Asia Breakfast Briefing - September 25, 2017 ASIAN PREVIEWA busy w/e with DE and

ASIAN PREVIEW

A busy w/e with DE and NZD elections amidst an escalation of US/N.Kor tensions

The Asian docket on Monday sees JP mfg PMI, SG CPI

Europe has IFO business climate

Only US data of note will be Chicago Fed National Activity Index

NZ Elections Report - National Not Out of the Woods Yet

Viewpoint: Base metals facing up to reality?

Viewpoint: Dovish BOJ Kataoka overshadowed by his "on-hold" boss

Viewpoint: Reasons behind UST yield curve flattening, will it continue?

NEW ZEALAND ELECTION due Sat 23 Sep

Whilst recent poll results supplied by One News Colmar Brunton (showing National"s 46% vs Labour"s 37%) and Newshub Reid Research (showing National"s 45.8% vs Labour"s 37.3%) have shown the incumbent National Party reclaiming its lead over the opposition Labour Party, the lack of a significant majority showing in National"s poll share still signal an NZ elections which is too close to call.

The latest available poll results (supplied by Newshub Reid Research) hint that the NZ First Party may indeed play the role of "Kingmaker", which may put either majority party in place to lead the next NZ government.

Whilst the NZD has shown its clear preference towards the National party by rallying on news favourable to the incumbent, while selling off on news favourable to the opposition, the suspicion is that the post-elections narrative and sentiment may be optimistic, regardless of the victor. This is based on a possible overall expression of market relief, simply because the elections are finally over and uncertainty has been diffused. It is also noteworthy that unlike the US Presidential elections and more recently the French elections, the underlying polarity between the two most popular choices in the NZ elections space is not all that great, as both National and Labour have fiscal-heavy initiatives which allow the NZD to cheer.

Japan Sep flash mfg PMI due Mon 25 Sep, f/c 51.7, last 52.2

The final read of Aug mfg PMI came in at 52.2, slightly higher than the 52.1 print in Jul but was revised down from the flash reading of 52.8. Taken in totality, while output, new orders and employment all expanded in Aug, the pace of manufacturing sector growth tapered out sideways.

While the Sep flash PMI is likely to come in above 50.0 for the 13th straight mth, we suspect there could be a slight pullback towards 51.7. Our argument is on the basis of moderating growth in China"s economy and weakening consumer demand in the US.

We would also like to highlight an interesting dichotomy. While the Aug mfg PMI survey showed many companies projecting a continued expansion in new orders amidst both domestic/foreign demand, the METI"s (Ministry of Economy, Trade and Industry) own survey indicates manufacturers are forecasting a -3.1% m/m IP decline.

Bear in mind too that the Aug mfg PMI survey showed biz confidence easing to it"s lowest since Mar, which further augments the weaker than expected Q2 biz investments released by the MOF on 01 Sep (-2.8% q/q and 1.5% y/y vs 0.9% q/q and 4.5% y/y in Q1). As we postulated before, it would appear that Japanese corporate sentiment isn"t all that bullish despite the export demand, and that Japan"s economic growth probably peaked in Q2.

SINGAPORE AUG CPI due Mon 25 Sept BBG f/c 0.6% y/y 0.5% m/m, last 0.6% y/y, -0.2% m/m

Singapore"s year-on-year CPI came in a meagre 0.6% for the month of July. Key lifts arose from Retail Items & Water Price (1.2%), Private Road Transport (3.5%) and Services (1.4%), while the key drag stemmed from Accommodation (-4.1%). July"s inflation report prvided by the MTI and the MAS maintains a similar language when compared to the previous June"s.

It is still expected for administrative price adjustments to contribute to a temporary bump in inflation in 2017. Beneath this, a muted domestic economic environment coupled with a persistent labour market slack hints at likely continued benign showings of underlying inflation. These trends are in line with BBG consensus estimates currently placing August"s Singapore year-on-year CPI reading at 0.6%, signaling continued muted showings of consumer price growth.

OVERNIGHT SESSION WRAPS

US FX Close

10-YEARDec TENDec BONDDec S&PNov 0IL2/105/303/10/30HIGH100-03

125-30155-102501.0050.7883.292.815.4LOW99-25125-18+155-082492.0050.2980.591.212.3LAST99.31+125-26155-102496.5050.5581.492.113.7CHANGE+7+/32+5+/32-3/32-4.50UNCH-1.9-0.4-1.2

TREASURIES CLOSE 3:00PM U.S. government debt yields were lower as investors grew worried in the wake of a new exchange of barbs between North Korea and Washington and news that Senator John McCain and to other GOP members would not vote for the Obamacare repeal act ending the bills chances. San Francisco Fed President Williams also calmed the market with his "I don"t anticipate any sudden or large effects on rates or spreads or things like that as we normalize" comment. The yield on the benchmark 10yr notes was lower at 2.253%, after rising four four straight days, while the yield on the 30yr bond yield was also lower at 2.789%. KJ

US Treasury Close

EUR/USDUSD/JPYGBP/USDAUD/USDUSD/CADDOWDXYOPEN1.1963112.021.35510.79671.2266-9.6491.980HIGH1.1984112.171.35860.79861.2351CLOSED92.216LOW1.1937111.851.34880.79571.2256@91.890CLOSE1.1944112.061.35230.79641.233722349.5992.174

