On top of the data: Green shoots? Not yet

Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. Issuer of report: The Hongkong and Shanghai Banking Corporation Limited View HSBC Global Research at: https://www.research.hsbc.com   February PMIs continue to show sustained manufacturing weakness in Asia; exports have yet to bottom out  In contrast, inflation has been surprising on the upside, but this is due to higher food prices and therefore transitory  A dovish FOMC helps obviate concerns over external FX risks;we expect many central banks in Asia to continue easing Despite the turbulent swings in market sentiment so far this quarter, not much has changed in the real economy compared to 4Q15. Digging into the data, we see few signs of green shoots that point to a sustained recovery in growth. True, if oil prices have finally bottomed out and the current oil price trend is sustained, we may see some support for commodity-related industries, while a less hawkish FOMC should prove constructive for Asia. However, the truth is that external demand remains weak, depriving the region of a key source of growth. The Mainland economy has yet to bottom out. Both PMI gauges continue to contract and February trade data surprised significantly to the downside (though there are still LNY distortions to consider). Broader activity continues to trend down – granted there are some silver linings such as property and infrastructure investment, which support our view that growth may bottom out soon. The NPC made clear to us that there will be more fiscal support this year and room to increase it further if necessary, coupled with an easing bias by the PBoC: we expect a further 350bp of RRR cuts and 50bp of policy rate cuts. With diminishing returns to further monetary easing; fiscal policy is justifiably receiving more attention as of late. Improved fiscal expenditure in the Philippines and Indonesia is underpinning relatively strong domestic performance. Korea and Singapore also have room to expand budgets if needed, but at this point policymakers in both countries seem unlikely to expand their fiscal stances aggressively this year. Perhaps the most consistent data trend over the past month has been an upside surprise in inflation. This mostly boils down to food prices, which picked up nearly everywhere in January and February (see chart on page 3). Supply-side distortions - mostly El Nino related droughts – are the key culprits. Recently, pork prices in China jumped on strong seasonal demand coupled with cold weather-induced supply disruptions. But food supply buffers on a regional and global level remain robust for the time being – and the current momentum in food prices shouldn’t persist for too long. Transitory factors aside, the underlying inflation trend remains subdued. The pick-up in commodity prices is likely to be modest, and demand-pull inflation remains soft in most places. A temporary spike in headline inflation is unlikely to deter policymakers from delivering further easing. We expect further easing in China, India, Korea, Indonesia, Taiwan, Japan, Australia and New Zealand. 24 March 2016 Frederic Neumann Economist The Hongkong and Shanghai Banking Corporation Limitedfredericneumann@hsbc.com.hk +852 2822 4556 Joseph Incalcaterra Economist The Hongkong and Shanghai Banking Corporation Limitedjoseph.f.incalcaterra@hsbc.com.hk +852 2822 4687 Maitreyi Das Associate Bangalore On top of the data ECONOMICS ASIA Green shoots? Not yet abc ECONOMICS  ASIA 24 March 2016 2 A more dovish FOMC... 3 Best of Asian economics research 4 Asia Brief 5 PMI Heatmaps 7 Indicators 9 GDP & Industrial Production 11 Export 12 Consumer Spending 13 Headline & Core CPI 14 Major Asia Events 15 Australia 16 China 17 Hong Kong 18 India 19 Indonesia 20 Japan 21 Korea 22 Malaysia 23 New Zealand 24 Philippines 25 Singapore 26 Sri Lanka 27 Taiwan 28 Thailand 29 Vietnam 30 Disclosure appendix 31 Disclaimer 32 Contents abc 3 ECONOMICS  ASIA 24 March 2016 So what? The big ‘surprise’ over the past month was the fact that after the March 15-16 FOMC meeting, the Fed came out sounding relatively dovish – in particular, the Fed's rate path "dot plot" was revis