, the abrupt 4.5 pricing for Fed rate cuts both for 2019 and 2020 is a strong feature of 2Q. Now, it is getting clearer that the US economy would not be 4.0 spared from the intensifying global growth slowdown. The latest Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 disappointment in non-farm payrolls in May (75k vs 185k expected) ADXY's weighted 3-mth ATM vols added to a growing list of negative data surprises in the US. The Fed has also shifted in June their rhetoric from that of “patient” in the next direction of rates to that of acting “as appropriate” to Chart 2: Pricings For Fed Rate Cuts Accelerated Across 2Q sustain the economic expansion. Now, Fed fund futures have fully Source: Bloomberg, UOB Global Economics & Markets Research priced in a total of 2 rate cuts (of 25bp each) by end-2019 and 25 one more by June 2020. As a result of the repricing, the US Dollar Index (DXY) is now showing clearer signs of a sustained move lower. 0

Forwards Still “Cheap” To Hedge -25 For Eventual 7.00 In USD/CNY In our FX and Rates Monthly published 30-May, we have updated -50 our FX forecasts and now see CNY weakening past 7.00 against the USD in early 2020, to 7.10 in 1Q20 and 2Q20. This is in-line -75 with our base case (with 60% probability) that US and China will be locked into a protracted repeat of trade talks till the end of the -100 year. In addition, there is increasing risk of an all-out trade war Jan Feb Mar Apr May Jun Change in Fed rates by Dec 2019 (bps) (with a 30% probability) in which the US ramps up tariffs further Change in Fed rates by Jun 2020 (bps) to include the remaining amount of China’s exports to US worth around USD 300 bn. Chart 3: China's Macroeconomic Indicators Weakened Anew

Domestically, China’s high frequency macroeconomic data had Source: Bloomberg, UOB Global Economics & Markets Research started to fall noticeably across April-May after a brief rebound in 12 53 March. Indicators of China’s GDP such as industrial production and retail sales slumped towards recent lows while manufacturing 11 52 PMI double dipped into contractionary territory. Also, our base 10 case forecast of 6.3% for China’s GDP this year is at risk of further 51 downgrade below 6.0% in the event of an all-out trade war. 9

8 In early June, People’s Bank of China (PBoC) Governor Yi Gang 50 said no “numerical number” is more important than another when 7 49 asked if there is a red line for the exchange rate. This seems to 6 allude that authorities may tolerate a move beyond 7.00 in USD/ CNY if the trade conflict drags further and weighs further on the 5 48 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 domestic economy. At the same time, the PBoC has at its disposal Industrial production (y/y, %) Retail Sales (y/y, %) a wide array of tools to smooth volatility in CNY should it arises. Manufacturing PMI (RHS)

Quarterly Global Outlook 3Q2019 FX STRATEGY UOB Global Economics & Markets Research 21 These tools range from the counter cyclical factor for daily USD/ Chart 4: Forwards Are Still "Cheap" CNY fixing, various macro-prudential measures against CNY Given The Deepening US-China Trade Conflict

speculation and finally, the still substantial FX reserves of USD Source: Bloomberg, UOB Global Economics & Markets Research 3 trn. 7.15

Overall, we expect a measured up move in USD/CNY going forth. 7.10 Our point forecasts are 6.95, 6.99, 7.10 and 7.10 respectively for

the next 4 quarters starting 3Q19. With USD/CNY and USD/CNH 7.05 forwards still below 7.00 across the forecast horizon, one with

future USD requirements may find value at current levels. 7.00

Asian FX Still Biased Lower 6.95 In the latest phase of the US-China trade conflict starting 6-May, most Asian FX weakened anew against the USD as intensifying 6.90 trade headwinds weighed further on regional economies. As 3Q19 4Q19 1Q20 2Q20 expected, Philippines (BSP) and India (RBI) both cut 50bps across USD/CNY forecast (UOB) USD/CNY forwards (as at 10-Jun) 2Q while Malaysia (BNM) cut 25bps in a bid to support growth USD/CNH forwards (as at 10-Jun) amid growing uncertainties both domestically and externally. Going forth, we expect rate cuts from Philippines (BSP, -50bps), Indonesia (BI, -50bps), India (RBI, -25bps) and South Korea (BOK, -25bps) in 2H19 while removing our expectation of a rate hike from Thailand (BOT).

Similar to the first phase of the US-China trade conflict (Jun – Sep 2018), it is likely Asia FX would follow the broad direction of the CNY and underperform against the USD. The brief stability of Asian FX in June due to the sudden jolt of Fed repricing against the USD would eventually give way to the stronger regional influence CNY has on its Asian peers just as the CNY weakened towards 7.00.

In all, we see most Asian FX pairs weaken further by 1% to 2.7% against the USD from current levels (as at 10-Jun) till end 2019. Owning to the rich SGD Nominal Effective Exchange Rate (NEER) at about +1.5% above the policy midpoint in the context of falling core inflation and rising external risks, we see SGD underperforming against most of its trade partners in 2H19, with the SGD NEER expected to retreat to about midpoint by end-2019. Specifically, USD/SGD is likely to stabilize at around 1.36 currently before rallying towards 1.40 by end-2019.

FX PERFORMANCE DURING 3 KEY PHASES OF THE US-CHINA TRADE TENSIONS

ainst U chane START PHASE TRADE TRUCE PHASE CURRENT PHASE

nian Ruee -7.3 0.5 -1.8 -0.6 hinese Renminbi -6.7 3.3 -3.8 -2.8 -6.2 0.3 -2.3 nonesian Ruiah 0.1 1.0 -2.6 Malaysian Rinit -3.8 -0.5 -3.4 -3.6 -4.2 orean on -1.3 -3.2 -0.2 aian ollar -2.8 -1.7 -2.9 inaore ollar -1.9 0.9 -0.4 -3.2 hiliine eso -1.5 1.1 -0.5 -0.5 hai Baht -1.4 2.7 2.2

1 une 1 etember 201 1 ecember 201 03 May 2019 0 May resent 0 May En ecember 2019 UOBs orecast

Quarterly Global Outlook 3Q2019 22 UOB Global Economics & Markets Research FX STRATEGY Dovish Fed Builds A Compelling Case For Weaker USD Chart 6: USD/JPY Expected To Drop Further Against Majors With Falling US Treasury Yields

Whilst Asian FX is expected to weaken anew against the USD, we Source: Bloomberg, UOB Global Economics & Markets Research now see a building case for a weaker USD against most of G-10 majors spurred by imminent Fed rate cuts in 2H19, of 25bps each 2.8 113 2.6 112 in the Sep and Dec FOMC. 111 2.4 110 Recall in this post-GFC cycle, the Fed had managed to hike a 2.2 109 total 225bps since Dec 2015 while most other G-10 central banks 2.0 108 Jan Feb Mar Apr May Jun struggled to lift rates off record lows. The resulting monetary policy 10Y UST yield USD/JPY - RHS divergence led a strong rally in the US Dollar Index (DXY) from 0.7 80 in Jul 2014 to 96 currently. Now with a dovish Fed, a closing interest rate gap may now start to act against the USD. As such, the DXY may have peaked at 98.37 in May and now look to head 0.6 lower towards 96.8 by end-2019 and 94.4 by mid-2020. 0.5 In the G-10 space, a key revision to our forecasts this quarterly is 120-day correlation that of USD/JPY. Since early May, USD/JPY has slid from 112 to 108 as escalation from the US-China trade conflict spurred safe haven demand for JPY. Correlation of the currency pair with that of Chart 7: Annualized Cost Of USD Shorts Against EUR Has Fallen the 10-yr US Treasury yield had also picked up steadily to almost +0.7 from +0.6 in the same period. So, in-line with our expectations Source: Bloomberg, UOB Global Economics & Markets Research of lower 10-yr US Treasury yields going forward (1.90% at end- 3.60

2019), downside in USD/JPY would probably continue. We have 3.40 updated our forecasts to 108 in 3Q19, 106 in 4Q19 and 105 for 1Q20 and 2Q20. 3.20 3.00 EUR/USD should continue to be a key beneficiary of the sudden 2.80 and aggressive repricing for Fed rate cuts. The double-bottom at 1.11 in May looks increasingly credible with risk reversals rising to 2.60 the highest levels since Mar 2018 in favor of EUR. Also, it is getting 2.40 less expensive to be short USD against the EUR. To be sure, risks 2.20 in the Eurozone are still tilted to the downside, with incoming data pointing to weaker growth and inflation in 2Q and 3Q. As such, 2.00 Sep 17 Dec 17 Mar 18 Jun 18 Sep 18 Dec 18 Mar 19 Jun 19 European Central Bank’s (ECB) President Mario Draghi hinted at Cost of short USD long EUR implied by 12-mth forward pts, % rate cuts on 18-Jun should inflation failed to pick up. On balance, we remain constructive on EUR/USD but the resulting trajectory is likely to be gradual after accounting for markets’ pricing for a mild Chart 8: GBP Shorts Are Rebuilding deposit rate cut (-10bps) by ECB by Dec. Our point forecasts are After UK PM Theresa May Resigned In May 1.12 in 3Q19 and 4Q19, 1.14 in 1Q20 and 1.16 in 2Q20. With that Source: Bloomberg, UOB Global Economics & Markets Research in mind, one may consider call spreads on EUR/USD. 20000 1.34

In the UK, we continue to underweight on GBP for the coming 3Q. 1.33 After 3 failed votes on the Withdrawal Agreement which ultimately 0 1.32 led to the resignation of PM Theresa May, the fog of Brexit 1.31 -20000 remains. There is still limited clarity on how UK would leave the 1.30 European Union come 31-Oct. As such, we expect the GBP/USD 1.29 to stay depressed below 1.30 in the next two quarters. Marinating -40000 our positive EUR and negative GBP view, one may consider 1.28

EUR/GBP on dips with the expectation of the pair to continue its -60000 1.27 advance towards 0.90 in the immediate 3Q. 1.26

-80000 1.25 Jun-18 Sep-18 Jan-19 May-19 CFTC GBP/USD Non-Comm Positioning GBP/USD

Quarterly Global Outlook 3Q2019 FX STRATEGY UOB Global Economics & Markets Research 23 As for the AUD, the Reserve Bank of Australia (RBA) may have Chart 9: Markets May Have Been Too Aggressive bought some time after cutting rates for the first time in almost 3 To Price In Almost 2 Further RBA Rate Cuts By Dec 2019

years in June. The rate move was “to support employment growth Source: Bloomberg, UOB Global Economics & Markets Research and provide greater confidence that inflation will be consistent 10 with the medium-term target”. Until a sharper deterioration in the employment and inflation, the next rate cut is only expected in the 0 4Q19. While it remains uncertain if the immediate selling pressure -10 is over, we reiterate our longer term view that once the USD turns against the Majors, the AUD will also find some form of support. -20 On a longer term basis, in-line with our view of an “overvalued” -30 SGD NEER, there could be value for AUD/SGD at current levels -40 of around 0.95 as it nears GFC lows of 0.9066. -50

-60

-70 Jul-18 Oct-18 Jan-19 Apr-19 Expected Change in RBA Cash Rate Over Rolling 6-mth Period (bps)

Quarterly Global Outlook 3Q2019 24 UOB Global Economics & Markets Research FX STRATEGY RATES STRATEGY The Broader Rates Environment During A FED Easing Cycle

In this Quarterly, our macroeconomics team has brought forward their expectations for FED rate cuts from 1 set of 25bps in mid-2020 previously to 2 sets of 25bps cuts in 3Q and 4Q 2019. In light of growing evidence that monetary policy tightening cycles have topped out, this means that US rates, and by extension SG rates as well, are expected to stay lower for longer going forward.

Lower For Longer Outright yields have fallen significantly in the time between our Quarterly publications. From the end of March to the end of May, 2Y UST yield has declined by 34bps and is also at a 58bps discount to prevailing FED Funds of 2.50%. Nonetheless, there is still scope for further deepening of this discount when it is benchmarked against previous FED easing cycles which have experienced 2Y UST discounts as deep as 100bps. Whether we get there again in this prospective easing cycle will be contingent on the current global growth slowdown, and its attendant spillovers, remaining mild. Until proven otherwise, a FED easing cycle of 50bps in totality scenario is an optimistic one and constitutes a low hurdle from which investors can project a more aggressive FED easing cycle should financial conditions fail to improve.

Steeper Yield Curve A lower for longer yield environment is one likely outcome ahead, another will be steeper yield curves. FED easing cycles drive yield curves steeper through a combination of significantly lower front end yields to administer monetary stimulus and expectations of eventual curing and policy normalization dampening the follow through by the longer end of the yield curve.

Steeper Yield Curves Ahead Curve Steepening Profiles

Source: Bloomberg, UOB Global Economics & Markets Research Source: Bloomberg, UOB Global Economics & Markets Research

3.50 1.60

3.00 1.40 1.20 2.50 1.00 2.00 0.80 1.50 0.60 % % 1.00 0.40

0.50 0.20 0.00 0.00 -0.20 -0.50 -0.40 -1.00 -0.60 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15 Jan-18 T-3M T-2M T-1M T T+3M T+6M T+9M T+1Y FED Easing Cycle US 2s10s Bonds SG2s10s Bonds US 2s10s IRS US 2s10s Bonds SG 2s10s IRS SG2s10s Bonds

Curve steepening can clearly be observed in the previous 2 FED easing cycles. Re-pricing of the curve can be seen in UST and US interest rate swap (IRS) markets up to 3 months ahead of the first FED cut and extends into a year after. SGS and SG IRS yield curves have also steepened alongside their US counterparts but the magnitude of change is moderated by the derivative yield impact resulting from MAS policy easing which overlapped with FED rate cuts.

Strong SG$ NEER Reprice Lower Based on our forecast for the FED to begin easing in 3Q 2019, we anticipate that curve steepening dynamics will become increasingly obvious henceforth, particularly in US markets. On the other hand, SG yield curve steepening will struggle to keep up initially due to potential re-pricing lower of a strong SG$ NEER but should show better signs of steepening once the FED starts to deliver on rate cuts.

Expanding on the aforementioned yield impact of MAS policy easing; recall that since MAS monetary policy is based on the exchange rate mechanism, easing here means a shallower appreciation path for the SG$ NEER. As the expected returns from SG$ NEER become less attractive when MAS embarks on monetary easing, the impact on the margin for capital inflows and SGD hedging flows tends towards an uplift in domestic funding costs.

SG Yields To Converge With US Yields This interplay between FED and MAS policy cycles brings us to our next feature; SG yields tends to converge towards US yields during an easing cycle and vice versa (i.e. diverge during policy tightening cycles).

