Asia Breakfast Briefing - 15 December 2017 ASIAN PREVIEWBoJ's closely watch

ASIAN PREVIEW

BoJ"s closely watched Tankan survey to wrap up APAC week, Forecasts upbeat

EU Summit ends today: Focus remains on when trade negotiations kick off

US Nov industrial production and Empire Mfg eyed post FOMC

BSP leaves overnight borrowing rates at 3.00%, No need to tighten policy

BI leaves 7 day reverse repo rate unchanged at 4.25% as expected

ECB leaves policy unchanged, QE on hold, 2018 growth f/c up at 2.3% (1.8) & inflation 1.4% (1.2)

BoE leaves rates unchanged at 0.5%

Switzerland SNB leaves rates unchanged at -0.75%

Norway"s Norges bank leaves rates unchanged at 0.50%

Focus Comment: It"s still the wage growth/inflation conundrum for the Fed

Viewpoint: NZ HYEFU shares initial take of new govt"s policies but uncertainty still a theme

Aussie Nov jobs report wows with 61.6k job additions and surge in participation rate

Japan"s Tankan Preview

BOJ"s closely watched Q4 Tankan survey of Japan Inc wraps up the week for APAC markets and expected to come in upbeat across the board, although CAPEX is forecast to dip slightly.

Large mfg index f/c at 24 vs 22 prev.

Large mfg outlook f/c at 22 vs 19 prev.

Large non-mfg index f/c at 24 vs 23 prev.

Large non-mfg outlook f/c at 21 vs 19 prev.

Small mfg index f/c at 11 vs 10 prev.

Small mfg outlook f/c at 9 vs 8 prev.

Small non-mfg index f/c at 9 vs 8 prev.

Small non-mfg outlook f/c at 5 vs 4 prev.

Large all industry Capex f/c at 7.5% vs 7.7% prev.

Given signs that global demand is generally holding up (EZ strength offsets some concern over China), we would expect corporate sentiment to improve for a 5th straight qtr (sentiment amongst large manufacturers highest since Sep 2007) with USD/JPY largely unchanged from when the Q3 Tankan survey was taken.

That said, we are expecting companies to further scale back their projections for FY2017 Capex to 7.5% (recall Q3 survey saw Capex projections ease to 7.7% from Q2"s 8.0%). We need to highlight the seasonality trend in Capex plans, with Q2 typically seeing a bump higher before it moderates over Q3/Q4 and slides in Q1. So is the decline in Capex plans shown in the Q3 survey down purely to seasonality or is there something more concerning behind it?

From a more fundamental perspective, while Capex is generally growing, the level of growth is far weaker than what was seen at previous economic cycle peaks (taking an assumption that Q2 2017 was the peak for this cycle).

The service sector could be the main drag here. Amidst subdued wage growth/consumer demand, Capex plans amongst the services sector has been the laggard.

Broadly speaking though, we still harbour the suspicion that while many companies do want to ramp up their investments, they are discouraged by the realization that the mid-term potential growth rate is low.

OVERNIGHT SESSION WRAPS

US FX Close

EUR/USDUSD/JPYGBP/USDAUD/USDUSD/CADDOWDXYOPEN1.1830112.681.34450.76651.2827-76.7793.394HIGH1.1863112.841.34460.76801.2857CLOSED93.759LOW1.1771112.071.33930.76511.2714@93.282CLOSE1.1787112.261.34290.76731.275624508.6693.518

Eur/Usd eased off a 1.5-week overnight high posted after the ECB left rates unchanged while increasing their economic forecast for the next 2 years. Inflation forecasts, however, were somewhat less than anticipated, suggesting further ECB rate hikes might be further out than originally expected. The USD Index rallied into the black from earlier lows on impressive Retail Sales data and Euro softness, only to pare gains into the close. Gbp/Usd posted back-to-back wins for the first time in 2 weeks despite the BoE remaining cautious in their outlook while also leaving rates unchanged. Usd/Chf snapped a 4-day slide after the SNB left rates on hold while also stating inflation targets should be met in 2020 due to a weaker Chf. Usd/Nok was virtually unchanged heading into the close after paring losses incurred when the Norges Bank suggested new rate hikes might come sooner-than-forecast. Usd/Cad fell the most in nearly 2 weeks after dropping from an intraday range when BoC Governor Stephen Poloz expressed confidence the Canadian economy will need less stimulus moving forward. Aud/Cad and Eur/Cad simultaneously reversed sharply lower off 5.5 and 1.5-week highs. Aud/Usd rose for a fourth consecutive session to a 1-month high a more than 2-sigma move above the 20 DMA while Nzd/Usd ended a 4-day winning streak with the RSI crossing under 70. Friday"s calendar includes Empire Manufacturing, Industrial Production, Capacity Utilization and TIC Flows data.

