Recovery in Asia manuf. sector this January

FX views: Last week, most EM Asian currencies strengthened mildly against the Dollar. South Korean won, Indonesia rupiah, Thailand baht and Vietnam Dong gained 1% against the dollar, and Philippines peso appreciated 0.7% against the dollar. Chinese yuan, Taiwan dollar, India rupee and ringgit remained largely unchanged compared with a week ago. Data releases provided some support.

Week in review: Chinese authorities committed to further support the economy, including through fiscal support. Latest China PMIs implied an improving growth momentum in January despite that manufacturing sector remained in contraction. Outside of China, 4Q GDP growth surprised on the upside in both Taiwan and Philippines, while we are seeing improvement of exports out of countries including South Korea and Vietnam, and improvements of exports in the tech and semiconductor. January manufacturing PMIs improved for most Asian economy.

Central bank monitor: Markets will focus on the Reserve Bank of India (RBI) and Bank of Thailand (BOT) monetary policy meetings this week. We expect both central banks to keep rates on hold, but we see some chance that BOT may cut rates amidst low inflation and calls by the government to support the economy. We also see some chance that RBI may change its current tight liquidity policy stance to neutral, with greater confidence around the path of disinflation.

Central bank monitor: Asian markets will continue to digest the impact of strong non-farm payrolls this week, including through the Dollar and US yields. US ISM Services PMI, Japan’s wage data, coupled with Fed speak including from Chair Powell could be market moving. Meanwhile, China’s inflation is expected to remain weak, which could raise pressure for further policy stimulus, while Taiwan’s exports could give further indication of Asian export recovery.

Manufacturing activity improved in most EM Asia economies