Quarterly Global Outlook 3Q2019 RATES STRATEGY UOB Global Economics & Markets Research 25 US And SG Yield Differential Shifts Into Tighter Regime Change In SG Yield Discount To US

Source: Bloomberg, UOB Global Economics & Markets Research Source: Bloomberg, UOB Global Economics & Markets Research

2.00 1.50

1.00 1.00

0.00 0.50

-1.00 %

% 0.00 -2.00 -0.50 -3.00

-1.00 -4.00

-5.00 -1.50 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15 Jan-18 T-3M T-2M T-1M T T+3M T+6M T+9M T+1Y FED Easing Cycle SG-US 2YBond SG-US 10YBond SG-US 2Y IRS SG-US 2Y Bond SG-US 10Y IRS SG-US 10Y Bond

SG yields have more often than not been at a discount to US yields. During a FED easing cycle, the 2Y SG yield discount to US in both bonds and IRS markets narrows significantly. To a lesser extent the same narrowing can also be observed in the 10Y tenors. Notably, SG yield discounts never deepened to the extent of previous rate hike cycles due to a much lower terminal FED rate and the process of narrowing SG discount has already resulted in a convergence between SG and US rates. Nonetheless, with actual monetary policy easing still ahead, we see limited potential for SG yield discounts to deepen sustainably. Instead, the possibility of SG yields flipping into a modest premium over US looms larger at this stage of the monetary policy cycle.

SGS To SG IRS Spread To Widen While SG and US yields might be tending towards convergence, the spread between SGS and SG IRS (bondswap spread) has potential to widen during a FED easing cycle. Considering that it was the negative evolution of economic factors that necessitated a policy response, and the traditional lag for policy stimulus to transmit into the real economy, episodes of risk re-pricing higher during an easing cycle should not come as a surprise. To wit, the periods during which SG bondswap spread widens significantly and abruptly have a tendency to coincide with a pullback in investors’ risk appetite. Risk aversion driven widening in the SG bondswap spread is on average more reliable than an outright long SG bond position since safe haven outflows from emerging markets may result in a drag on SGS price appreciation.

Wider SG Bondswap Spreads Change In SG Bondswap Spreads

Source: Bloomberg, UOB Global Economics & Markets Research Source: Bloomberg, UOB Global Economics & Markets Research

1.60 0.50

1.40 0.40

1.20 0.30 1.00 0.20 0.80

% 0.10 % 0.60 0.00 0.40 0.20 -0.10 0.00 -0.20

-0.20 -0.30

-0.40 -0.40 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15 Jan-18 T-3M T-2M T-1M T T+3M T+6M T+9M T+1Y FED Easing Cycle SG 2Y BS SG 10Y BS SG 2Y BS SG 10Y BS

The front end of the SG IRS curve is still likely to bear the brunt of risk aversion/tightening of financial conditions and drive SG bondswap spreads wider, even though it could be argued that the scarcity benefit for SGS has diminished over time.

Not To Forget Elevated Volatility In sum, the yield landscape during a FED easing cycle is broadly characterized by rates staying lower for longer, yield curves steepening, tighter SG yield discount versus US and widening potential for shorter maturity SG bondswap spread. But we suspect that the most repeated theme will be volatility. Comparing the SG bond market’s volatility distributions between FED easing and non-easing periods; there is a slightly fatter tail of extreme volatility episodes for the easing sample, but the difference in mean is not material. Thus whilst it is fair to expect instances of more extreme volatility spike, FED easing cycles are no more dysfunctional than other times for the SG bond market.

Quarterly Global Outlook 3Q2019 26 UOB Global Economics & Markets Research RATES STRATEGY Our Updated Rates And Yield Forecasts Consequently, in line with the abovementioned updated view of 2 FED rate cuts this year, we have adjusted our rates and yield forecasts accordingly. In the front end, concurrent to the FED rate cuts, we now see 3M USD Libor dropping to 1.95% by 4Q19. Both 3M SOR and 3M Sibor will also ease in tandem to 1.95% by 4Q19. In the longer dates, we see 10 year US Treasury yield dropping to 1.9% by 4Q19, pulling 10 year SGS lower to 1.8%.

Volatility Distribution of 10Y SGS During Easing and Non-Easing Periods

Source: Bloomberg, UOB Global Economics & Markets Research

0.33

0.29

0.25

0.21

% 0.17

0.13

0.09

0.05

0.01 30% 20% 10% 0% 10% 20% 30% SG 10Y Bonds SD (Easing) SG 10Y Bonds SD (Non-easing)

Volatility Distribuiton of 2Y SGS During Easing and Non-Easing Periods

Source: Bloomberg, UOB Global Economics & Markets Research

0.33

0.29

0.25

0.21

% 0.17

0.13

0.09

0.05

0.01 40% 30% 20% 10% 0% 10% 20% 30% 40% SG 2Y Bonds SD (Easing) SG 2Y Bonds SD (Non-easing)

Volatility Distribution of 2Y Versus 10Y SGS During Easing

Source: Bloomberg, UOB Global Economics & Markets Research

0.33

0.29

0.25

0.21

% 0.17

0.13

0.09

0.05

0.01 25% 20% 15% 10% 5% 0% 5% 10% 15% 20% 25% SG 2Y Bonds SD (Easing) SG 10Y Bonds SD (Easing)

Quarterly Global Outlook 3Q2019 RATES STRATEGY UOB Global Economics & Markets Research 27 COMMODITIES STRATEGY Gold Outperforms In A Difficult Macro Environment For Commodities

Gold Outperforms In A Difficult Macro Environment For Commodities

Source: Bloomberg, UOB Global Economics & Markets Research

120

110

100

90

80

70

60 Jun 18 Oct 18 Jan 19 May 19 Gold Spot (USD / oz) Brent Crude Oil (USD / bbl) 3M LME Copper (USD / MT)

At the half way point of 2019, it is clear to global investors that the The further escalation of tariffs between US and China was too global macroeconomic backdrop has taken a turn for the worse much to bear for the industrial metals complex as 3M LME Copper as US-China trade talks broke down in May. While we are still far finally succumbed to fears of global growth slowdown and fell from from any recessionary risk, the deteriorating global trade outlook USD 6,500 / MT in late April to USD 5,800 / MT in early June, has forced both the IMF and World Bank to yet again downgrade effectively correcting by around 10% in the final weeks of 2Q19. their global growth forecasts. Amidst such an environment of 3M LME Copper has remained in the red over the past 4 quarters lower global growth and consequently lower demand, there is no due to global growth slowdown concerns and this pressure will surprise that both the industrial metals and energy complex were likely remain for 2H19. sold off across 2Q. Brent crude oil remains caught in-between the opposing forces As growth related commodities like 3M LME Copper and Brent of geopolitical risks vs global growth slowdown. The oscillation crude oil were sold off, Gold took its chance to build its base and between euphoria and risk aversion resulted in a fair amount of inch higher. Amongst the trio, both 3M LME Copper and Brent whip-saw for Brent crude oil over the past four quarters. Front Crude oil have retreated about 20% over the past 4 quarters, but month futures hit a high of USD 85 / bbl last Oct, only to collapse to Gold managed to outperform significantly with a moderate gain of USD 50 / bbl last Dec as the initial round of US-China tariffs were 9%. Overall, increasing expectations of renewed rate cuts from the implemented. The latest round of tariffs in May resulted in a similar, US Federal Reserve has helped Gold to rally above USD1,400 / albeit “smaller” sell-off from USD 75 / bbl in Apr to USD 60 / bbl oz. We maintain our postive conviction view on Gold and expect it in Jun. As geopolitical risks are always in the background, we can to trade even higher in the months ahead. expect Brent Crude oil to encounter the occasional short covering.

Quarterly Global Outlook 3Q2019 28 UOB Global Economics & Markets Research COMMODITIES STRATEGY Gold: Imminent FED Rate Cuts To Cement Gold’s Rally Towards USD 1,500 / oz

There is no change to our conviction view for a strong rally in gold. In fact, Gold Rallied As US Treasuries Yield Dropped recent events reinforced this positive Source: Bloomberg, UOB Global Economics & Markets Research view on gold. Since the US-China trade talks broke down in early May, renewed 1450 1.5 risk aversion has pushed global 1.7 1400 investors back into safe haven assets 1.9 like US Treasuries and gold. As such, 2.1 1350 10 year US Treasuries yield collapsed 2.3 from 2.5% in early May to the current 1300 2.5 2.0% handle and gold jumped in tandem 2.7 from USD 1,280 / oz to USD 1,400 / oz. 1250 Similarly, the Japanese Yen (JPY) is 2.9 3.1 also a traditional safe haven asset, and 1200 it has also rallied recently across May 3.3 from 112 to 107 against the USD. 1150 3.5 Jun 18 Aug 18 Nov 18 Feb 19 May 19 Given the recent deterioration in global Gold Spot (USD / oz) 10Y UST Yield (%, inverse) - RHS growth outlook amidst rising global trade tensions, we now see two rate cuts from the US Federal Reserve this year, at Escalating Global Trade Tensions Have Reignited Gold And JPY; Both Are Traditional Safe Haven Plays the Sep and Dec FOMC. This will drop Federal Funds Target Rate from 2.5% Source: Bloomberg, UOB Global Economics & Markets Research to 2.0% and push short term US money 1450 105 market rates below 2.0% by end of this 106 year. This drop in US rates is going to 1400 107 be a very positive driver for gold prices. 108 1350 As global uncertainties increase, gold 109 starts to revert back to its traditional role 1300 110 as a safe haven asset. In fact, gold is a 111 1250 good store value especially when valued 112 against domestic currencies that have 113 1200 depreciated. A good example is gold in 114 Indian Rupee (INR) terms. Over the past 1150 115 decade, one troy ounce of gold in INR Jun 18 Sep 18 Dec 18 Mar 19 Jun 19 terms has almost quintripled from INR Gold Spot (USD / oz) USD/JPY (inverted) - RHS 20,000 in 2008 to about INR 98,000 now. This rally occurred as INR depreciated against the USD, from 40 back to 2008 Gold Remains A Good Store Of Value Against Domestic Currency Depreciation to current level of 70, magnifying gold’s value in INR terms. Source: Bloomberg, UOB Global Economics & Markets Research

100000 2000 In terms of technicals, with this latest push above USD 1,400 / oz, the USD 90000 1800 1,345 / oz level is now a solid support. 80000 1600 Overall, we maintain our positive 70000 1400 conviction view on Gold and upgrade 60000 1200 our point forecasts further to USD 1,420 50000 1000 / oz, USD 1,450 / oz, USD 1,480 / oz 40000 800 and USD 1,500 / oz in the coming four 30000 600 successive quarters. 20000 400 10000 200 0 0 Jan 00 Jun 02 Nov 04 Apr 07 Sep 09 Feb 12 Jul 14 Dec 16 May 19

Gold in INR terms (INR / oz) Gold spot (USD / oz) - RHS

Quarterly Global Outlook 3Q2019 COMMODITIES STRATEGY UOB Global Economics & Markets Research 29 Brent Crude Oil: Caught In-Between Growth Slowdown And Rising Geopolitical Risks

Brent Crude Oil is increasingly caught in-between two opposing forces. On US Crude Oil Inventory Has Picked Up As Production Continues To Grow one hand, there is increasing concern Source: Bloomberg, UOB Global Economics & Markets Research that global energy demand will slow as global growth slows down amidst 550 12.5 escalating trade tensions. In fact, the 12.0 IMF has made yet another downgrade 500 11.5 to its global growth expectations, cutting its global GDP target by 0.5% this year 450 11.0 to 3.6%. And it does not help that amidst 10.5 400 the growth slowdown fears, crude oil 10.0 inventory appears to be building up as 350 9.5 well. Nowhere is this more evident than 9.0 in the US, where crude oil inventory has 300 climbed anew this year amidst rising US 8.5 crude oil production. 250 8.0 Jun 14 Dec 14 Jun 15 Jan 16 Jul 16 Feb 17 Aug 17 Mar 18 Sep 18 Apr 19 However, on the other hand, there is DOE US Crude Oil Total Inventory (mil bbl) DOE US Crude Oil Production (mil bpd) - RHS the uncertain factor of rising geopolitical risk in the Middle East. This comes as the Trump administration escalates its Brent Crude Oil Is Increasingly Volatile economic sanctions against Iran, with the aim of driving Iran’s crude oil exports Source: Bloomberg, UOB Global Economics & Markets Research down to zero. Already, Iran’s crude oil 100 production and exports have been on 90 steep decline due to the US sanctions. 80 70 As such, Brent crude oil has been volatile as it was caught in-between both 60 opposing forces. Successive rounds 50 of US-China tariffs over the past year 40 triggered intense sell-off in Brent Crude 30 Oil, pushing 3M implied volatility from 20 under 30% to nearly 50%. 10 0 Adding to this volatile mix is the on- Jun 17 Sep 17 Dec 17 Mar 18 May 18 Aug 18 Nov 18 Feb 19 May 19 going negotiations amongst OPEC and Brent Crude Oil 3M Implied Volatility Brent Crude Oil (USD / bbl) its partners. The current production cut between OPEC and Russia is due for renewal by Jul. So far, Russia seems to Brent Crude Oil Has Retreated In Line With The Pull-Back In Net Positioning back the on-going joint production cut of 1.2 mil bpd with OPEC. However, Russia Source: Bloomberg, UOB Global Economics & Markets Research has voiced concerns of further supply 800000 80 disruptions from Iran, Venezuela, Libya 75 and Nigeria. 700000 70 Overall, given the increasing global 600000 growth slowdown concerns, we lower our 65 Brent Crude Oil forecast range from USD 500000 60 65 to 75 / bbl range, to USD 60 to 70 / bbl 55 range for the successive four quarters. 400000 On-going OPEC+ production discipline 50 300000 coupled with rising geopolitical risk in 45 Middle East is expected to support crude oil prices above USD 60 / bbl. 200000 40 Apr 17 Jul 17 Oct 17 Feb 18 May 18 Aug 18 Nov 18 Feb 19 May 19 CFTC Non-Commercial Net Position Brent Crude Oil (USD / bbl) - RHS

Quarterly Global Outlook 3Q2019 30 UOB Global Economics & Markets Research COMMODITIES STRATEGY Copper: A Clear Casualty Of The Escalating US-China Trade War

In the previous quarterly, we expressed our surprise that LME Copper has defied LME Copper Price Retreats With Weaker Manufacturing PMI odds of a global slowdown and has even Source: Bloomberg, UOB Global Economics & Markets Research rallied from USD 6,000 / MT last Dec to the Mar high of around USD 6,500 / MT. 7500 53.00 Since then, 3 months have passed and 52.50 7000 unfortunately the weight of the global 52.00 growth slowdown is now clearly evident. 6500 51.50 LME Copper, have indeed fallen casual- 51.00 ty to the escalating US-China trade war. 6000 50.50 5500 Global PMI readings have all turned de- 50.00 cidedly. In particular, in the latest month- 5000 49.50 ly reading, China’s manufacturing PMI 49.00 4500 has fallen back below the expansion- 48.50 ary 50 level. Concurrently, LME copper 4000 48.00 topped out under USD 6,500 / MT has Mar 14 Oct 14 Apr 15 Oct 15 Apr 16 Oct 16 May 17 Nov 17 May 18 Nov 18 May 19 now fallen below USD 6,000 / MT to LME Copper (USD / MT) China Manufacturing PMI - RHS USD 5,800 / MT.

The short term cash squeeze in Copper Cash Premium In LME Copper Is Now Completely Eroded is clearly over as well. From its peak of Source: Bloomberg, UOB Global Economics & Markets Research USD 60 / MT, the Spot vs 3M cash pre- mium for LME Copper has pulled back 80

and reversed into a discount of USD 20 60 Cash premium in LME Copper is now / MT. The more sedated discount makes more sense now given the weakening 40

global backdrop. 20

In the meantime, Chinese import of cop- 0 per concentrate and iron ore continue -20 to grow, while Chinese import of copper scrap retreated further. Traditionally, -40 lower import of unwrought copper is a -60 precursor to lower copper refining activi- ty, signaling a weaker economic outlook. -80 Jun 17 Oct 17 Mar 18 Jul 18 Dec 18 May 19 However, this relationship may not be LME Copper spot vs 3M premium (USD/MT) that straight forward now, given that the abovementioned divergence in copper imports is clearly also driven by tighter Stricter Environmental Rules Continue To Drive Changes In China's Copper Imports environmental rules in China. Source: Bloomberg, UOB Global Economics & Markets Research

Overall, given the weaker economic 500 2.5 outlook and more challenging US-Chi- 450 na trade relationship, we downgrade 400 2.0 to a cautious negative outlook for LME 350 Copper and now forecast LME Copper 300 1.5 at USD 5,800 / MT, 5,600 / MT, 5,400 / MT and 5,200 / MT for the successive 250 coming four quarters. In other words, 200 1.0 LME Copper is at risk of revisiting the 150 lows last seen in 2016. 100 0.5 50 0 0.0 Jun 09 Jul 10 Aug 11 Sep 12 Oct 13 Nov 14 Dec 15 Jan 17 Feb 18 Apr 19 China Copper Scrap Imports (k MT) China Copper Ore & Concentrate Imports ( mil MT) - RHS

Quarterly Global Outlook 3Q2019 COMMODITIES STRATEGY UOB Global Economics & Markets Research 31 CHINA

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F China, Government Budget, Revenues, CNY USD/CNY 6.95 6.99 7.10 7.10 Source: Macrobond, UOB Global Economics & Markets Research CNY 1Y Benchmark Lending 4.35 4.35 4.35 4.35

Economic Indicators 2017 2018 2019F 2020F

GDP 6.8 6.6 6.3 6.3

CPI (average, y/y %) 1.6 2.1 2.4 2.3

Unemployment rate (%) 3.9 3.8 3.9 4.0

Current account (% of GDP) 1.6 0.4 0.7 0.7

Fiscal balance (% of GDP) -3.7 -2.6 -2.8 -2.8

China Has Policy Room To Mitigate Negative Growth Risks China’s economic data weakened further in May, in particular the industrial production and fixed asset investment as trade tensions with the US intensified. We continue to see scope for another produce a lasting solution to their conflicts. To mitigate the growth concerns, two broad-based cuts to banks’ reserve The best-case scenario for the near-term policymakers are expected to step up requirement ratio (RRR) this year after the is a trade truce to bring both parties back their fiscal and monetary counter-cyclical broad-based 100bps reduction in January to the negotiation table which will at least measures. and the targeted cut in RRR of banks that de-escalate tensions for the time being. serve local counties/districts announced in The tax-free threshold for individual May. However, as PBoC moves towards This will be crucial to stabilize global income tax was raised in October 2018 market-based interest rates, there will be economic outlook and anchor China’s to boost consumption, followed by value- less emphasis on benchmark lending and growth at around 6.3% for 2019, premised added tax (VAT) and fee cuts announced deposit rates though we still see possibility on US holding back further additional at the National People’s Congress (NPC) of benchmark rate cuts if China’s growth tariffs on their imports of Chinese goods. in March 2019. The Finance Ministry comes under greater pressure. If tensions re-escalate, leading to the further eased restrictions in June for local expansion of US tariffs, we expect China’s governments and financial institutions on Weaker Growth And Lack of Demand- growth to slow sharply to below 6.0% using part of the proceeds from special Side Inflation Keep PBoC On Course this year. We will review our forecasts bonds issuance as capital for qualified For More Easing post-G20 summit. major projects. This is expected to support China’s headline inflation was driven fixed asset investment (FAI) through by food prices while non-food inflation CNY Outlook: 7.00 In USD/CNY higher infrastructure spending. had actually moderated in March-May An Eventuality? and the producer prices remained under Trade concerns and weakness in China’s We believe there is still fiscal room for pressure. Even as we expect the swine macroeconomic data will keep monetary China to reduce taxes if needed, in flu to contribute to higher food inflation policy in China accommodative, putting particular the VAT and corporate income in the months ahead, there are domestic pressure on the CNY. We also see further tax (currently 25%) which are the largest mitigating factors such as slower growth downside risks to growth should the trade components of the government’s revenue. and the cuts to the VAT that are expected conflict escalates to one where all Chinese A broad 1% cut in the VAT would amount to keep the full-year CPI below the official goods are tariffed. to CNY62bn in liquidity injection into the target of “about 3.0%”. We now expect system. full-year 2019 average inflation of 2.4%, Overall, we expect a measured up-move higher than our 2.1% forecast at the start in USD/CNY going forth, eventually As for monetary policy, the focus will of the year. beyond the 7.00 handle by early 2020. remain on ensuring sufficient credit and Earlier in June, authorities alluded that market liquidity through cuts to banks’ Trade Truce Is Our Best-Case Scenario a move beyond 7.00 in USD/CNY may reserve requirement ratio (RRR) and via In The Near-Term be tolerated if the trade conflict drags tools such as open market operations and Given the substantial differences and the further and weighs further on the domestic the Standing lending facility (SLF) and hastily agreed meeting between President economy. Our point forecasts are 6.95, Medium-term lending facility (MLF). The Trump and President Xi at the upcoming 6.99, 7.10 and 7.10 respectively for the flow-through of PBoC’s stimulus measures G20 Summit, we doubt US/China can next 4 quarters starting 3Q19. is evident in data showing sustained achieve a breakthrough that would increase in aggregate social financing in May.

Quarterly Global Outlook 3Q2019 32 UOB Global Economics & Markets Research HONG KONG

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F Hong Kong Retail Sales & Tourist Arrivals (3mma y/y%) USD/HKD 7.83 7.83 7.80 7.80 Source: Macrobond, UOB Global Economics & Markets Research HKD Base Rate 2.50 2.25 2.25 2.25

Economic Indicators 2017 2018 2019F 2020F

GDP 3.8 3.0 2.0 2.3

CPI (average, y/y %) 1.5 2.4 2.5 2.3

Unemployment rate (%) 3.0 2.8 2.9 3.0

Current account (% of GDP) 4.6 4.3 3.5 3.5

Fiscal balance (% of GDP) 5.6 2.4 0.6 1.0

Sharp Slowdown In 1Q19 Growth Hong Kong’s GDP expanded 0.6% y/y in 1Q19, the slowest since the economy contracted during the Global Financial Crisis. Broad-based weakness was seen across the economy: contraction in gross 3-Month Interbank Rates, Daily, (%) domestic fixed capital formation deepened to -7.1% y/y in 1Q19 from -5.8% in 4Q18 Source: Macrobond, UOB Global Economics & Markets Research and goods exports fell 4.1% y/y while services export growth eased to 1.1% y/y from 3.3% in 4Q18. Private consumption, which accounts for two-thirds of the economy, has also seen growth slowing sharply to 0.2% y/y from 2.7% in 4Q18. This is in line with the moderation in tourism and retail sales during the quarter despite unemployment rate remaining at its lowest since the Asian Financial Crisis of 1998/99.

Hong Kong’s economy will continue to remain under pressure as long as the US-China trade conflicts stay unresolved as a slowdown in China’s economy will April, a 14-month high. Housing prices for Going forth, the USD/HKD forwards curve weigh on Hong Kong services sectors instance is expected to moderate given the is likely to stay flat. Fed is expected to cut in particular trade, financial and tourism easing in fresh-letting residential rentals interest rate in 2H19 while domestically, services. though food prices may stay relatively high the decline in Hong Kong Monetary due to the swine flu affecting pork supply. Authority’s (HKMA) aggregate balance is The massive protests arising from the Our full-year 2019 inflation forecast is at likely set to slow after falling to its lowest extradition bill reflected deep-seated 2.5%, a tad higher than 2.4% in 2018. level since the Global Financial Crisis domestic social issues but is not expected and should concurrently reduce upward to have any material impact on tourism or HKD Outlook: Short Squeeze pressure on the Hibor. overall economic growth. We note there Drove HKD Higher was no significant impact on tourism or A scramble for cash in June caused the With Libor-Hibor spread narrowing, this retail sales during the extended period of 3-month Hibor to spike to its highest since is likely to further lessen the appeal of Occupy Central movement in 4Q2014. November 2008, from 2.16% to 2.55% long USD/HKD trades. As such, we have in a matter of days. Seasonal demand lowered forecasts for USD/HKD to 7.83 for However, taking into account of the for dividend payments and local protests 3Q and 4Q19, from 7.85 previously. For 1Q increase in global uncertainties, we are were said to be the triggers for the surge. and 2Q20, we maintain our expectations revising lower our forecast for Hong The squeeze drove up the cost of shorting of 7.80. Kong’s 2019 GDP growth to 2.0% from the HKD against the USD, wiping out the 2.2% previously. This is at the bottom of Libor-Hibor spread and spurred an unwind the government’s 2-3% forecast range. of the popular long-USD short-HKD carry trade. As a result, USD/HKD tumbled from Meanwhile, domestic inflation is expected 7.84 on 11-Jun to a YTD low of 7.8162 a to moderate after rising to 2.9% y/y in day later.

Quarterly Global Outlook 3Q2019 UOB Global Economics & Markets Research 33 INDIA

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F India GDP (Expenditure Approach) USD/INR 70.00 70.50 70.90 70.90 Source: Macrobond, UOB Global Economics & Markets Research INR Repo Rate 5.75 5.50 5.50 5.50

Economic Indicators 2017 2018 2019F 2020F

GDP 7.1 6.8 6.8 7.0

CPI (average, y/y %) 3.3 4.0 3.3 4.1

Current account (% of GDP) -1.5 -2.0 -2.5 -2.4

Fiscal balance (% of GDP) -3.9 -3.6 -3.5 -3.4

Global Economic Uncertainties The Indian economy finished its FY2018/9 year at a paltry growth print of 6.8% on a year-on-year basis, the slowest since FY2013/4 when it grew by 6.4%. Full- year growth was dragged primarily by its 7.2% in FY19/20 has been in line with manufacturing activity, while leading 4QFY2018/9 print of 5.8%, in which Gross our current growth outlook at 7.0% made indicators point to a further slowdown Fixed Capital Formation (GCFC) growth earlier this year. The relatively softer in the Euro area amid Brexit-related tapered to a three year low of 3.6% y/y inflation climate has also led the central uncertainties. In the emerging market while domestic consumption slackened to bank to see domestic prices to grow only economies, RBI has also identified that Oct-Dec 2017 low of 7.2%. With growth by 3 – 3.1% in 1H2019/20 and 3.4 – 3.7% economic activity has slowed as well while likely to see further headwinds given the in H2. This brings full-year FY2019/20 financial markets have been driven by economic uncertainties, the Reserve Bank inflation projection at a mere 3.3%, down uncertainties dragged by the intensified of India (RBI) has cut its GDP growth for from 4.0% in 2018. US-China trade negotiations. FY20 to 7.0%, down from an initial 7.2% estimate. We recognize that trade concerns has In a nutshell, the central bank appears resulted in weaker global demand, which to be concerned on growth prospects, Recent incoming data has also painted a could further impact India’s exports and seen from the growth downgrade while relatively benign economic environment investment activity. Importantly, trade changing its stance to “Accommodative” for India. These include industrial output tensions have negatively impact India as from “Neutral”. Accounting for the dovish growth which disappointed in March, while well. In early June, US President Donald rhetoric, benign inflation expectations and auto sales slumped for its seven straight Trump announced India would lose its slower-than-expected growth, we think month in May. Elsewhere, sustained trade privileges as a beneficiary of the that RBI could cut rates by one more time softness in inflation is still observed at Generalised System of Preferences this year likely in its October or December this juncture, coupled with relatively high (GSP). The removal of India from the GSP meeting this year. unemployment and decelerating export list is expected to affect India’s annual growth seen into the latest month. India’s gains of $190 million in tariff savings, with INR Outlook: To Flip To The eight core industries (namely electricity, India retaliating with increased tariffs on Weak Side Of 70.00 Against The USD steel, refinery products, crude oil, coal, 28 US products worth US$240 million With the weak outlook for India’s growth cement, natural gas and fertilizers) growth including apples, almonds and walnuts. and inflation together with trade related was only at 2.6% in April 2019, down from Meanwhile, exports grew by a mere 3.9% uncertainties, it is likely that the INR will 4.7% in March. Lastly, import of capital y/y in May 2019, bringing the export growth trade softer against the USD going forth. goods, seen as a proxy for investment to 4.5% y/y in the first five months of 2019 However, losses in INR may be cushioned activity, remained weak in April 2019. and the weakest since the first five months by the passing of the elections-related Faced with these variables, the RBI cut of 2016. Accounting for import growth at risks, continued inflows to India’s equities both its repurchase rate and reverse 4.3% y/y in May 2019, India’s trade deficit and bonds markets, and lower oil prices. repurchase rate by 25 basis points to has widened to USD15.4 billion, the widest Overall, we maintain a moderately higher 5.75% and 5.50% respectively in its latest since November 2018. bias in USD/INR, expecting the currency meeting, marking its third consecutive cut pair at 70.00 in 3Q19, 70.50 in 4Q19, and since Shaktikanta Das assumed position RBI To Inject One More 70.90 in both 1Q20 and 2Q20. as RBI governor. Rate Cut Into 2H19 The recent RBI’s rhetoric appears to be Economic Downgrades more dovish compared to its previous Seen As Trade Activities Point South statement. Policy makers view that The central bank’s decision to downgrade global economic activity has been losing economic growth outlook to 7.0% from pace given the slowdown in trade and

Quarterly Global Outlook 3Q2019 34 UOB Global Economics & Markets Research INDONESIA

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F Fig 1. Headline Inflation, Rupiah, and BI Policy Rate USD/IDR 14,500 14,600 14,800 14,800 Source: BI, CBS, Bloomberg, UOB Global Economics & Markets Research IDR 7-Day Reverse Repo 6.00 5.50 5.50 5.50 9.0 16,000 Economic Indicators 2017 2018 2019F 2020F 8.0 GDP 5.1 5.2 5.2 5.4 15,000 7.0 CPI (average, y/y %) 3.8 3.2 3.2 3.6 6.0 14,000 Unemployment rate (%) 5.6 5.3 5.5 5.4 5.0 Current account (% of GDP) -1.7 -3.0 -2.5 -2.3 13,000 4.0 Fiscal balance (% of GDP) -2.5 -1.8 -2.3 -2.5 3.0 12,000 2.0 11,000 Growth Weaker Than Expected 1.0 Amidst Election Year 0.0 10,000 May-14 Jan-15 Sep-15 May-16 Jan-17 Sep-17 May-18 Jan-19 Indonesian economy grew by 5.07% yoy in CPI (% YoY) BI Policy Rate (%) Rupiah vs USD (RHS) Q1 2019 vis-à-vis 5.18% in the preceding quarter (Bloomberg consensus: 5.18%), still, slightly faster than Q1 2018’s 5.06%. Bank Indonesia Considers Room To IDR Outlook: Rupiah To Weaken Overall, spending related to presidential Ease, Waiting For The Right Timing At Moderate Pace and parliamentary elections and significant Indonesia’s inflation picked up pace to The Indonesia Rupiah IDR was resilient imports contraction – following import 3.32% yoy in May in the light of Ramadhan across 2Q19. The latest round of Fed rate tightening measures from the government, festivities spending, after staying benign cut pricings and an upgrade in Indonesia’s were not able to outweigh the weaker for the first 4 months in 2019 at below sovereign rating from BBB- to BBB by S&P performance of investment and exports. the 3.00% mark. Moreover, Indonesia in late May pared most of IDR’s losses Investment spending slowed to 5.03% yoy also saw a record high trade deficit of sustained earlier in the quarter. Overall, in Q1 2019, down from 6.01% in Q4 2018, US$2.5bn in April. Both indicators may the IDR was only down 0.6% 2Q-till-date, likely due to ongoing efforts to narrow down give reason for BI not to cut interest rates at 14,325 against the USD, against a 3% the current account deficit (CAD) via the too soon vis-à-vis regional counterparts drop in the CNY. paring down of pace in the infrastructure Malaysia and Philippines interest rate projects development. Meanwhile, exports cuts. In its June meeting, BI kept its Going forth, the path of least resistance growth is still struggling to pick up pace policy rate unchanged and announced it for the IDR is to weaken alongside CNY (Q1 2019’s -2.08% yoy vs. Q4 2018’s will lower bank’s reserve requirements and its regional peers. The escalating 4.33%), amidst slowdown in global by 50bps in July to boost liquidity. And trade conflict between US and China growth, and lower commodity prices for according to BI Governor Perry Warjiyo, continues to be the key factor weighing Indonesia's major exports. For 2019, we BI is monitoring global financial market on the IDR. Internally, Indonesia’s twin hold a cautiously optimistic view of the conditions and the balance of payments deficit in fiscal and current account would Indonesian economy as domestic demand and affirmed that “cutting rate is an action continue to make IDR vulnerable to remains robust and accordingly, we keep we will take in the future. It is a matter of renewed weakness. Although the BI would our GDP growth forecast at 5.2%. We time and magnitude.” eventually follow some of its regional might see investment growth to pick up in peers in unwinding some of the rate hikes the latter half of 2019, though momentum We believe that BI has room for rate cuts from last year’s cycle, our expectations of is likely to be slower compared to 2018. to support growth especially if external 50bps of rate cuts by BI in 4Q19 would We are also positive on the efforts thus far conditions become less volatile (and may more or less be offset by 50bps of Fed that may lead into narrower 2019’s CAD result into more sustained capital inflows) rate cuts in 2H19. Thus the rate advantage to a sub-3% deficit over GDP (perhaps in while, by 4Q19, at least 2 of quarterly of IDR over USD may stay a wide 5.5% the 2.5-2.6% deficit range); on the back Balance of Payment (BOP) data would (comparing 10-year government bonds), of import tightening measures, exports- be available, which gives more assurance potentially spurring some capital inflows. promoting initiatives, regulation on better that CAD is more manageable. We keep monitoring of foreign currency borrowing, our BI rate forecast to remain unchanged Overall, we still foresee the IDR to weaken and higher investor confidence post-2019 at 6.00% till Q3 2019 before normalization against the USD, albeit at a moderate general election. Challenges may include a occur in Q4 2019 by a cumulative 50bps pace. Our point estimates are 14,500 for smooth shift of spending on human capital rate cuts to 5.50%. However, there is now 3Q19, 14,600 for 4Q19 and 14,800 for investments (which may not immediately risk to our view that the cut may come both 1Q20 and 2Q20. Should BI brings translate into neither higher consumption sooner amidst a potential Fed rate cut in forward its rate cut or cuts rates further in nor investment spending), and attracting Q3 2019. We also see a risk that BI may 2020, this may lend upside pressure for FDI into more export-oriented sectors. cut rates further in 2020, if the external our USD/IDR forecasts. risks intensify further.

Quarterly Global Outlook 3Q2019 UOB Global Economics & Markets Research 35 JAPAN

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F “Unhealthy” Factors of Import Collapse & Inventories Drove 1Q GDP Growth Surprise USD/JPY 108 106 105 105 Source: Macrobond, UOB Global Economics & Markets Research JPY Policy Rate -0.10 -0.10 -0.10 -0.10

Economic Indicators 2017 2018 2019F 2020F

GDP 1.9 0.8 0.5 -0.8

CPI (average, y/y %) 0.5 1.0 1.0 2.8

Unemployment rate (%) 2.7 2.4 2.5 2.5

Current account (% of GDP) 4.0 4.0 3.5 2.5

Fiscal balance (% of GDP) -4.2 -5.0 -5.5 -5.8

2020 Recession Risk Hinges On Trade & Sales Tax Hike 1Q 2019 GDP growth was revised higher to 0.6% q/q (2.2% annualized rate) after expanding 0.5% q/q (1.8%) in 4Q. When compared to one year ago, 1Q GDP Upper and Lower House (which is only the policy targets. recorded a 0.9% y/y expansion (from due in Oct 2021) and the reason could be 0.3% y/y in 4Q), the best growth since “buying insurance” against a sharp and If PM Abe follows through on the pledge 2Q 2018. The upward revision in 1Q was prolonged fall in approval ratings post- to implement the next sales tax hike in Oct due to reversal of first quarter’s capital Oct sales tax hike. We still expect GDP 2019, that may be enough to “convince” expenditure (capex) contraction to growth growth to ease to 0.5% in 2019 (from the BOJ that the government is keeping (from -0.3% q/q to +0.3%). But besides 0.8% in 2018) due to significant external its pledge to fiscal discipline and restore business spending, growth in 1Q was and domestic challenges. Meanwhile, the fiscal balance at some point in the future. due to “unhealthy” reasons of imports likely collapse of private spending after Based on current projection, the BOJ is collapse (-4.6% q/q) and buildup of 4Q 2019, will drive Japan into a recession buying JGBs at an implied annual pace of inventories (0.1ppt) while the other pillars in 2020 (-0.8%) unless the sales tax is JPY29trn (as of 10 Jun 2019), markedly of growth – exports (-2.4% q/q) and private deferred again. below the promised pace of JPY80trn. consumption (-0.1% q/q) – declined. Thus, This means that the BOJ may “allow” despite the stronger 1Q GDP growth After softening in early 2019, headline CPI the Finance Ministry to issue more debt print, we keep a cautious stance on 2019 inflation headed higher in recent months (JGBs) which the BOJ in turn will buy, growth outlook as the quality of 1Q growth (0.9% y/y in Apr from 0.5% in Mar) while so as to push its JGB buying closer to has brought about more concerns than core CPI (excluding fresh food) also the JPY80trn annual pace. However, if reasons for optimism. came in at 0.9% y/y (from 0.8% in Mar). the sales tax hike is deferred again, then The Bank of Japan (BOJ) was again less the BOJ will be less inclined to further The 2019 growth outlook will face optimistic about prices even though it still ease monetary policy as the economy is significant challenges on two fronts: held on to the belief that inflation “will likely less likely to be falling into a significant 1) trade uncertainties and 2) domestic increase gradually toward 2 percent.” It recession. market weakness in the face of another further trimmed forecasts for fiscal 2020 sales tax hike. Beside the US-China trade forecasts and still see both growth and JPY Outlook: USD/JPY To Fall conflict, there is still the lingering threat inflation risks to the downside. Alongside UST Yields to Japanese car makers even as US Since early May, USD/JPY has slid from President Trump delayed the decision on BOJ Outlook: Re-Joining 112 to 108 as escalation from the US- automobiles tariffs for another 6 months The Easing Bandwagon China trade conflict spurred safe haven (till mid-Nov). On the domestic economy, Normalization of easy monetary policy demand for JPY. Correlation of the the impending consumption tax hike among the G10 central banks is nearly (or currency pair with that of the 10-yr US (from the current 8%) to 10% in Oct 2019 already) out of the window, and there is Treasury yield had also picked up steadily could kill off any hope of a consumption growing expectations that the BOJ will re- to almost +0.7 from +0.6 in the May period. revival. After the crippling impact of the join the easing bandwagon soon. Japan is So, in-line with our expectations of lower 2014 sales tax hike on Japan, the Abe still far away from its 2% inflation target and 10-yr US Treasury yields going forward government delayed the next round of the projected weaker growth environment (1.90% at end-2019), downside in USD/ hike (originally slated for Oct 2015) twice. and likelihood of downside price pressures JPY would probably continue. Overall, For now, PM Abe remains determined to in 2019 add further challenges to BOJ’s we have updated our forecasts to 108 in bite the bullet and implement the sales monetary policy. One persistent point of 3Q19, 106 in 4Q19 and 105 for 1Q20 and tax hike in Oct. That said, the decision contention has been that BOJ’s projected 2Q20. On the downside, support for the to delay the hike yet again for another 2 annual pace of JGB buying continues to USD/JPY pair could come in the form of years (till 2021) could still be possible after be well below its official target of JPY80tn. BOJ reasserting its easy monetary policy the Upper House elections in Jul. There We think the BOJ may be able to use and embark on more concrete steps to is also increasing speculation that PM that as an opportunity to reassert its easy bring the pace of JGB buying closer to its Abe may call for a double election of both monetary policy position without changing official target of JPY80tn.

Quarterly Global Outlook 3Q2019 36 UOB Global Economics & Markets Research MALAYSIA

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F Room To Ease Monetary Policy USD/MYR 4.22 4.25 4.29 4.29 Source: MIER, Macrobond, UOB Global Economics & Markets Research MYR Overnight Policy Rate 3.00 3.00 3.00 3.00

Economic Indicators 2017 2018 2019F 2020F

GDP 5.7 4.7 4.6 4.7

CPI (average, y/y %) 3.8 1.0 1.5 2.5

Unemployment rate (%) 3.4 3.3 3.4 3.4

Current account (% of GDP) 2.8 2.1 2.5 2.0

Fiscal balance (% of GDP) -3.0 -3.7 -3.4 -3.2

Downbeat On Growth Malaysia’s economy entered the year on a lower gear. Real GDP expanded by 4.5% y/y in 1Q19 (from 4.7% y/y in 4Q18). Headline growth was supported by positive contributions from domestic demand in early 2018. Meanwhile the share of US MYR Outlook: Weaker In Line and net exports. However underlying imports from Malaysia remained steady, With Regional Asia FX components painted a more subdued averaging 1.5% between Jan 2018 and The Malaysia Ringgit MYR has weakened outlook. Most key sectors registered Mar 2019. in the 2Q. From about 4.08 against the slower growth in particular construction USD in early Apr, the MYR dropped to a which decelerated to a 12½ year low of Malaysia has recorded higher inflows of 6-mth low of 4.20 late May after the latest 0.3% y/y. Services recorded the smallest Foreign Direct Investments (FDI) since trade tensions escalation between US and expansion in five quarters at 6.4% y/y. early 2018 as trade tensions continued China. Other factors underpinning MYR to escalate. Around 60% of the flows weakness include moderating domestic Private consumption growth moderated came from EU, Japan, China, and economy, weaker energy prices and to 7.6% y/y (from 8.4% y/y in 4Q18) Singapore. Half of the FDIs was invested dovish BNM. partly reflecting a normalisation in in manufacturing though the pace of spending following the frontloading of FDIs into services has also picked up Going forth, we keep to the view of a purchases during the tax holiday period. particularly in the financial and insurance weaker MYR against the USD. Regional Private investment rose by only 0.4% y/y. sector. exports, Malaysia included remain under Inventory drawdown persisted for the 5th threat in the absence of a resolution of straight quarter, signalling investor caution Room To Lower Rates the US-China trade conflict. Domestic to rebuild stock and orders amid the Bank Negara Malaysia (BNM) cut the factors which were supportive of the dimmer growth outlook. Overnight Policy Rate (OPR) by 25bps to MYR in the 1Q have also waned. In line 3.00% on 7 May. This comes amid signs of with CNY weakening beyond 7.0 against Signs Of Recovery slower growth and tightening of financial the USD in early 2020, our USD/MYR Before Trade Talks Broke Down conditions. We think future decisions are point forecasts are 4.22 in 3Q19, 4.25 in There were signs of a trade recovery at likely to be data and event dependent. 4Q19, and 4.29 in both 1Q20 and 2Q20. the start of 2Q19 as talks between US and Going forward, we projecta flat trajectory To watch is FTSE Russell’s next review in China were still constructive. However the for OPR in 2H19 amid the revival of key September following the announcement turn of events since early May as trade infrastructure projects and higher fiscal that FTSE put Malaysia on watch list tensions intensified added downside risks spending. However downside risks for for potential exclusion from its World to global trade. US has proposed further interest rates are mounting as the trade Government Bond Index (WGBI). We tariffs of up to 25% on the remaining outlook worsens and global recession understand that reasons for the potential USD300bn of China imports entering US. fears grow. Year-to-date, consumer exclusion are mainly on bond and FX If these tariffs follow through, Bank Negara price index (CPI) declined by 0.2% y/y liquidity concerns. BNM has a dynamic Malaysia (BNM) estimates that it would (4M18: +1.7% y/y). Despite expectations hedging program in place and foreign be negative for Malaysia and potentially for headline inflation to trend higher in investors can access the onshore market shave 0.2%-0.4% off baseline GDP 2H19, full-year inflation is projected to via locally incorporated foreign banks estimates in 2019. remain subdued at 1.5% (2018: 1.0%). and Appointed Overseas Offices. BNM The government is due to introduce the has also expanded its dynamic hedging Import Substitution And Rising FDIs fuel subsidy mechanism for low-income program to include trust banks and global We see some degree of import substitution earners by Jun albeit it could be delayed. custodian, improve flexibility for investors in China that has benefited Malaysia. The With a muted outlook on Malaysia’s growth to enter forward contracts to buy MYR, share of China’s imports from Malaysia and inflation while real interest rates hover introduce standard documentation for FX increased to 3.2% in Apr 2019 from 2.9% around 2.5%, there is clearly room for transactions, and enhance provision of more monetary easing if needed. MYR liquidity beyond local trading hours.