US Treasury Close

10-YEARMar TENMar BONDMar S&PJan 0IL2/105/303/10/30HIGH99-06

124-21154-062673.3057.1357.562.18.1LOW98-25+124-08153-042655.0056.0953.157.45.4LAST99-05

124-18+154-032657.4057.0653.457.95.9CHANGE-1/32-1/32+13/32-11.70+0.46-2.9-4.1-0.3

TREASURIES CLOSE 3:00PM After some early session weakness, prices stabilized near a key bond moving average, found a bid and a day long rally began. The 30yr outperformed, the only sector in the black, tilting the curve sharply flatter especially 5/30yr, in by 4.1bps at 57.8 and back near 2017 narrows. Basically, a resumption of the pre-FOMC trade. Volume was on the light side, with pro/arb accounts dominating as real money moves into year end mode. The front end lagged and looks cheap again. Some techs note that the USH 18-day support zone was strong and created a sharp bond rally. Anticipate volatile and thin conditions going forward. JK

DAY AHEAD

Date Time (GMT)CtyEventPeriodSurveyPrior12/14/2017 21:30NZBusinessNZ Manufacturing PMINov--57.212/14/2017 23:50JNTankan Large Mfg Index4Q242212/14/2017 23:50JNTankan Large Mfg Outlook4Q221912/14/2017 23:50JNTankan Large Non-Mfg Index4Q242312/14/2017 23:50JNTankan Large Non-Mfg Outlook4Q211912/14/2017 23:50JNTankan Large All Industry Capex4Q7.50%7.70%12/14/2017 23:50JNTankan Small Mfg Index4Q111012/14/2017 23:50JNTankan Small Mfg Outlook4Q9812/14/2017 23:50JNTankan Small Non-Mfg Index4Q9812/14/2017 23:50JNTankan Small Non-Mfg Outlook4Q5412/15/2017 02:00IDImports YoYNov13.00%23.33%12/15/2017 02:00IDExports YoYNov12.63%18.39%12/15/2017 02:00IDTrade BalanceNov$844m$895m12/15/2017 05:00INBloomberg Dec. India Economic Survey

12/15/2017 07:30THForeign Reserves8-Dec--$203.1b12/15/2017 07:30THForward Contracts8-Dec--$33.2b12/15/2017 07:45FRWages QoQ3Q F0.30%0.30%12/15/2017 09:30ITGeneral Government DebtOct--2283.7b12/15/2017 10:00ECTrade Balance SAOct24.3b25.0b12/15/2017 10:00ECTrade Balance NSAOct--26.4b12/15/2017 13:30USEmpire ManufacturingDec18.819.412/15/2017 13:45USBloomberg Dec. United States Economic Survey

12/15/2017 14:15USIndustrial Production MoMNov0.30%0.90%12/15/2017 14:15USCapacity UtilizationNov77.20%77.00%12/15/2017 14:15USManufacturing (SIC) ProductionNov0.30%1.30%12/15/2017 21:00USTotal Net TIC FlowsOct---$51.3b12/15/2017 21:00USNet Long-term TIC FlowsOct--$80.9b

Central Bank Watch

Date Time (GMT)

EventVoterBiasPrior12/15/2017 09:00ASECB"s Nowotny Presents Austrian GDP Outlook

12/15/2017 10:00ECECB"s Rimsevics speaks in Riga press conference

12/15/2017 13:15UKBOE"s Haldane speaks in Palmero

Auctions

Date Time (GMT)

EventPrev Av YieldPrev Bid Cover12/15/2017 01:05NZNew Zealand Plans to Sell NZD200 Mln 2.75% 2025 Bonds

Destinations: