The last quarter has seen hopes for a US-China trade agreement dashed. Manufacturing and trade have weakened. Inflationary pressures have fallen. We expected this but not this quickly. The transition to a low-growth, disinflationary environment, and with it the next rate cut cycle, has happened in fast forward.
For Asian growth the deterioration in trade growth matters most
Second-quarter economic data have been weaker than expected. We retain an above-consensus China growth forecast in anticipation of further stimulus. China, unlike most AxJ countries, supports growth with a broad toolkit. But elsewhere implementation is less effective and more reliant on rate cuts that will prove inefficient at promoting capex in a risk-averse, slow growth, environment.
Looser monetary policy will become all but ubiquitous in the next few months
The economic policy at the core of the post-GFC asset inflation cycle will persist at the same time that weak world trade squeezes those assets and economies which are driven by current nominal growth. In our forecast this appears as soft commodity price projections and our expectation that Asian growth will be strongest in inwardly-driven countries: China, India, Indonesia and the Philippines.
US dollar less attractive than the euro
The US dollar has softened but in a monetary policy race to the bottom, we judge it less unattractive than the euro. Asian exchange rates are renminbi-centric and the currency will remain under pressure. We are cautious on most Asian currencies into 2020 with INR the decorrelated exception.