Quarterly Global Outlook 3Q2019 UOB Global Economics & Markets Research 37 MYANMAR

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F Kyat May Remain Weak As Current Account Deficit Seen Further Widening USD/MMK 1,540 1,550 1,570 1,570 Source: IMF, Bloomberg, UOB Global Economics & Markets Research Economic Indicators 2017 2018 2019F 2020F 6 1,600 GDP 6.8 6.2 6.6 6.7 1,400 CPI (average, y/y %) 4.0 6.0 6.5 5.7 4 Unemployment rate (%) 4.0 4.0 4.0 4.0 1,200 2 Current account (% of GDP) -4.3 -5.3 -5.7 -5.9 1,000

Fiscal balance (% of GDP) -4.4 -4.5 -4.5 -4.5 0 800

600 -2 400 -4 200 Steady Growth Amid -6 0 Global Economic Slowdown 2012 2013 2014 2015 2016 2017 2018 Myanmar’s economic outlook is still Current Account (% Of GDP) USD-MMK Exchange Rate (RHS) positive, with expected growth around 6.6% in 2019. This is mainly driven by higher foreign direct investment and Nevertheless, the economy still faces MMK Outlook: Kyat To Weaken improving exports in agricultural products, downside risks stemming from the ethnic Anew After Stable 1H19 garments and light manufactured goods. conflict in Rakhine state. Some indirect The Myanmar Kyat MMK has largely been According to Myanmar Investment economic impacts of the conflict are stable in a narrow 1,500 to 1,550 per USD Commission (MIC), FDI into Myanmar already being felt in tourism. Further range since the start of the year. Going has increased for the first time after impacts could include the loss of trade forward, we still expect the MMK to remain declining for the last two years. From 1 preferences in the EU and weaker FDI under pressure from a persistent current October 2018 to 15 March 2019, Myanmar commitments over the medium-term account deficit which will widen from 5.3% received US$1.9 billion in approved owing to heightened uncertainty in the of GDP in 2018 to 5.7% in 2019 and 5.9% FDI in garment, electric assembly and investment climate. The effects may in 2020. As such, USD/MMK is forecast to food processing. Recent reforms in the intensify in the coming months, relying on be at 1,540 in 3Q19, 1,550 in 4Q19, and banking and financial sectors have helped further international decision-making in 1,570 in 1Q20 and 2Q20. to draw higher foreign investor interest response to the tensions. in Myanmar. These include allowing foreign banks to expand and lend to local Project Bank Is To businesses and opening up the insurance Get Myanmar Building sector to foreign ownership. During the The government announced the launch of same period, exports amounted to $8.3 an online Project Bank containing priority billion compared to imports of almost infrastructure initiatives which are screened $8.9 billion, resulting in a trade deficit of and approved by Nay Pyi Taw. The $650 million. Exports consisted mainly of Ministry of Planning and Finance (MOPF) finished garments, natural gas, beans, determines the projects to be included in ores, metals and rice while the main the Project Bank and establishes a web- imports were oil and oil-related products, based database. The centralized and machinery, silk, construction materials, publicly-accessible database enables vehicles and spare parts. The government the government to coordinate ministries is targeting a total trade of $31 billion for and departments and prioritize proposals the current fiscal year, with $15.3 billion which are in line with the Myanmar for exports and $15.8 billion for imports. Sustainable Development Plan (MSDP). This would reduce the trade deficit to $500 The thirty projects showcased by MOPF million. include construction of five river ports, two domestic airports, a new Muse-Mandalay railway, a new Tamu-Kalay-Mandalay railway, six new expressways and ring roads, three fertilizer plants and several renewable energy projects.

Quarterly Global Outlook 3Q2019 38 UOB Global Economics & Markets Research PHILIPPINES

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F Inflation Downtrend Remains On Track USD/PHP 53.00 53.50 54.00 54.00 Source: Macrobond, UOB Global Economics & Markets Research PHP O/N Reverse Repur. Rate 4.25 4.00 4.00 4.00

Economic Indicators 2017 2018 2019F 2020F

GDP 6.7 6.2 6.2 6.5

CPI (average, y/y %) 2.9 5.2 3.0 3.5

Unemployment rate (%) 5.7 5.3 5.2 5.2

Current account (% of GDP) -0.7 -2.4 -2.3 -2.4

Fiscal balance (% of GDP) -2.2 -3.2 -3.2 -3.0

Expediting Project Implementation To Safeguard Growth Target Philippines’ economic growth slowed to a 4-year low of 5.6% y/y in 1Q19 (from 6.3% y/y in 4Q18). This was due to the budget impasse curbing government spending As such, we maintain our full-year GDP Reserve Bank of India in early Jun. We and construction activities, the prolonged growth at 6.2% for 2019 (2018: 6.2%) and have also brought forward our Fed rate cut dry spell which affected crop production, 6.5% for 2020. expectations to 2H19 (25bps cut each in while slowing global demand weighed 3Q19 and 4Q19) from 3Q20. As such, we on the export sector. Finance Secretary Persistent Downtrend Of Inflation now anticipate BSP to resume its policy Carlos Dominguez said 1Q19 GDP growth Provides Room For Further Rate Cuts normalisation in 2H19 after keeping rates would have been as high as 7.2% if not for Despite transitory factors lifting headline on hold in Jun. We project a measured the delay in the national budget approval. inflation for the first time in 8 months to 25bps rate cut each in 3Q19 and 4Q19, 3.2% in May (from 3.0% in Apr), we expect bringing the overnight reverse repo rate to Turning to 2Q19, growth is expected to inflation to resume its downtrend going 4.00% by end-2019. rebound and accelerate towards year-end. into 2H19. Our view is largely premised on The passing of the 2019 national budget in high year-ago base effects, insignificant For the reserves requirement ratio (RRR), mid-Apr, end of election ban on 13 May, impact from the prolonged dry spell event, we think BSP may take a pause and and the government’s catch-up spending and steady crude oil prices of between assess the impact of the latest round of plans will see public expenditure rising USD60-70 a barrel in 2H19. The timely 200bps RRR cuts on domestic liquidity through 2019. The government said it implementation of the rice tariffication law and price stability. The first cut of 100bps must spend PHP2.996tr for the rest of the and measures to address the effects of the took effect on 31 May, the second cut of year in order to hit growth of more than 6% prolonged dry spell have helped to contain 50bps will take effect on 28 Jun, while the in 2019 after a 4-month delay in budget inflationary pressures. Socioeconomic third cut of 50bps will take effect on 26 Jul. approval. The Department of Transport Planning Undersecretary Rosemarie This will bring the RRR level to 16.00%. and Public Works has pledged that it Edillon said the country’s rice prices will The Governor wants to lower the RRR to will spend PHP803.7bn over the next likely take 3-5 years to stabilise amid “single digit” levels by the end of his term three quarters, which is enough to reach the government’s subsidy of PHP10bn a in 2023. PHP1.0tr (5.7% of GDP) infrastructure year for the rice industry and rice import spending target for 2019. liberalisation. With inflation averaging PHP Outlook: PHP Weighed By 3.5% in the first five months of 2019, we Further Rate Cuts Household consumption will continue to think our 2019’s full-year inflation forecast As expected, BSP has commenced rate expand on the back of sustained worker of 3.0% (2018: 5.2%) remains achievable. normalization in 2Q19 (-25bps) after remittances, benign inflation environment, hiking a total of 175bps last year. Going and continued normalisation of monetary Since the country’s inflation downtrend forth, our expectations of 50bps rate cut policy. That said, a weak external backdrop remains on track and escalating US-China in 2H19 together with the persistent twin will prove a drag on headline growth, trade disputes have further clouded global deficits continue to put pressure on the due to escalating global trade tensions, growth prospects, any further policy rate PHP. Overall, we foresee a further 3.6% slowing global growth momentum and normalisation by BSP in the months ahead depreciation of the PHP against the USD a persistent slowdown in the global tech seems justified. Global and regional in the next 4 quarters. Our point forecasts cycle. While the impact of US-China trade central bankers have increasingly turned for USD/PHP are 53.00 for 3Q19, 53.50 tensions on the Philippines is limited so far, more dovish. The Reserve Bank of New for 4Q19, and 54.00 for both 1Q20 and BSP Governor Benjamin Diokno said the Zealand and Bank Negara Malaysia had 2Q20. country will have to compete with Vietnam in May slashed their policy rates, followed and Indonesia for the relocation benefits. by the Reserve Bank of Australia and

Quarterly Global Outlook 3Q2019 UOB Global Economics & Markets Research 39 SINGAPORE

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F Singapore GDP: Sectoral Contribution To Growth USD/SGD 1.39 1.40 1.41 1.41 Source: Macrobond, UOB Global Economics & Markets Research SGD 3M SIBOR 2.00 1.95 1.95 1.95

Economic Indicators 2017 2018 2019F 2020F

GDP 3.7 3.1 2.0 2.0

CPI (average, y/y %) 0.6 0.4 1.0 1.5

Unemployment rate (%) 2.2 2.1 2.2 2.1

Current account (% of GDP) 16.0 17.7 17.6 17.3

Fiscal balance (% of GDP) -0.3 -0.1 -0.7 -0.5

Keeping Stock Of What Has Happened Growth prospect for Singapore has clearly worsened as we approach the second half of the year. In the latest release of the Monetary Authority of Singapore’s (MAS) Survey of Professional Forecasters (June overall growth and confidence. MAS Likely To Stay Pat In October 2019), respondents have highlighted the The slowing economic prospects seen increasing risk of trade protectionism, Softening Inflation Pressures since the start of the year has brought the China slowdown and global downturn as Are Seen As Well level of real output closer to Singapore’s key potential risks to Singapore’s growth The economic slowdown has also underlying potential, while inflationary prospect. This is in line with our concerns invariably limited price gains in Singapore pressures are likely to be mild at best into that were cited in our recent Singapore as well, and “an acceleration in inflationary the rest of the year. Despite the relatively reports, whereby we downgraded our pressures is unlikely against the backdrop weaker growth seen to-date, Singapore is full-year Manufacturing (to +1.0% from a of slower GDP growth” according to the still slated to grow at 2.0% on a year-on- prior +3.0%), Non-Oil Domestic Exports latest MAS inflation report. Accounting for year basis in 2019, and accelerate further (to a range of -1.0% to -3.0% from -1.0%) the weakening inflation pressures seen to 2.5% into 2020 according to the latest and GDP growth (to +2.0% from +2.5%) to-date, the MAS has also downgraded MAS Survey of Professional Forecasters. forecasts. headline inflation to 0.5 – 1.5% (from 1 – As such, we keep to our expectation for 2%) and core inflation to 1 – 2% (from 1.5 MAS to keep policy unchanged at its Indeed, latest export numbers remains – 2.5%) earlier in April 2019. Our prior call upcoming October MPS meeting. disappointing at best: non-oil domestic for core inflation to cross the 2.0% handle exports contracted for its third consecutive in 2H19 as written in our previous UOB SGD Outlook: SGD NEER Is Probably month in May 2019, and marking its sixth 2Q19 Quarterly Report has since been Too Rich Relative To Moderating decline in the last seven months. Export- adjusted to touch a mere 1.8% in 4Q19. Domestic Fundamentals oriented clusters such as Electronics, Owning to the rich SGD Nominal Effective Precision Engineering, and General Inflation drivers will likely rest on how Exchange Rate (NEER) at about Manufacturing have been cited by market growth trends into 2H19, noting that the +1.5% above the policy midpoint in the participants to see further softness into MAS’ move in tightening monetary policy context of softer-than-expected core 2H19, while the Manufacturing Purchasing in April and October 2018 could serve inflation, moderating domestic growth Managers’ Index (PMI) has fallen below as additional drivers in capping inflation and rising external risks, we see SGD its expansionary handle of 50.0 for the pressures. Moreover, the effects of the underperforming against most of its trade first time since August 2016 led by seven phased nationwide launch of the OEM partners in 2H19, with the SGD NEER consecutive months of contraction in the on electricity prices will likely last to expected to retreat to about midpoint by Electronics PMI. May 2020, in line with the final phased end-2019. Specifically, USD/SGD is likely launch of the OEM back in 1st May 2019. to stabilize at around 1.36 currently before We have previously downgraded our 2019 Softening labour conditions, seen from the rallying towards 1.40 by end-2019. Our growth outlook in our 1Q19 GDP report to latest uptick in retrenchment numbers to USD/SGD point forecasts are 1.39 for a full-year growth of 2.0% (down from a 3,230 in 1Q19 (highest since 4Q17) led 3Q19, 1.40 for 4Q19, and 1.41 for both prior 2.5%), where we cited global risks by retrenchment in the electronic sector 1Q20 and 2Q20. On a longer term basis, pertaining to the exacerbation in the US- (18% of total retrenchment) could suggest we see value in EUR/SGD and AUD/SGD China trade conflict and the negative moderating wage increases into the year at current levels of about 1.53 and 0.94 spillover effects to Singapore’s export- ahead. respectively. Our 1-year forecast (2Q20) oriented clusters. Moreover, the maturing of those currency pairs are at 1.64 and global electronic cycle and the slowdown 1.02 respectively. in semiconductor demand across Asia could remain as key downside risks to

Quarterly Global Outlook 3Q2019 40 UOB Global Economics & Markets Research SOUTH KOREA

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F South Korea 3Y KTB Yields Hint At Lower Benchmark Rate (%) USD/KRW 1,200 1,210 1,230 1,230 Source: Macrobond, UOB Global Economics & Markets Research KRW Base Rate 1.75 1.50 1.50 1.50

Economic Indicators 2017 2018 2019F 2020F

GDP 3.2 2.7 2.2 2.3

CPI (average, y/y %) 1.9 1.5 0.9 1.5

Unemployment rate (%) 3.7 3.8 3.9 3.9

Current account (% of GDP) 4.6 4.4 3.8 3.8

Fiscal balance (% of GDP) -1.7 -1.7 -1.8 -1.8

Growth Risks Becoming More Evident South Korea’s GDP growth eased sharply to 1.7%y/y in 1Q19 from 2.9% in 4Q18, slowest pace since 3Q09. In seasonally adjusted quarter-on-quarter terms, GDP registered its first contraction since 4Q17, at -0.4% compared to +0.9% in 4Q18. Extra Budget Is Not Sufficient To Combat Growth Risks

