On top of the data: Calm seas in Asia, for now

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   Manufacturing PMIs in July point to further signs of stabilization, thanks in part to Samsung and Apple product launches  July export data from the Mainland and Taiwan improved marginally, but deteriorated markedly in Korea and Singapore  HSBC expectations for a dormant Fed (through Q2 2017) and subdued underlying CPI allow for additional monetary easing Let’s start with the good news. Despite an inauspicious start to the summer (think Brexit), markets bounced back swiftly and sentiment has held up. Across Asia, we have not seen any sharp deterioration in the data: PMIs stabilized and there are signs that product launches by Samsung and Apple (upcoming launches for the latter) are providing some support to electronics production as suppliers stock up. To add to the good news, data from the US and EU seem to have firmed a bit as well. In particular, the US labour market seems to have regained a stronger footing. However, market expectations for a Fed hike are moving forward on the back of this development, which could limit policy maker options in Asia. That said, HSBC’s Chief US Economist Kevin Logan does not expect any tightening by the Fed until Q2 2017. Additionally, most Q2 GDP prints released over the past few weeks showed that growth met or even surpassed expectations (Singapore and Japan were key exceptions). Generally speaking, domestic demand has remained resilient, thanks in part to fiscal support. Legislatures in Korea and Japan are expected to vote on supplementary budgets in the coming weeks, and infrastructure spending continues to fuel growth in China, the Philippines, Indonesia, and Thailand. Not all is positive, however. The lack of an emphatic and sustained export recovery will weigh down activity. The mini electronics cycle is bound to fizzle out as we move into the winter, and although markets continue to shrug off disappointing data from the Mainland, deteriorating private investment and slowing property investment are clear warning signs that the economy will need more support throughout H2 2016. Indeed, we continue to expect a barrage of both monetary (350bp of RRR cuts and 50bp of policy rate cuts) and fiscal easing (3% budget deficit) in China. Outside of the Mainland, we forecast rate cuts in Korea, Taiwan, Thailand, Malaysia, Indonesia and India by year-end (two in the case of Indonesia and Taiwan). In Singapore, we think the MAS will likely opt to keep its monetary stance on hold this year, but growth risks remain tilted to the downside and easing next year cannot be ruled out. 18 August 2016 Frederic Neumann Economist The Hongkong and Shanghai Banking Corporation Limited fredericneumann@hsbc.com.hk +852 2822 4556 Joseph Incalcaterra Economist The Hongkong and Shanghai Banking Corporation Limited joseph.f.incalcaterra@hsbc.com.hk +852 2822 4687 Abanti Bhaumik Associate Bangalore On top of the data ECONOMICS ASIA Calm seas in Asia, for now  ECONOMICS  ASIA 18 August 2016 2 Best of Asian economics research 3 PMI Heatmaps 4 Indicators 6 GDP & Industrial Production 8 Exports 9 Consumer spending 10 Headline & Core CPI 11 Major Asia Events 13 Australia 14 China 15 Hong Kong 16 India 17 Indonesia 18 Japan 19 Korea 20 Malaysia 21 New Zealand 22 Philippines 23 Singapore 24 Sri Lanka 25 Taiwan 26 Thailand 27 Vietnam 28 Disclosure appendix 29 Disclaimer 30 Contents  3 ECONOMICS  ASIA 18 August 2016 Best of Asian economics research Country Title Author Date ASEAN ASEAN Perspectives: Filling the infrastructure pothole Joseph Incalcaterra, Su Sian Lim, Nalin Chutchotitham and Maitreyi Das 29-Jul-16 Asia Enjoy the summer: What the latest manufacturing PMIs mean for Asia Frederic Neumann 2-Aug-16 Asia Fiscal policy isn’t a cure-all for Asia: Latest op-ed published by Nikkei Frederic Neumann 26-Jul-16 Asia Asia Economics Comment: Don’t hold your breath on trade Frederic Neumann 25-Jul-16 Australia Downunder Digest: Australia’s investment drag set to wane Paul Bloxham and Daniel Smith 11-Aug-16 Australia RBA Observer Update: Another cut to help stoke inflation Paul Bloxham 2-Aug-16 Australia The RBA Observer: A line ball decision, but we favour a cut Paul Bloxham 29-Jul-16 Australia Australian Q2 CPI: Set up for a line-ball RBA decision Paul Bloxham and Daniel Smith 27-Jul-16 Australia Australian Q2 CPI: Set up for a line-ball RBA decision Paul Bloxham and Daniel Smith 27-Jul-16 Australia Australian CPI preview:The RBA’s all-important number Paul Bloxham and Daniel Smith 22-Jul-16 China China (Activity, July 2016): Weak data warrants more easing Jing Li 12-Aug-16 China China (Money supply, July 2016): Bank lending moderated on the back of weak do