Weekly Macro Views (WMV) - Treasury Research & Strategy (20 July 2021) - OCBC Bank
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Weekly Macro Views (WMV)
Treasury Research & Strategy (20 July 2021)
1
Weekly Macro Update
Key Global Events for this week:
19th July 20th July 21st July 22nd July 23rd July
- UK Rightmove House - US Housing Starts - US MBA Mortgage - US Initial Jobless - SG CPI
Prices - JN Natl CPI Applications Claims - GE Markit PMI
- US NAHB Housing - TA Export Orders - AU Retail Sales - ECB Deposit Facility - EC Markit PMI
Market Index - HK Unemployment - SK PPI Rate - UK Markit PMI
- TH Car Sales Rate - NZ Credit Card - ECB Main - US Markit PMI
- CA Bloomberg Nanos - GE PPI Spending Refinancing Rate - AU Markit PMI
Confidence - AU Confidence Index - JN Trade Balance - ID BI 7D Reverse - MA CPI
- EC Construction - CN 1Y & 5Y Loan - TH Customs Trade Repo - TH Foreign Reserves
Output Prime Rate Balance - HK CPI Composite - TA Industrial
- TA Unemployment Production
Rate
Summary of Macro Views:
• CH: Better than expected 2Q growth
• Global: US retail sales surprise on the upside • CH: Puts brake on credit slowdown
• Global: US CPI post largest increase in 13 years Asia • MY: Vaccination’s up
• Global: Shortages plague US industrial production • ID: More Covid-19 Stimulus
Global
• Global: RBNZ to stop bond buying programme • ID: Thinner trade surplus
• Global: Bank of Canada cuts growth forecasts
• Global: BOJ leaves key rate unchanged in July
Asset • Oil: OPEC+ reaches an agreement
• SG: Revising growth forecast higher to 7.0% yoy
Class • FX & Rates: Growth concerns
• SG: More potential upside for S’pore’s NODX
Asia
• HK: Financial market is getting new impetus
• Macau: Tempered demand from high rollers
Asset
• Asset Flows
Flows
Source: OCBC, Bloomberg
2
Global: US retail sales surprise on the upside
• June retail sales rose 0.6% m/m to beat estimates of a 0.3% decline m/m. Excluding
automobiles, retail sales increased 1.3% m/m, beating estimates of a 0.4% m/m gain.
Separately, US consumer sentiment sank to 80.8 in July’s preliminary read, the lowest since
February 2021.
• Other key developments:
• The UK will lift Covid-19 restrictions from today. There are now no limits on the number of
people on most social gatherings, while face coverings are no longer required by law. On
the other hand, Singapore has further tightened Covid-19 restrictions. From 19 July to 8
August, dining-in group sizes have been reduced from five to two, as authorities attempt to
contain the latest outbreak.
• Key data release are as follows:
• 19th July: UK Rightmove House Prices, US NAHB Housing Market Index, TH Car Sales, CA
Bloomberg Nanos Confidence, EC Construction Output
• 20th July: US Housing Starts, JN Natl CPI, TA Export Orders, HK Unemployment Rate, GE
PPI, AU Confidence Index, CN 1Y & 5Y Loan Prime Rate
• 21st July: US MBA Mortgage Applications, AU Retail Sales, SK PPI, NZ Credit Card
Spending, JN Trade Balance, TH Customs Trade Balance
• 22nd July: US Initial Jobless Claims, ECB Deposit Facility Rate, ECB Main Refinancing Rate,
ID BI 7D Reverse Repo, HK CPI Composite, TA Unemployment Rate
• 23rd July: SG CPI, GE Markit PMI, EC Markit PMI, UK Markit PMI, US Markit PMI, AU Markit
PMI, MA CPI, TH Foreign Reserves, TA Industrial Production
3
Global: Central Banks
Forecast – Key Rates
People’s Bank of China Bank Indonesia (BI) European Central Bank
(PBoC) (ECB)
Tuesday, 20 July Thursday, 22 July Thursday, 22 July
House Views
1-year Loan Prime Rate 7D Reverse Repo Deposit Facility Rate
Likely hold at 3.85% Likely hold at 3.50% Likely hold at -0.500%
5-year Loan Prime Rate Main Refinancing Rate
Likely hold at 4.65% Likely hold at 0.000%
Source: OCBC, Bloomberg
4Global: US CPI post largest increase in 13 years
• June’s headline inflation printed at a higher-than-expected 5.4% yoy (0.9% mom, the
largest surge since 2008, while core CPI jumped to 4.5% yoy (0.9% mom) in its largest
uptick since November 1991.
• The inflation ascent was driven by supply bottlenecks and re-opening of sectors like
airlines and hotels as well as used vehicle prices. It is estimated almost 33% of the CPI
increase came from used car and truck prices.
• Food and energy prices also recorded significant gains, increasing 0.8% mom and 1.5%
mom respectively.
• With supply chain constraints and reopening of travel, June’s strong CPI print seems to
be pointing to stronger and longer increases in the coming months despite the Fed’s
rhetoric that it is just transitory.
Sources: Bloomberg, OCBC
5Global: Shortages plague US industrial production
• US industrial production rose by 0.4% mom in June, down from the 0.7% mom increase
in May and falling below expectation of a 0.6% mom growth.
• The shortage of semiconductors continue to persist, resulting in a 6.6% mom fall in the
production of automobiles and related parts. Excluding automobiles, US industrial
production grew 0.8% mom.
• Utilities production rose 2.7% mom, on the back of increased demand for air conditioning
due to multiple states across the country experiencing heatwaves.
• Robust demand is set to continue in the coming months, and the supply bottleneck in
semiconductors seems set to linger around until the end of 2021 at least.
Sources: Bloomberg, OCBC
6Global: RBNZ to stop bond buying programme
• RBNZ left its cash rate unchanged at 0.25% but in a surprise move, it announced that it
will be halting its NZ$100 billion asset buying programme by July 23.
• The move comes on the back of booming housing prices in New Zealand and robust
consumption spending.
• Markets are now expecting NZ to hike its key interest rate as early as August. This would
mean that New Zealand could likely be one of the first countries in the world to hike
interest rates.
Sources: Bloomberg, OCBC
7Global: Bank of Canada cuts growth forecasts
• BOC held its policy rate unchanged at a record low of 0.25% and also stated that it would
keep the rate close to zero until the 2nd half of 2022 at least.
• The bank also cut down on its bond purchasing program from C$3 billion weekly to C$2
billion weekly.
• BOC also made revisions to its economic growth forecast, tipping the Canadian economy
to grow 6.0% in 2021, down from the previous forecast of 6.5%. Forecasts for 2022
growth were revised up to 4.6% from 3.7% previously.
Sources: Bloomberg, OCBC
8Global: BOJ leaves key rate unchanged in July
• In line with expectations, the BOJ left the interest rate unchanged at -0.100% and the 10-
year yield target at 0.000%.
• The central bank revealed new forecasts for the country’s economic growth, cutting
growth for the current fiscal year which ends March 2022 to 3.8%, down from the 4.0%
previously forecasted in April.
• Inflation forecasts were raised from 0.1% to 0.6% in the current fiscal year, citing surges
in energy and commodity prices.
• BOJ has also initiated a new green scheme to more effectively deal with the effects of
climate change. The scheme aims to provide loans to banks at 0% interest rate should
they invest in green and sustainability bonds.
Sources: Bloomberg, OCBC
9SG: Revising growth forecast higher to 7.0% yoy
• Singapore’s economy grew 14.3% yoy but contracted 2.0% qoq sa due to implementation
of P2(HA), based on 2Q21 flash estimates. This is in contrast to 1Q21’s reading of 1.3%
yoy (3.1% qoq sa).
• All three sectors, manufacturing, services and construction registered positive on-year
growth of 18.5%, 9.8% and 98.8% yoy due to the very low base last year, but declined
1.8%, 1.0% and 11.0% qoq sa with the spike in Delta Covid infections forcing Singpaore
to go into P2(HA) in May.
• However, certain sectors’ growth, such as Construction, Retail, Transportation & Storage,
Accommodation & Food Services as well as Real Estate still remained below pre-covid
levels.
• 1H21 GDP growth came in at a healthy 7.4% yoy, and our estimates are for full-year 2021
GDP growth to come in close to the 7.0% yoy handle even if the growth momentum
moderates yoy as the low base effects from the previous year starts to wear off.
Sources: Bloomberg, OCBC
10SG: More potential upside for S’pore’s NODX
• Singapore’s NODX surged 15.9% yoy (6.0% mom sa) in June, nearly double the May
readings of 8.6% yoy (-0.2% mom sa) and mostly stemming from the low base last year.
• Non-electronics exports jumped 13.2% yoy (compared to just 7.9% yoy in May), aided by
increases in specialised machinery (43.2% yoy) and petrochemicals (51.2% yoy).
• Electronics exports also rose 25.5% yoy in June, more than double the 11.0% yoy growth
seen in May, amid strong growth in PCs (130.2% yoy), ICs (14.9% yoy) and diodes &
transistors (32.2% yoy).
• June NODX grew for 7 of the top 10 NODX markets, powered by China (27.6% yoy),
EU27 (36.7% yoy) and Taiwan (41.4% yoy) on the back of higher demand for specialised
machinery, pharmaceuticals and petrochemicals/primary chemicals.
• We upgrade our full-year 2021 NODX growth forecast to 8.0% yoy, up from 4%
previously.
Singapore Enterprise, OCBC
11HK: Financial market is getting new impetus
• The Biden Administration has been active in responding to Hong Kong issue lately
including issuing an advisory warning US companies of the risks of operating in Hong
Kong and imposing sanctions on seven Chinese officials in Hong Kong. At this juncture,
this may not have much impact on Hong Kong’s financial market which is instead getting
new impetus. On the one hand, China reportedly plans to exempt companies listing in
Hong Kong from cybersecurity review. If this is the case, it may bolster Hong Kong’s
strong IPO market. On the other hand, Hong Kong’s Green and Sustainable Finance
Cross-Agency Steering Group announced to take next steps to support Hong Kong to be a
leader in green and sustainable finance and help the transition of the financial ecosystem
towards carbon neutrality. The Steering Group will focus on three areas including 1)
Climate-related disclosures & sustainability reporting; 2) Carbon market opportunities and
3) Centre for Green and Sustainable Finance.
Source: HKMA, OCBCWH
12Macau: Tempered demand from high rollers
• Gaming revenue rose by 684.7% yoy to MOP25.38bn in 2Q amid low base effect and
the strong rebound of mass market revenue (+16.3% qoq or +1095.5% yoy) on holiday
effect.
• In contrast, VIP revenue dropped 6.8% qoq to MOP8.5bn, partially due to China’s
crackdown on cross-border gambling. As a result, the share of VIP revenue in gross
gaming revenue fell to 33.5%, the lowest since record. Given the tempered demand
from high rollers, it may be harder for the gaming sector to return to pre-pandemic
levels. On a positive note, should border reopen for Hong Kong visitors and China’s local
epidemic remain well-contained, it may provide additional impetus for the mass market
segment which has become the main growth driver of the gaming sector. As such, gross
gaming revenue may rebound gradually in 2H 2021.
Source: DICJ, OCBCWH
13China: Better than expected 2Q growth
• China’s GDP growth decelerated in the 2Q as expected. However, on two-year average,
China’s growth reaccelerated to 5.5% in 2Q from 5% in 1Q.
• No signs of loss of growth momentum as most indicators recovered further on two-year
average growth.
• No premature de-industrialization. Share of manufacturing in China’s GDP rebounded
further to 27.9% in the first half of 2021.
20%
15%
10%
5%
0%
-5%
-10%
Jun-18
Jun-19
Mar-20
Jun-20
Jun-21
Mar-18
Sep-18
Dec-18
Mar-19
Sep-19
Dec-19
Sep-20
Dec-20
Mar-21
Sep-21
Dec-21
China's quarterly GDP growth
Source: Bloomberg, Wind, OCBC
14China: Puts brake on credit slowdown
• The growth of stock of social financing has more or less matched China’s nominal GDP
growth.
• China’s central bank announced its first universal reserve requirement ratio cut since
January 2020. The latest RRR cut is expected to unlock about CNY1 trillion long term
liquidity to the system. As mentioned by PBoC that part of liquidity from RRR cut will be
used to replace maturing MLFs while the rest will be used to meet the liquidity demand
from the tax payment season in the second half of July.
25
35
Amount of daily 7-day reserve repo operation
30 20
25 15
%
CNY bn
20
10
15
10 5
5 0
2005-01
2005-09
2006-05
2007-01
2007-09
2008-05
2009-01
2009-09
2010-05
2011-01
2011-09
2012-05
2013-01
2013-09
2014-05
2015-01
2015-09
2016-05
2017-01
2017-09
2018-05
2019-01
2019-09
2020-05
2021-01
0
01-Mar-21
05-Mar-21
11-Mar-21
17-Mar-21
23-Mar-21
29-Mar-21
14-May-21
18-Feb-21
10-May-21
20-May-21
26-May-21
23-Feb-21
06-Jul-21
12-Jul-21
02-Apr-21
09-Apr-21
15-Apr-21
21-Apr-21
26-Apr-21
30-Apr-21
01-Jun-21
07-Jun-21
11-Jun-21
18-Jun-21
24-Jun-21
30-Jun-21
RRR for small banks RRR for big banks
Source: Bloomberg, Wind, OCBC
15Malaysia: Vaccination’s up
• The ongoing pandemic bout continues to remain a challenge for Malaysia, with record high
cases in the daily counts of late. The epicentre remains the Klang Valley area that
contributes around half of the tally thus far.
• However, the silver lining is that the vaccination drive has gone up in earnest in recent
weeks, with an average of over 400,000 doses administered per day over the past week.
• Indeed, according to the government, almost 13% of the population have been fully
vaccinated, with more than ¼ having received at least one dose. To further incentivize the
take-up, the government is reportedly planning to ease restrictions for individuals who are
fully vaccinated and to allow companies to be fully operational if their workers are jabbed.
Sources: OCBC, Bloomberg.
16Indonesia: More Covid-19 Stimulus
• Given the potential for the Emergency PPKM restriction orders to be extended until end of
July, Indonesia’s government has increased its national recovery stimulus (PEN) to IDR
744.76tn, about 29.3% higher from the 2020 PEN stimulus realization.
• The Healthcare and Social Safety Net are the two areas receiving the largest budget
increase, of about IDR 21tn and IDR 34tn respectively, amid greater need for Covid-19
patient treatment and free medication given the recent record high cases, as well as
assistance for the poor considering the prolonged PPKM implementation.
• The move is unlikely to add to the bond issuance risk, however, given that the MOF is
planning to draw on SILPA, the unspent cash balance. Indeed, it is expecting the net bond
issuance to decline by IDR283tn to 924tn this year.
Indonesia PEN Stimulus (IDR tn)
2020 Ralization Initial 2021 Budget 2021 Budget Update (per 16Jul21)
750 744.76
600 575.8
450
356.4
300
150
0
HealthcareSocial Safety
SME andNetCorporation
Priority
Support
Programs
Business Incentives Total
Sources: Indonesia MoF, CNBC Indonesia.
17Indonesia: Thinner Trade Surplus
• Indonesia’s trade surplus narrowed to USD 1.3bn in June down from USD 2.7bn a month
earlier, with both exports and imports outperformed market expectations.
• Exports grew 54.4% yoy (vs 48.5% anticipated), with both the Non-Oil and Gas exports
(USD 12.3 bn) and Oil and Gas (USD 1.2bn) growing by 51.4% and 117.2% yoy
respectively. Sectorally, agriculture, manufacturing, and mining exports grew by 15.2%,
45.9%, and 92.8% yoy respectively. Destination-wise, exports to China (USD 4.1bn) and
the US (USD 2.1 bn) were still the main contributors.
• Meanwhile, import grew 60,7% yoy vs 44.9% anticipated, with all product categories
posting double-digit growths; consumer goods (16.7%), capital goods (43.4%), dan raw
materials (72.1%) – signaling a positive continuation of investment activities.
Indonesia's Trade Performance
Trade Balance (USD bn) - RHS Export (% YoY) Import (% YoY)
80 4
60 60.1 3
54.4
40 2
1.3
20 1
0 0
-20 -1
-40 -2
-60 -3
Sources: Statistics Indonesia (BPS), Bloomberg.
18Commodities
Oil: OPEC+ reaches an agreement
▪ After a two week impasse, OPEC+ has reached an agreement to increase oil output
beginning August.
▪ The UAE would have its baseline production revised higher to 3.5mbpd, but still lower
than the 3.8mbpd it originally asked for.
▪ In addition, Saudi Arabia, Iraq, Kuwait and Russia have all been given higher revised
production baselines, potentially setting the market up for more output increase in 2022.
▪ Together with the softening risk sentiment globally, we see further weakness for oil price in
the short term.
Sources: OCBC, Bloomberg.
20Foreign Exchange & Interest Rates
FX & Rates: Growth concerns
• Yields have been trading on the soft side on delta variant and lockdown concerns which
have led to higher uncertainty over the growth outlook. When the Fed is in blackout period,
virus cases and lockdown measures are likely to continue to dominate headlines in the
days ahead, with the market paying little attention to single prints of data.
• In EUR space, investor watch for tweaks to ECB’s forward guidance at the MPC meeting
on 22 July. Regarding PEPP, Lagarde has recently said she expects the existing bond
buying program to run at least until March 2022, and it would be followed by a “transition
into a new format”. It appears a new program to follow PEPP is more likely than an
extension to the existing PEPP envelope.
• In China, investors watch China’s decision on its LPR on Tuesday where consensus is for
no change, especially after the MLF rate was kept unchanged. The partial rollover of MLF
together with the RRR cut are keeping market rates soft for now.
• The key support to IndoGBs is the reduced net supply this year, which renders the
domestic bonds exhibiting a lower than usual beta response to FX movement/swings in the
general risk sentiment. Next focus is the conventional bond auctions on 21 July, which may
come with a small upsize again. The curve is biased to flattening.
Source: Bloomberg, OCBC
22Asset Flows
23Global Equity & Bond Flows
• Inflows in the global equity market for the week ended 14 July amounted to $18.6bn, an
increase from the inflow of $6.6bn last week. Global bond market saw inflows amounting
to $5.6bn, a decrease from last week’s inflows of $18.2bn.
Equity top gainers & losers Bonds top gainers & losers
14000 2000
1505.2
12000 11608.8
915.1
10000
586.6
8000
USD mn
USD mn
6000 0
-30.2 -44.5 -47.9
4000
2104.0
2000 1324.9
0
-1.9 -2.8 -44.5
-2000
-2000
US CN FR TH AU JP
US JP CN TA GE KR
Source: OCBC Bank, EPFR
24DM & EM Flows
• DM equities saw $17.1bn worth of inflows while the EM-space registered $1.4bn worth of
inflows.
• Elsewhere, the DM bond space posted inflows of $4.8bn, while EM bonds registered
inflows of $756mn.
Developed market & Emerging Market Flows
2,500 400
350
2,000 300
1,500 250
200
USD bn
1,000 150
100
500 50
0 0
-50
-500 -100
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
Oct-13
Jul-13
Apr-14
Apr-15
Jul-15
Apr-16
Jul-16
Jul-17
Apr-18
Apr-19
Jul-19
Apr-20
Jul-20
Apr-21
Jul-21
Jul-14
Apr-17
Jul-18
Jan-14
Jan-15
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Jan-16
DM Bonds DM Equities
EM Bonds (RHS) EM Equities (RHS)
Source: OCBC Bank, EPFR
25Thank You
26Treasury Research & Strategy
Macro Research
Selena Ling Tommy Xie Dongming Wellian Wiranto Terence Wu
Head of Research & Strategy Head of Greater China Research Malaysia & Indonesia FX Strategist
LingSSSelena@ocbc.com XieD@ocbc.com WellianWiranto@ocbc.com TerenceWu@ocbc.com
Howie Lee Carie Li Herbert Wong
Thailand & Commodities Hong Kong & Macau Hong Kong & Macau
HowieLee@ocbc.com carierli@ocbcwh.com herberthtwong@ocbcwh.com
Credit Research
Andrew Wong Ezien Hoo Wong Hong Wei Seow Zhi Qi
Credit Research Analyst Credit Research Analyst Credit Research Analyst Credit Research Analyst
WongVKAM@ocbc.com EzienHoo@ocbc.com WongHongWei@ocbc.com ZhiQiSeow@ocbc.com
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