Source: Ministry of Economy and Finance, CEIC, UOB Global Economics & Markets Research Growth was broadly weaker across the key components though the main drag 14 0.8 to 1Q growth came from fixed investment 12 11.6 11.0 11.0 0.7 which fell 8.6% y/y (4Q18: -4.2%) as it 0.6 contracted for a fourth straight quarter, 10 0.5 exacerbated by the double-digit drop 8 Cushion Corporate Public 6.7 0.4 in the pace of facilities investment and impact of restructuring at sector jobs, 6 welfare continuing weakness in construction Middle East shipping & 0.3 Respiratory shipbuilding 3.8 investment. The government attributed the 4 Combat air Syndrome industries, 0.2 (MERS) SMEs, local pollution and weakness to the global trade conflicts and Youth 2 govts create jobs uncertainties related to Brexit which have employment, 0.1 restructuring, help led to a delay in major investments. Goods 0 for SMEs 0.0 exports contracted 0.9% y/y and private 2015 2016 2017 2018 2019 proposed Supplementary Budget (KRW tn) % of GDP consumption demand growth moderated to 1.9% y/y in 1Q19 from 2.4% y/y in 4Q18. he sees growth outlook improving, the KRW Outlook: Trade Headwinds The weakening export trend and the sharp probability of an interest rate cut this year To Continue To Weigh On The KRW decline in South Korea’s manufacturing PMI is clearly rising. The release of the unexpectedly weak to contraction (below-50) in May suggest 1Q19 GDP late April triggered the current the economy may be far from bottoming. The subdued inflation is also supporting bout of depreciation of the KRW. The USD/ But the extra budget and the government’s a more accommodative monetary policy. KRW pair broke decisively above its 1-1/2 infrastructure upgrade plan (KRW32 tn over Headline and core inflation (excluding food year resistance at 1,145 and accelerated 4 years) will be of some help. We expect & energy) averaged just 0.6% y/y and 0.8% towards 1,200, touching a high of 1,196 2Q19 growth to continue to languish below y/y respectively in the first five months of on 22-May. The KRW also faced intense 2% y/y and while we have factored in some the year. We revise lower our 2019 inflation headwinds due to proxy bets on an upturn in 2H19, this is also contingent on forecast for Korea to 0.9% from 1.1%. escalating US-China trade conflict and the stabilization in the US-China relations. growing consensus that the BOK would We have our full-year 2019 growth forecast The 3 year KTB yield broke lower following eventually cut rates to support growth. As at 2.2%, lower than the Bank of Korea’s the re-escalation in the US-China trade a result, KRW is a clear underperformer in (BOK) forecast of 2.5%. tensions in May and a sharper than the Asia FX, dropping about 5.8% ytd. expected moderation in Korea’s 1Q19 Probability Of Rate Cut On The Rise GDP. The 3 year KTB has fallen to its Pressure on the KRW will likely persist as The monetary policy stance has turned lowest since November 2016, at around uncertainties in global trade protectionism more dovish in May where one dissenting 25 bps below the benchmark base rate. are expected to stay elevated. The key BOK monetary policy board member (out We now expect the BOK to deliver a 25 1,200 level in USD/KRW would eventually of seven) had voted for a 25 bps rate bps rate cut by 4Q19 which will undo give way as USD/CNY trades above 7.0 cut. Even though BOK Governor Lee Ju- their hike in November 2018. The BOK by early 2020. Our point forecasts for yeol emphasized that it is not time yet may time any potential rate cut to prevent USD/KRW are at 1,200 at 3Q19, 1,210 at to consider to ease monetary policy as increasing downside risk to the KRW. 4Q19, and 1,230 for both 1Q20 and 2Q20.

Quarterly Global Outlook 3Q2019 UOB Global Economics & Markets Research 41 TAIWAN

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F Taiwan: Discount Rate and Inflation Rate USD/TWD 31.70 32.00 32.40 32.40 Source: Macrobond, UOB Global Economics & Markets Research TWD Official Discount Rate 1.38 1.38 1.38 1.38

Economic Indicators 2017 2018 2019F 2020F

GDP 3.1 2.6 2.0 2.3

CPI (average, y/y %) 0.6 1.3 0.8 1.3

Unemployment rate (%) 3.8 3.7 3.7 3.7

Current account (% of GDP) 14.5 12.2 10.7 11.0

Fiscal balance (% of GDP) -0.1 0.1 -0.5 -0.5

Taiwan’s GDP Was More Resilient Than Expected In 1Q19 Taiwan’s 1Q19 GDP growth held up better than expected at 1.71% y/y vs 1.80% in 4Q18 with a boost from private sector fixed capital investment contributing Inflation To Remain Subdued TWD Outlook: Moderate Weakness 1.18% point to the headline growth But No Move Expected From CBC In TWD Going Forth rate. This helped cushion the decline Taiwan’s headline inflation has picked up USD/TWD’s muted, range-bound year-till- in government consumption. Private gradually from a slight negative at the end date trading around 30.80 abruptly ended consumption moderated slightly in 1Q19 of 2018 to average 0.5% y/y in January- in May after the latest tariffs escalation but external demand was a lesser drag May of this year. Notably, food prices by President Trump spurred renewed on growth as import growth eased. On a which account for nearly a quarter of the weakness in Asian FX, the TWD included. q/q seasonally-adjusted annualised basis, CPI basket, have led the recent rebound Year-till-date, the TWD has weakened by growth strengthened to 2.33% from 1.23% in the inflation rates as a result of weather- 2.5% against the USD to 31.50 currently, in 4Q18. related factors. Core inflation which strips underperforming most of its regional peers. out fruits, vegetables and energy was more The official growth forecast for 2019 has stable but similarly averaged 0.5%y/y YTD, Going forth, though the weakness of TWD been lowered in May, to 2.19% from indicating little demand-side pressure. is expected to persist, the pressure on previous 2.27% while we see scope for Going forward, we expect the monthly the domestic currency is not as intense growth to come in slightly lower at 2.0%. headline inflation rates to continue to tread compared to other regional peers as The government expects the reshoring of below 1% with a pick-up only in 4Q19 due markets have not priced in aggressive Taiwanese manufacturing companies (as to a low base of comparison. The CBC also interest rate cuts by CBC. In all, we evident in the improvements in private flagged some upside to inflation from the maintain a moderate upwards trajectory for investments) to mitigate some of the typhoon season that could increase food USD/TWD for the next few quarters, with negative impact of global growth slowdown prices ahead. We forecast full-year 2019 point forecasts at 31.70 at 3Q19, 32.00 at and the easing electronics demand. In all, inflation at 0.8% vs a more conservative 4Q19, and 32.40 for both 1Q20 and 2Q20. growth is expected to pick up slightly in forecast from the government at 0.71%. 2H19 partly from a low base effect. While Taiwan’s inflation outlook is expected Taiwan’s growth remains vulnerable to to remain mild, the Central Bank of Taiwan global demand slowdown and further (CBC) is not likely to follow more Asian escalation in US-China trade tensions central banks in cutting their benchmark given its high dependence on the Chinese interest rates. Currently at 1.375%, markets for exports (28.8% of its exports in Taiwan’s benchmark discount rate is 2018) and that nearly a third of its exports already near to record low of 1.25% that comprise of electronics. was registered during the Global Financial Crisis. A rate cut to match the record low interest rate back in 2009 is unlikely unless growth deteriorates sharply and CPI dips into the negative for a period of time as was the case in 2009. In fact, we expect the domestic real interest rate to continue narrowing as inflation picks up into the later part of the year and this should keep the CBC on hold.

Quarterly Global Outlook 3Q2019 42 UOB Global Economics & Markets Research THAILAND

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F Private Spending Will Play A Significant Role In Driving Growth USD/THB 32.00 32.20 32.50 32.50 Source: NESDC, UOB Global Economic Economics & Markets Research THB 1-Day Repo 1.75 1.75 1.75 1.75 15 Economic Indicators 2017 2018 2019F 2020F

GDP 4.0 4.1 3.5 3.8 10 CPI (average, y/y %) 0.7 1.1 1.1 1.2

Unemployment rate (%) 1.0 1.0 1.0 0.9 5

Current account (% of GDP) 10.8 9.0 9.0 8.0 % Fiscal balance (% of GDP) -3.1 -2.9 -2.9 -3.0 0

-5

Domestic Demand Is Key To Growth -10 Thailand’s economy expanded 2.8% y/y 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 in 1Q19, down from a revised 3.6% in the Net exports Total investment Government consumption Private consumption GDP growth previous quarter. It was the slowest pace since the end of 2014. In the first quarter, overall economic activity moderated from will likely pick up given the increased THB Outlook: Recent Gains the prior quarter. Exports fell in most budget allocation for investment spending. Unsustainable, Likely To Weaken categories because of softened external Nevertheless, exports are expected to Alongside Other Asian FX demand, which also contributed to the display a slower growth in part due to the The Thai Baht THB is the standout decline in manufacturing production. trade protectionism measures between outperformer in Asia year-till-date, gaining Tourism grew at a slower pace, partly from the US and China. The direct impact will 4.1% against the USD while most regional the high base effect last year, particularly fall on Thai exporters in the supply chain peers slipped. The THB was underpinned from Chinese tourists. However, public for Chinese exports to the US and the US by a resilient Thai economy amidst trade spending increased from current exports to China; these include computers, headwinds, strong current account surplus expenditures. Private investment continued electronics, motor vehicles, textiles, rubber together with the BoT flagging further rate to gain momentum. Private consumption and plastics. hikes. Its reputation as an ASEAN safe expanded in all spending categories on the haven currency stood out across May- back of low unemployment and subdued BOT To Stay Put On Policy Rate June where the THB gained 2% while all inflation. In addition, state welfare card For the rest of this year, we now expect the other Asian FX fell due to the latest tariffs program for the low-income, especially BoT to maintain the policy rate at 1.75% escalation in the US-China trade conflict. As allowance for buying basic commodities as the Thai economy will likely grow more a result, Thailand’s real effective exchange also helped boost household purchasing slowly than its potential amid uncertainties rate (as measured by BIS) has risen to the power. stemming from the US-China trade highest levels since the Asian Financial tensions. There is no urgency to tighten Crisis in 1997, denting Thai manufacturers’ In line with official forecasts, we now monetary policy, whilst headline inflation competitiveness in an increasingly expect Thailand’s economy to grow 3.5% would stay near the lower bound of the challenging trade environment. this year, down from our earlier forecast BoT’s inflation target range of 1% to 4% in of 3.8%. Despite elevated household 2019. Overall financial conditions remain Going forth, we are of the view that further debt, private consumption is expected to accommodative and conducive to growth. gains in THB are unlikely. Particularly, 31.0 exhibit continued expansion on the back of However, there are risks to financial in USD/THB is a very strong support level in increasingly broad-based improvement in stability that warrant close monitoring. the last 2 years. Also, it is getting clear that non-farm income and additional supports In particular, household debt picked up Thailand would not be spared by slowing from government measures. Private again to 78.6% of GDP at the end of 2018 global demand due to increased trade investment would continue to expand from 78.3% in the previous year. Non- protectionism. Thailand’s macroeconomic particularly in transport and logistics performing loans (NPL) of SMEs in several indicators are moderating in a similar infrastructure projects in Eastern Economic businesses remained high with upward fashion as with its regional peers. Together Corridor (EEC), which display signs of trend and NPL of consumer loan increased with markets gradually unwinding earlier continued progress. Public investment in all portfolios, especially in housing and bets of a BoT hike in 2H19, the sails of auto loans. THB may soon reverse and catch up with other Asian FX weakness. Overall, we see THB weakening to 32.00 in 3Q19, 32.20 in 4Q19, and 32.50 in 1Q20 and 2Q20.

Quarterly Global Outlook 3Q2019 UOB Global Economics & Markets Research 43 VIETNAM

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F Robust Domestic Demand Will Prop Up Economic Growth In 2019 USD/VND 23,600 23,800 24,000 24,000 Source: Bloomberg, UOB Global Economics & Markets Research VND Refinancing Rate 6.25 6.25 6.25 6.25 8 30 Economic Indicators 2017 2018 2019F 2020F 7 GDP 6.8 7.1 6.7 6.5 25 6 CPI (average, y/y %) 3.5 3.5 3.4 3.8 20 5 Unemployment rate (%) 2.3 2.1 2.1 2.1 4 15 Current account (% of GDP) 1.3 3.0 3.5 3.5 3 Fiscal balance (% of GDP) -3.5 -3.7 -3.5 -3.5 10 2 5 1 0 0 Strong Growth To Continue In 2019 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Vietnam’s economy expanded more than 2014 2015 2016 2017 2018 2019 analysts had expected in 1Q19, with GDP Growth (%) Export Growth (%, RHS) General Statistics Office reporting 1Q19 GDP grew at 6.8% y/y, below the 7.3% increase in 4Q18. In the first quarter, The SBV Is Expected To Maintain Policy Rate Through Mid-2020

the country’s GDP was mainly driven by Source: Bloomberg, UOB Global Economics & Markets Research agriculture, forestry and fishery (+2.7% y/y), industry and construction (+8.6% 12 y/y) and services (+6.5% y/y), particularly 10 wholesale and retail, transport, banking 8 and finance, education and healthcare. FDI and manufacturing production 6 remained significant growth drivers. 4 According to Foreign Investment Agency, FDI commitments in the first quarter 2 totaled US$10.8 billion, the best first-three- 0 month performance to date, and soaring 86.2% y/y. Among 49 cities and provinces -2 having received foreign investment, Hanoi 2012 2013 2014 2015 2016 2017 2018 2019F Output Gap (%) Refinancing Rate (%) Inflation (%) attracted the largest portion of registered capital with over $4.2 billion, or 38.4% of total investment. Ho Chi Minh City came continued opening of new multinational growth target of 6.7%. second with over $1.6 billion or 14.5% enterprises in labor-intensive, export- of the total investment, followed by Binh oriented manufacturing and processing VND Outlook: On Track For Further Duong with $625.6 million, accounting industries. In the first five months of this Weakness Towards 24,000/USD for 5.8% of total investment. Meanwhile, year, Vietnam’s industrial production index After muted trading in a small range manufacturing production increased rose 9.4% y/y, mainly driven by growth in around 23,200 in the first 4 months this 12.4% y/y, compared with 13% y/y in the processing and manufacturing industry, year, VND weakened anew to a record previous quarter. power production and distribution, and low of 23,422 against the USD in May after water supply and waste treatment. the latest escalation in US-China trade Despite the escalating US-China trade conflict. Going forward, we still expect tensions, the economy is expected to SBV Stands Pat On Policy Rate USD/VND to track other USD/Asians expand robustly at 6.7% in 2019, slightly The SBV is expected to maintain higher. However, the weakness in the below 2018’s 7.1%. In the first four months refinancing rate at 6.25% until June 2020. VND is likely to be cushioned by Vietnam’s of 2019, Vietnam’s export growth remained At the current policy rate, the monetary strong macroeconomic performance. This positive at 6.5% y/y compared with negative policy stance remains conducive to is especially so when Vietnam is expected growth for other Asian countries, thanks to the continuation of economic growth, to be a key beneficiary of manufacturing solid growth in exports of technological while preserving financial stability. The capital reallocation away from China. products. Public investment remains an preservation of policy space is significant important growth driver. The National given external uncertainties especially the As such we reiterate a modestly higher Assembly will likely spend around $17.9 US-China trade tensions and the monetary USD/VND trajectory, with point forecasts billion for development projects this year, policy directions of major advanced at 23,600 in 3Q19, 23,800 in 4Q19, and of which 88% will come from domestic economies. The strong economic growth 24,000 in 1Q20 and 2Q20. capital and 12% from foreign sources. also eases pressure on the central bank Industrial production will be boosted by to add more stimulus to achieve annual

Quarterly Global Outlook 3Q2019 44 UOB Global Economics & Markets Research AUSTRALIA

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F Household Consumption Weighed Further On 1Q19 Growth AUD/USD 0.69 0.69 0.70 0.72 Source: Macrobond, UOB Global Economics & Markets Research AUD Offical Cash Rate 1.25 1.00 1.00 1.00

Economic Indicators 2017 2018 2019F 2020F

GDP 2.4 2.9 2.2 2.6

CPI (average, y/y %) 1.9 1.9 1.6 2.1

Unemployment rate (%) 5.6 5.3 5.1 5.1

Current account (% of GDP) -2.6 -2.0 -1.5 -2.2

Fiscal balance (% of GDP) -0.8 0.0 -0.3 0.3

Australia Economy: Worst Slowdown Since GFC The Australian economy grew at 0.4% q/q in the first three months of the year. Whilst the quarterly figure was a step up from the 0.2% q/q growth in the final quarter Household Savings Ratio At Lowest Level Since Global Financial Crisis of last year, it was below expectations of 0.5% q/q. The 1.8% y/y annual expansion Source: Macrobond, UOB Global Economics & Markets Research fell short of the long-term average of 3.5% and was the weakest since the Global Financial Crisis (GFC). Weak household spending was a drag on growth – up just 1.8% y/y over the year, with households cutting back on discretionary spending.

Australia’s economy will continue to be driven by offsetting forces. Caution from consumers amid declining house prices and a retreat in dwelling investment will be a drag. Meanwhile, increased government spending on infrastructure and services, as well as the effect of increased tax cuts announced in the federal budget earlier this year will be a boost to the economy. It has also left the door open for further AUD Outlook: Aussie Continues Overall, we are expecting a below- action, confirmed by minutes to the RBA’s To Struggle average rate of economic growth of 2.2% June meeting, that “it was more likely than The specter of more RBA rate cuts together over 2019, before growth moves higher to not that a further easing in monetary policy with escalating US-China trade tensions around 2.6% in 2020. would be appropriate in the period ahead”, will continue to weigh on the AUD. Even and “developments in the labour market after RBA’s maiden cut in almost 3 years RBA: More Rate Cuts Ahead would be particularly important”. We are in June, financial markets have priced in The RBA lowered its OCR to a record-low expecting another rate cut this year. This almost 50bps of further cuts by December. of 1.25% during its June monetary policy is because RBA Governor Phillip Lowe As such, it is likely that AUD/USD will trade meeting, ending an almost three-year has pointed to an ambitious objective for heavily around 0.69 for the immediate pause. The basis for the RBA’s decision the labour market, with an unemployment 3Q19 and in 4Q19. However, we reiterate was “to support employment growth and rate of 4.5% seen as necessary to bring our longer term view that once the USD provide greater confidence that inflation inflation back to target. This is despite turns against the Majors, the AUD will will be consistent with the medium-term the RBA’s forecasts indicating a 5.0% also find some form of support. As such target”. Inflation in 1Q19 was weak at unemployment rate on the basis of two we maintain a modest upwards trajectory 1.3%, down from 1.8% y/y in 4Q18; and rate cuts. in AUD/USD starting next year, looking at the unemployment rate remained stuck forecasts of 0.70 and 0.72 for 1Q20 and at 5.2% in April. With this cut, the RBA 2Q20 respectively. seeks to address the weak household consumption, which has been a drag on the Australian economy.

Quarterly Global Outlook 3Q2019 UOB Global Economics & Markets Research 45 EUROZONE

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F Pressure On ECB As Eurozone Inflation Expectations At Record-Low EUR/USD 1.12 1.12 1.14 1.16 Source: Macrobond, UOB Global Economics & Markets Research EUR Refinancing Rate 0.00 0.00 0.00 0.00

Economic Indicators 2017 2018 2019F 2020F

GDP 2.4 1.9 1.2 1.3

CPI (average, y/y %) 1.5 1.8 1.3 1.4

Unemployment rate (%) 9.1 8.2 7.7 7.6

Current account (% of GDP) 3.2 2.9 3.0 2.8

Fiscal balance (% of GDP) -1.0 -0.5 -1.0 -1.0

ECB: Draghi At It Again Back in 2017, Draghi had used the ECB Forum to signal a potential upcoming change in monetary policy. And two years later, he has done it again – this time, striking a defiantly dovish tone. In fact, any, the ECB will make changes, first, to On our end, we are revising lower, both our Draghi’s comments at Sintra, Portugal its deposit rate of 10bps. Since Draghi growth and inflation forecasts for 2019, to were a much clearer signal of an easing hinted that “tiering” is still on the cards, we 1.2% (from 1.3%) and 1.3% (from 1.4%) bias to policy than offered at the June ECB also would not be surprised, if the ECB respectively. We have also brought lower meeting just two weeks before. In light of introduces a tiering system to mitigate the our 2020 forecasts, now looking at GDP this, we now expect the ECB to review impact of further negative interest rates to come in at 1.3% (from 1.4%) and for all policy options, including rate cuts, on the banking sector. For now, we will inflation to come in at 1.4% (from 1.5%). changes to forward guidance and asset not be making any changes to our rates purchases (i.e., quantitative easing, QE). forecast, but will adjust accordingly based EUR Outlook: Glued To 1.12 in 2H19 on incoming economic data. As ECB And Fed Trades Dovish Strokes At present, the forward guidance currently It was a volatile month for EUR in June. states that rates will “remain at their We also note, that at the end of October, EUR/USD rallied from its 2-year low near present levels at least through 1H20”. Draghi will be stepping down as president 1.11 to as high as 1.1348 in early-June, We think this language will be changed of the ECB after eight years in the job. It spurred by a sudden and aggressive in July to either “at present levels for an remains a big question whether the next repricing of Fed rate cuts. From there, it extended period”, which would be less candidate will succeed. Perhaps, the has pared back more than half of its gains, time-contingent, or to “at present levels riskiest by far, would be Jens Weidmann, trading closer to 1.12 after Draghi hinted or lower” to include the possibility of lower the Bundesbank president, who is known at possible rate cuts. Going forth, the tug- interest rates. to be a hawk. Weidmann has opposed of-war between the ECB and Fed on the many of Draghi’s innovations, including degree of dovishness would be a driver for From there, we believe additional QE is resorting to QE. He even testified against EUR/USD. For now, we expect 50bps of the more probable option for the ECB, Outright Monetary Transactions (OMT) rate cuts from the Fed in 2H19 while the especially since further negative rates will before the German constitutional court. ECB is only cutting by 10bps if data out lead to potentially negative consequences of the Euro-area continues to deteriorate. for banks in terms of profitability, and in Eurozone Economy: As such, the interest rate gap between the turn, lending conditions. However, the Outlook Remains Gloomy Euro-area and the US should continue to ECB will likely increase its self-imposed The ECB sees growth revised higher its narrow (as it had since Nov), giving EUR/ issuer limit for bond purchases from 33% growth outlook for 2019 to 1.2% (from USD a modest support. On balance, we to, say, 50%. It may also introduce a higher 1.1%), whilst the 2020 and 2021 forecasts remain positive on EUR/USD but the limit for top-quality (AAA) issuers. were slightly lower than in March, now at resulting trajectory is shallower than that 1.4% (from 1.6%) and 1.4% (from 1.5%). of in the previous quarterly report where If economic conditions deteriorate at a For inflation, there were also hardly any we envisaged a hawkish ECB. Our point significant pace, the ECB may have to changes, with headline inflation now forecasts are 1.12 in 3Q19 and 4Q19, resort to cutting rates further as part of expected to come in at 1.3% in 2019 (from 1.14 in 1Q20 and 1.16 in 2Q20. a package together with a restart of QE. 1.2%), 1.4% in 2020 (from 1.5%) and Although there is a wide range of options 1.6% in 2021 (unchanged). to cut, the deposit rate has, for the most part, served as the most important policy rate for the ECB. Hence, we think, if

Quarterly Global Outlook 3Q2019 46 UOB Global Economics & Markets Research NEW ZEALAND

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F Employment Growth Has Been Subdued NZD/USD 0.65 0.65 0.66 0.68 Source: Macrobond, UOB Global Economics & Markets Research NZD OCR 1.50 1.50 1.50 1.50

Economic Indicators 2017 2018 2019F 2020F

GDP 2.7 2.8 2.6 2.6

CPI (average, y/y %) 1.9 1.6 1.7 2.0

Unemployment rate (%) 4.7 4.3 4.3 4.3

Current account (% of GDP) -2.9 -3.7 -3.3 -3.3

Fiscal balance (% of GDP) 1.2 0.1 0.6 0.7

New Zealand Economy: Held Up By Construction Growth New Zealand’s GDP rose 2.5% y/y in 1Q19, matching the revised pace in 4Q18, which was the slowest in five years, but up from 2.3% y/y in the previous quarter. 1Q Inflation Disappoints On a quarterly basis, GDP rose 0.6% q/q, the same rate it grew by in the December Source: Macrobond, UOB Global Economics & Markets Research quarter. The latest figures paint a rosier picture of the economy than the RBNZ had expected in May, when it cut the OCR and revised its forecast for the quarter down to 0.4% q/q, and its forecast for the year down to 2.2% y/y. Growth was driven higher mainly by construction, which was up 3.7% from the previous quarter, in what was otherwise shaping up to be a subdued quarter. Still, growth was held back by subdued service sector activity and household spending on services. Going forward, we continue to expect subdued growth, moderately supported by low interest rates and fiscal spending. Our full year GDP growth of 2019 is now at 2.6%, from 2.7% previously. We We see the RBNZ as “balanced”, for now, NZD Outlook: Kiwi To Remain Soft have kept 2020’s full year GDP growth and the rate cut in May as a pre-emptive NZD/USD dropped from 0.69 in late-March unchanged at 2.6%. move against a further deterioration in to 0.65 as of writing, after the RBNZ shifted economic conditions. On the face of better to an easing bias in its March’s meeting RBNZ: Has More Room To Wait growth numbers in the first quarter, the and delivered a rate cut in May. Similar to The RBNZ cut its benchmark rate for the RBNZ may not need to move as quickly its antipodean peer (AUD), the NZD will first time in more than two years in May, again. The current RBNZ's projections continue to face pressure from further rate slashing its OCR by 25bps to 1.50%. In the of the OCR suggest it is slightly more cut expectations. For the next six months, accompanying press release, the RBNZ probable that we see a rate cut sometime markets priced in almost two more rate concluded that “Given this employment and in the next 12 months. At this juncture, we cuts by the RBNZ (and the RBA). As such, inflation outlook, a lower OCR now is most are not seeing any change in the OCR it is likely that NZD/USD will stay weak at consistent with achieving our objectives over the forecast horizon, but note that the around 0.65 for the immediate 3Q19 and and provides a more balanced outlook risk of another rate cut could still happen if also in 4Q19. However, we reiterate our for interest rates”. Indeed, inflation has economic fundamentals deteriorate further. longer term view that once the USD turns been drifting further off the mid-point of against the Majors, the NZD will also find the RBNZ’s 1-3% target range, and it now some form of support. As such we maintain requires a stronger employment market to a modest upwards trajectory in NZD/USD support inflation. Whilst employment is near starting next year, looking at forecasts its maximum sustainable level, employment of 0.66 and 0.68 for 1Q20 and 2Q20 growth has shown signs of slowing. respectively.

Quarterly Global Outlook 3Q2019 UOB Global Economics & Markets Research 47 UNITED KINGDOM

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F Summary Of MPC Members’ Recent Views GBP/USD 1.25 1.28 1.30 1.30 Role/End Vote In June Member Most Recent Comments Stance GBP Repo Rate 0.75 0.75 0.75 0.75 of Term 2019 Michael External Rate: 0.75% “The MPC does not necessarily have to keep rates Economic Indicators 2017 2018 2019F 2020F Saunders Member Gilts: £435bn on hold until all Brexit uncertainties are resolved,”… HAWKISH GDP 1.8 1.4 1.3 1.4 Aug 2022 Corp bonds: “The MPC has already raised rates twice since the £10bn Brexit vote. We will act again if needed to ensure CPI (average, y/y %) 2.7 2.5 1.9 2.0 a sustained return of inflation to target over time.” Unemployment rate (%) 4.4 4.1 4.0 4.1 10 June: Speech - The Economic Outlook  Current account (% of GDP) -3.3 -3.9 -3.9 -3.5

Fiscal balance (% of GDP) -1.9 -1.4 -1.5 -1.4 Andy Chief “For me personally, the time is nearing when a small Haldane Economist rise in rates would be prudent to nip any inflationary June 2020 risks in the bud,”…“Acting early with a rate rise acts as insurance against the need for faster and larger rises in interest rates in future.” UK Economy: Weak Outlook Amid Search For New PM 8 June: Article in The Sun GDP shrank by 0.4% m/m in April, the biggest monthly drop since March 2016, Mark Governor “The Bank retains the ability to relaunch the Carney Jan 2020 scheme as necessary and in light of that the MPC pulling the three-month-rolling growth rate judges the effective lower bound to Bank Rate to be down to 0.3%. The weakening economic now close to but a little above 0%.” backdrop comes as the UK Conservative 18 June: Remarks to Open Policy Panel at ECB Party prepares to pick a new leader. As Forum of writing, MPs in the Conservative Party Ben (Deputy “Were the economy to develop in line with our have decided that the run-off contest Broadbent Governor projection…interest rates would probably have to among the party’s grassroots members to – rise by a little more than what was in the curve at choose Theresa May’s successor will be Monetary the time of the May forecast.” Policy) between Boris Johnson and Jeremy Hunt. Jun 2024 12 June: Speaking to Treasury Committee

BoE: Hands Are Tied Silvana External “So while I still envisage that in the event of a Tenreyro Member smooth Brexit we will need a small amount of As expected, the BoE left the Bank Rate Jul 2020 tightening over the next three years, before voting unchanged at 0.75%, whilst maintaining for any rate rises I would want to be confident that its guidance that rates will need to move demand was growing faster than supply.” higher if the economy continues to evolve 7 March: Speech - Monetary Policy In Times Of on par with the Bank’s latest projections. Uncertainty However, it was clear the MPC is becoming Sir Dave (Deputy “If we get a smooth Brexit with a transition deal, more concerned about the possibility of Ramsden Governor as assumed in the MPC’s latest Inflation Report, I a no deal Brexit. After all, Boris Johnson – Markets expect growth to pick up, leading to excess demand looks set to replace Theresa May as PM, & and building domestic inflationary pressure, so Banking) that further monetary tightening is appropriate to and he has expressed his willingness to Sep 2022 maintain monetary stability. pull the UK out of the EU without a deal. 30 May: Speech - Resilience: Three Lessons From The more “dovish” tone was reflected The Financial Crisis in the statement and minutes, which softened when compared to May, but also Gertjan External “The news since May I think has been, both in the against recent more “hawkish” speeches. Vlieghe Member data has been a little disappointing and in terms of Sep 2021 both the global downside risks and the domestic Overall, the BoE’s “new” gear simply downside risks my read is that they have both reinforces our view that until the BoE sees intensified.” clarity from Brexit, an imminent move in 11 June: Discussion panel at the NIESR rates is unlikely. Jonathan External “But all of this is a long way off. At least for the next GBP Outlook: Brexit Uncertainty Haskel Member few years the prospect of low investment seems Sep 2021 possible.” Continues To Weigh

The fog of Brexit remains, with rising odds 11 March: Speech - Will UK Investment Bounce

Back? of a no-deal Brexit on increasing prospects of Boris Johnson, a hardline Brexiter, Sir Jon (Deputy “The most prominent short-term risk facing the UK  being voted by the Conservatives to be the Cunliffe Governor today of some financial sector correction is the next PM. Markets have been aggressively – possibility of an extremely disorderly Brexit. Financial rebuilding short GBP/USD positions since Stability) 6 March: Speech - When Expectations Meet The Oct 2023 Future mid-May, putting pressure on the spot. We DOVISH maintain our cautious near-term view on Source: BOE, Various Sources, UOB Global Economics & Markets Research the GBP/USD, seeing the pair below 1.30 in the immediate two quarters.