After some brisk overnight trade on the heels of bombastic North Korean rhetoric and threats of further missile tests, flows dwindled through the European session into the North American close. Early haven trades were pared, and the Usd Index, which suffered early losses, was only down slightly into the close. The Fed"s Williams shrugged off concerns over low inflation and stuck to the party line of another rate hike this year. US Flash Composite and Services PMIs fell slightly while Manufacturing PMI met estimates. Haven demand gave Yen a boost, pushing Usd/Jpy back below its 200 DMA. Eur/Jpy, which edged to a 21-month high overnight near 61.8% of the 149.78/109.57 fall, also traded lower into the close. The common currency had received an early boost from data that showed the strongest quarterly economic growth since 2015; however, Mario Draghi signaled that euro-are inflation was still low. Eur/Chf notched a 32-month high before settling back into Thursday"s range. Cable fell ahead of PM May"s Florence speech and was the biggest loser of the G10 currencies into the close after May failed to deliver precise guidance on Brexit costs. Canada July retail sales beat estimates, but August inflation came in slightly below although still on a positive trajectory. Next week kicks off with the Chicago Fed National Activity Index and the Dallas Fed Manufacturing Activity Index along with Fed speak form Dudley, Evens and Kashkari.

DAY AHEAD

Time (GMT)CtyEventPeriodSurveyPriorRevised21/9/17 - 29/9/17PHBudget Balance PHPAug---50.5b--24/9/17 - 30/9/17VNCPI YoYSep3.50%3.35%--25/9/17 00:30JNNikkei Japan PMI MfgSep P--52.2--25/9/17 05:00SICPI Core YoYAug1.50%1.60%--25/9/17 05:00JNLeading Index CIJul F--105--25/9/17 05:00JNCoincident IndexJul F--115.6--25/9/17 05:00SICPI YoYAug0.60%0.60%--25/9/17 05:00SICPI NSA MoMAug0.50%-0.20%--25/9/17 07:00SPPPI MoMAug--0.00%--25/9/17 07:00SPPPI YoYAug--3.20%--25/9/17 08:00GEIFO Business ClimateSep115.9115.9--25/9/17 08:00GEIFO ExpectationsSep107.7107.9--25/9/17 08:00GEIFO Current AssessmentSep124.6124.6--25/9/17 12:30USChicago Fed Nat Activity IndexAug---0.01--25/9/17 13:00CHConference Board China August Leading Economic Index

25/9/17 14:30USDallas Fed Manf. ActivitySep1317--25/9/17 21:00SKConsumer ConfidenceSep--109.9--25/9/17 21:45NZTrade Balance NZDAug-825m85m--25/9/17 21:45NZExports NZDAug4.05b4.63b--25/9/17 21:45NZImports NZDAug4.80b4.55b--25/9/17 21:45NZTrade Balance 12 Mth YTD NZDAug-2910m-3213m--25/9/17 23:30AUANZ Roy Morgan Weekly Consumer Confidence IndexSep-24--114.8--25/9/17 23:50JNPPI Services YoYAug0.70%0.60%--25-09-17KZMoney Supply M3 MoMAug-----0.90%25/9/17 00:00GEImport Price Index MoMAug-0.10%-0.40%--25/9/17 00:00GEImport Price Index YoYAug2.10%1.90%--25/9/17 00:00INEight Infrastructure IndustriesAug--2.40%--25/9/17 00:00SKDiscount Store Sales YoYAug--1.70%--25/9/17 00:00SKDepartment Store Sales YoYAug---1.30%--25/9/17 00:00VNRetail Sales YTD YoYSep--10.30%--25/9/17 00:00VNGDP YTD YoY3Q--5.73%--25/9/17 00:00VNTrade BalanceSep--$400m--25/9/17 00:00VNExports YTD YoYSep--17.90%--25/9/17 00:00VNImports YTD YoYSep--22.30%--

Central Bank Watch

Time (GMT)CtyEventStanceVoter25/9/17 05:30JNBOJ Kuroda make a speech in Osaka

25/9/17 07:00ECECB Vice President Constancio speaks in FrankfurtNeutralYes25/9/17 09:15ECECB"s Mersch Speaks at Lisbon Conference on Risk ManagementNo recent relevant commentsYes25/9/17 12:30USFed"s Dudley Speaks on Workforce DevelopmentNeutral to HawkishYes25/9/17 13:00ECECB President Draghi speaks in BrusselsNeutralYes25/9/17 14:45ECECB"s Coeure is chairing a panel is FrankfurtNeutralYes25/9/17 16:40USFed"s Evans Speaks on Economy and Monetary PolicyDovishYes25/9/17 21:15AURBA"s Bullock Participates in Panel in Sydney

25/9/17 22:30USFed"s Kashkari Speaks at Townhall in Grand Forks, North DakotaDovishYes25/9/17 23:50JNBOJ Minutes of July 19-20 Meeting

Auctions

Time (GMT)CtyEvent25/9/17 01:30SKKorea to Sell KRW 400Bln 3-Year Bond (New Issue)25/9/17 02:30SKKorea to Sell KRW 750Bln 3-Year BondDestinations: