On top of the data:After the Fed,back to fundamentals

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   With Fed lift-off out of the way, it is time for central banks and policy makers to start focusing on weak data in Asia  The PMIs and other high frequency indicators suggest GDP growth is still moderating into year-end in most of the region Despite the Fed’s move, we forecast most Asian central banksto ease policy over the next few months to help boost demandTwo and half years after Bernanke first indicated that the Fed would start tapering its asset purchases, and seven years after cutting the Fed funds to near zero, the Fed finally raised rates. The FOMC’s decision was no surprise to us or the market: robust employment and retail sales data in the US likely sealed the deal. Dovish comments from Janet Yellen provide some respite for Asia, even though the ‘dots plot’ didn’t change much. Her comments are a soft assurance that the hiking cycle will be unlike those in years past when the Fed would raise rates in every consecutive meeting. Indeed, HSBC’s US economists only forecast two rate hikes in both 2016 and 2017. Accordingly, long-end rates are unlikely to rise – our strategists actually see them falling from their current level (forecasting the US 10-year yield at 1.5% by end-2016). In a way, the fact that the Fed hike has finally arrived, the heat is off for Asia at the moment. Lingering uncertainties over the timing of the Fed’s first move and its plans for subsequent rate action have weighed on market sentiment in Asia and put a constraint on central banks in the region. With Fed lift-off out of the way, and plenty of reassurance by US officials that the future tightening path will be gradual, policy makers in Asia can focus again squarely on the data. 3Q growth in EM Asia held up well. Growth in y-o-y terms was generally similar to 2Q, except in India and Korea where it accelerated (and in Taiwan, which fell into a technical recession). However, we forecast growth to decelerate in most of the region in 4Q – and the PMIs suggest momentum will stay subdued in 2016 barring any pick-up in external conditions – and this may increasingly impact employment conditions. We recently cut our China GDP forecast to 7.0% for 2015 and 6.7% for 2016, and have similarly downgraded GDP growth forecasts in a number of economies (see Desk Reference). To this extent we think the easing cycle in Asia is not over yet. As we have written extensively in the past, defences in terms of FX reserves and lower external debt levels have improved just about everywhere. This allows central banks to cut rates and diverge with US monetary policy (don’t forget that ECB and BoJ are still easing policy as well). Rate cuts are needed in many places to boost domestic demand and investment. We forecast central banks in China, India, Taiwan, Korea, Indonesia, Australia and New Zealand to cut rates in the coming months. Where possible, fiscal policy could help too. 17 December 2015 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 Abanti Bhaumik AssociateBangalore On top of the data ECONOMICS ASIA After the Fed, back to fundamentals abc ECONOMICS  ASIA 17 December 2015 2 The global context 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 17 December 2015 Oil, disinflation and growth The persistent decline in commodity prices (and lack of meaningful recovery) has been the biggest surprise in 2015. Crude oil has been the lead actor, but it’s the wider a