Quarterly Global Outlook 3Q2019 48 UOB Global Economics & Markets Research UNITED STATES OF AMERICA

FX & Rates 3Q19F 4Q19F 1Q20F 2Q20F Inflation Is Benign Despite Wage Growth & Tariffs, Inflation Expectations At 40-Year Low US Fed Funds Rate 2.25 2.00 2.00 2.00 Source: Macrobond, UOB Global Economics & Markets Research Economic Indicators 2017 2018 2019F 2020F

GDP 2.2 2.9 2.3 1.3

CPI (average, y/y %) 2.1 2.4 2.5 2.5

Unemployment rate (%) 4.1 3.9 3.5 3.6

Current account (% of GDP) -2.4 -2.4 -2.5 -3.0

Fiscal balance (% of GDP) -3.4 -3.8 -4.5 -4.5

Whatever It Takes To Sustain Expansion Even after a slight downward revision, the US growth trajectory in 1Q 2019 was still a very impressive 3.1% q/q SAAR. That is, until you look at the details. Growth was due to net trade, private inventories and of “blips”. A positive development is that the US debt ceiling limit with global financial state & local government spending. Private unemployment rate held steady at 3.8% in implications if an unprecedented US consumption and business investments Apr/May and the expected improvement in default happens. continued to expand but their growth US labor participation rate could increase rates moderated noticeably. Residential the slack in labor market and in turn allow FOMC: Cuts Expected Earlier In 3Q investment continued to weaken for the the Fed to “run it hot” and sustain the US The FOMC kept its policy Fed Funds Target fifth straight quarter. domestic expansion. Rate (FFTR) unchanged at the 2.25%- 2.50% range in Jun (2019) but the key And while US recession probability (as Despite the upbeat in 1Q GDP, we development was the removal of “patient” measured by NBER) has now touched still project US growth to slow in the and the inclusion to “act as appropriate to 30% in Jun (implying recession in May subsequent quarters due to the expected sustain the expansion” which opens the 2020), recent US data is still a mixed bag. reversal of contributions by some of the door to Fed rate cuts. From Jun’s Dotplot, ISM manufacturing (15% of US economy) factors in 1Q (net trade, private inventories the bias clearly shifted to rate cuts as there PMI weakened further in May, but the non- and state & local government spending), are now 8 Fed policymakers who expect manufacturing (80% of US economy) PMI moderation in consumer spending and rate cuts in 2019 (from none previously strengthened further. Latest retail sales investments growth, and most importantly, in Mar). Even though US data remains and industrial production data recorded the still uncertain outcomes for the trade largely positive, we think the Fed will cut stronger than expected increases in May tensions between US and its biggest rates for two reasons: 1) US trade policy too. And while bad weather in parts of trading partners (especially China). direction & tariff developments, and 2) US may hit activity in some months, the Overall, we still expect growth to slow US inflation (core PCE) staying below impact should be transient in 2019. to 1.5% in 2Q 2019 (while Atlanta Fed’s the Fed Reserve’s 2% goal with inflation GDP tracker is forecasting about 2%), and expectations dwindling to a 40-year low. US consumer confidence is still at an thereafter growth slows further in 2H 2019. We expect the Fed to cut its FFTR by elevated level even as jobs gains slowed Despite the lower growth trajectory, we 25bps in Sep, followed by another 25bps and the global economy heads into an revise our full year growth higher to cut in Dec, bringing the upper bound of uncertain future due to US trade policies 2.3% in 2019 (from 2% previously) due FFTR to 2.00% range by end-2019, which with China and its key allies. It is difficult to to the strong 1Q GDP print. We still price matches the Fed’s 2% inflation target. We call the US consumer sentiment anywhere in a mild US technical recession in 2020, acknowledge the risk that rate cuts could near worrisome levels but one area of lowering growth further to 1.3% next year. be brought forward to the July FOMC. The concern is definitely falling long-term main reason for expecting cuts in Sep and inflation expectations which eased to 2.2% Most risk factors to US are still external Dec FOMC is because these meetings are in Jun (from 2.6% in May), lowest level in (i.e. slowdown in China & Europe, Brexit accompanied by both a press conference 40 years since the question was included and trade negotiations). But domestically, and an updated Summary of Economic in the survey. In the meantime, the US the risk is politics with the threat of another Projections. In 2018, all four rate hike jobs market suffered 2 blips so far in government shutdown and US debt ceiling decisions took place in such meetings. 2019, Feb and May when the prelim print limit in 2H. US lawmakers are already missed the market median forecast by trying to seek (temporary) resolutions but While we currently do not price in further >100,000 and was also well below 2018’s as we have seen in the recent past years, cuts in 2020, we do see the risk of another monthly average of 223,000. The US has brinkmanship is becoming the hallmark 25bps cut in 1Q 2020 and Fed will leave added new jobs on a monthly basis since of US politics, not bipartisanship. US the door open to do more if the US-China Oct 2010 so there is a real concern that ended its longest government shutdown (and the rest of world) tariff fight intensifies job creation could markedly slow in the in early 2019, with little impact on overall further with material downside impact to remainder of 2019 with higher frequencies GDP but the same cannot be said for the US and global growth.

Quarterly Global Outlook 3Q2019 UOB Global Economics & Markets Research 49 FX TECHNICALS

USD/SGD: 1.3560

Despite staging the largest 1-week gain in 2-1/2 years and breaking a strong technical resistance at 1.3680 in mid-May, USD/SGD failed to build on its momentum as it dropped back quickly without challenging the pivotal mid-term resistance level of 1.3875 (high has been 1.3835 in the last week of May). The build-up in upward pressure fizzled out quickly and momentum has shifted to the downside. At the time of writing in the middle of June, USD/SGD is on track to register the largest 1-week decline since January 2018. Going into the third quarter of this year, USD/SGD could move towards the pivotal support at 1.3445. At this stage, it is premature to expect a sustained decline below this level.

EUR/USD: 1.1290

EUR/USD traded in a quiet manner and within narrow ranges for most of Q2. It tested the 1.1100/10 support zone a couple of times but was unable to break through. In the first week of June, EUR/USD rose strongly to 1.1347 before ending the week with a gain of 1.47%, the largest 1-week advance in 9-1/2 months. While the strong advance coincided with the break of what appears to be ‘declining wedge’, there was no follow through. The subsequent drop from 1.1347 has dented the upward momentum. All in, EUR/USD is expected to stay under mild downward pressure in the beginning of Q3 but barring a decline below 1.1100/10, we expect EUR/USD to eventually recover and test the major resistance at 1.1450.

Quarterly Global Outlook 3Q2019 50 UOB Global Economics & Markets Research FX TECHNICALS GBP/USD: 1.2710

While the failure to move above the declining trend-line resistance just above 1.3200 was not surprising, the sharp drop in GBP/USD from the mid-May high of 1.3190 was not expected. Despite the relatively rapid decline, downward momentum has not improved by much. That said, the underlying tone remains weak and GBP/USD could move below the year-to-date low of 1.2410 even though at the time of writing in the middle of June, the prospect for a sustained decline below 1.2410 is not high (the next support is at 1.2300). All in, GBP is expected to stay under downward pressure unless it can move above 1.2850. The declining trend-line resistance at 1.3070 is unlikely to come into the picture in the third quarter of this year.

AUD/USD: 0.6850

AUD/USD touched 0.7205 in April but since then, it has slipped and at the time of writing in the middle of June, it has just edged below the May’s low of 0.6865. The break of 0.6865 coupled with increasing downward momentum suggests the risk for the third quarter of this year is on the downside. A revisit of the ‘flash-crash’ low of 0.6715 would not be surprising but at the time of writing in the middle of June, the odds for AUD/USD to move to the next support at 0.6600 is not high. Overall, AUD/USD is expected to stay under pressure until it can move above the declining trend-line resistance at 0.7120.

Quarterly Global Outlook 3Q2019 FX TECHNICALS UOB Global Economics & Markets Research 51 USD/JPY: 107.30

USD/JPY traded in a relatively subdued manner in the second quarter of year, rising to 112.40 in late April before slipping to low 107s at the time of writing in the middle of June. Downward momentum has ticked up albeit not by much and USD/JPY could continue to edge lower in the third quarter of this year. However, in view of the lackluster momentum, a break of the solid 104.55/104.95 support zone would come as a surprise. On the upside, the 112.40 peak is acting as a solid resistance and this level is not expected to come into the picture (110.50 is already a strong resistance level).

EUR/SGD: 1.5320

Despite staging a relatively robust recovery from the late April low of 1.5140, the underlying tone for EUR/SGD remains weak. That said, the decline that started from the September 2018 peak of 1.6112 appears to be struggling to maintain its downward momentum. For the third quarter of the year, EUR/SGD could dip below 1.5140 but any weakness is unlikely to threaten the 2017 low of 1.4795 (1.5000 is already quite a strong support). On the upside, resistance is at 1.5480 but only a move above 1.5600 would indicate a sustained recovery in EUR/SGD has started.

Quarterly Global Outlook 3Q2019 52 UOB Global Economics & Markets Research FX TECHNICALS GBP/SGD: 1.7170

At the time or writing the in the middle of June, GBP/SGD just moved below the rising trend-line support at 1.7150. The break of the trend- line coupled with increased downward momentum suggests a move below the early January low of 1.6995 would not be surprising. That said, the ‘Brexit low’ of 1.6225 is not expected to come into the picture. Overall, GBP/SGD is expected to trade with a downside bias in the third quarter of this year but any weakness could be limited to a test of 1.6800. On the upside, 1.7870 is likely strong enough to cap any GBP/SGD rebound. On a shorter-term note, 1.7600 is already a strong resistance level.

AUD/SGD: 0.9390

RBA rate cut in early June sent AUD tumbling and the decline is expected to gravitate towards the early January ‘flash-crash’ low of 0.9260. The ‘flash-crash’ low can be considered as a ‘psychological support’ but as this level is also very close to the bottom of the declining channel (if one were to ‘discount’ the fleeting move to 0.9260), the prospect for a sustained drop below this level is not very high. Even if AUD/SGD were to move below 0.9260, there is still another ‘psychological support’ at 0.9070 which is the low registered during the Great Financial Crisis in October 2008. Resistance is at 0.9580 but only a move above the top the declining channel at 0.9750 would indicate that AUD/SGD is ready to embark on a recovery phase.

Quarterly Global Outlook 3Q2019 FX TECHNICALS UOB Global Economics & Markets Research 53 JPY/SGD: 1.2630

After dipping to a low 1.2060 in mid-April, JPY/SGD staged a rapid and robust rally. The advance appears to be running ahead of itself even though there is scope for JPY/SGD to test the declining trend-line resistance at 1.2850. In view of the already overbought conditions, a break of the early January high of 1.3010 would come as a surprise. On the downside, the 1.2060 low is unlikely to come back into the picture within the third quarter of the year. On a shorter-term note, 1.2350 is already a relatively strong support level.

Quarterly Global Outlook 3Q2019 54 UOB Global Economics & Markets Research FX TECHNICALS COMMODITIES TECHNICALS

SPOT GOLD: $1,400/oz

After failing to breach the rising trend-line support at $1,269 in late May, spot gold staged a strong and impulsive rally within a short period and at the time of writing in the middle of June, it not only blew past the major $1,366/$1,375 resistance zone but also hit a 5-year high. The combination of impulsive momentum and break of technical levels suggest gold is likely to extend its rally towards the next resistance zone between $1,450 and $1,470. The ‘round number’ resistance level of $1,500 could be out of reach within the third quarter of this year. The rising trend-line support (sitting at $1,290 at the time of writing) is expected to remain intact. On a shorter-term note, $1,345 is already a strong support level. LME 3-MTH COPPER: $5,918/mt

Copper edged above the strong $6,532 resistance in mid-April but failed to hold on to its gains (high of $6,608). However, the subsequent drop from the high has been very sharp and rapid. At the time of writing in the middle of June, copper is holding not far above the early January low of $5,725. While the rapid decline has moved into oversold territory, the weakness is not showing sign of stabilizing. Going into the third quarter of this year, copped could dip to $5,640 but the next support at $5,463 is not expected to come into the picture. On the upside, the $6,608 level is akin to a ‘high-water mark’ and is expected to stay intact. On a shorter-term note, $6,200 is already a strong resistance level. BRENT CRUDE: $63.50/bbl

Brent crude rose briefly to $75.60 in late April before staging a sharp and rapid decline. While it is too soon to expect a bottom, the weakness in Brent is approaching oversold territory and any further weakness in the third quarter of this year is likely to be slow and grinding. The rising trend-line at $52.00 a solid support and this level is unlikely to be challenged. On a shorter-term note, $55.00 is already a strong level. On the upside, any recovery in Brent is expected to struggle to move beyond $70.30, the next resistance, a much stronger level is at the late April peak of $75.60.

Quarterly Global Outlook 3Q2019 COMMODITIES TECHNICALS UOB Global Economics & Markets Research 55 CONTACTS

Global Economics & Markets Research

Suan Teck Kin, CFA Head of Global Economics & Markets Research (65) 6598 1796 [email protected]

Alvin Liew Julia Goh Heng Koon How, CAIA Senior Economist Senior Economist (Malaysia) Head of Markets Strategy (65) 6598 1797 (60)3 2776 9233 (65) 6598 1798 [email protected] [email protected] [email protected]

Lee Sue Ann Loke Siew Ting Quek Ser Leang Economist Economist (Malaysia) Market Strategist (65) 6598 1792 (60)3 2772 6221 (65) 6598 1795 [email protected] [email protected] [email protected]

Ho Woei Chen Manop Udomkerdmongkol Peter Chia Economist Economist (Thailand) Senior FX Strategist (65) 6598 1793 (66)0 2343 4330 (65) 6598 1754 [email protected] [email protected] [email protected]

Barnabas Gan Enrico Tanuwidjaja Victor Yong Economist Economist (Indonesia) Interest Rate Strategist (65) 6598 1791 (62)21 2350 6000 ext. 81618 (65) 6598 1799 [email protected] [email protected] [email protected]

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