CORRECTED - CORRECTED-WEEKAHEAD - the view from Reuters Asia news editors


(Corrects item on Asia manufacturing data to read National Day holidays, not Lunar new year break)

SINGAPORE, Nov 1 (Reuters) - Following is the view from Reuters Asia editors on the news that is likely to matter most this week:


A packed week in which we learn how big, broad and long the Federal Reserve's second round of quantitative easing will be, and whether the U.S. Congress becomes a more business-friendly one after mid-term elections. Straight after the Fed meeting, the Bank of Japan meets while Australia and India (both Tuesday) and Indonesia (Thursday) also have central bank policy meetings. On the data front, we have PMIs in China, India, Korea, Australia on Monday -- which could corroborate the cooling we have seen in industrial production and capacity utilization and a loss of momentum in inventory-building. Inflation data in Korea, Indonesia, Taiwan and the Philippines should reveal another surge in food prices and raise concerns that supply-side price pressures are becoming more entrenched. ( > Reuters polls and surveys [ID:nL10903477] > Top economic events [M/DIARY]


Liquidity watch: For all of this week's big events, such as the known unknowns around Fed QE2, it is still relatively easy to look at the medium-term and see the bigger issue facing Asian markets is simple: liquidity. Liquidity is often a poorly defined term, but in this case referring to both portfolio inflows into local markets, as well as the potential for local banking systems to start generating stronger amounts of credit for the private sector. The wall of money hitting emerging markets has often been portrayed as coming straight from the printing presses of the Federal Reserve and other major central banks. In fact, as Jonathan Anderson at UBS has nicely detailed in a recent report, this is not credit spillover from countries like the United States where the money multiplier is so broken that extra money ends up stuck in the banking system. Instead what we are seeing is a natural portfolio allocation away from major markets to the EM countries thanks to their stronger growth, stronger balance sheets, stronger currencies and higher interest rates. This is the start of what could be an enduring trend lasting years with two broad potential outcomes: the surge of inflows and kick to domestic credit creation leads to asset bubbles and inflation, or the U.S. economy and others start to recover in a way that diverts funds away from EM countries before the bubbles/inflation form. As mentioned previously, the best example is not really what happened in the 2000s but in the 1990s. Back then, it was the Latin American debt crisis combined with the S&L property crisis in the United States that forced the Fed to cut rates to then record lows. An economic slump across the developed world kept interest rates very low, resulting in a wave of capital headed into emerging markets from 1991 onwards. It took a while for the excesses to develop into asset bubbles and then bring regions like Asia to its knees as those bubbles finally exposed the region's macroeconomic flaws. What is remarkable in the current environment is that domestic credit creation in much of Asia remains subdued. In places like Thailand it is starting to pick up steam. But in most countries it remains relatively weak, even in places such as Singapore and Hong Kong where property markets are already on fire. Indonesia even wants stronger credit creation, one reason why the central bank has yet to raise rates despite a solid expansion that was not really derailed by the financial crisis. Asia's economic story is a different one from 20 years ago where lessons were learned, seen foremost in each country's stockpile of FX reserves and stronger domestic growth stories. At the same time, market players have to be on guard for risks that begin to look very much like those seen before -- even if they are years in the making. ( > Five world markets themes this week [MKT/THEMES] > MARKETS WEEKAHEAD - It's all about the Fed and QE [ID:nLDE69S0EN]

JAPAN ECONOMY (Thursday-Friday)

The Bank of Japan is very nervous, not just about the QE2 proposals the Fed will make known on Nov. 3, but also policy reviews in the U.K. and the euro zone next Thursday. That was apparent from its extremely bullish growth forecasts for 2012 and its decision to bring forward the next policy review to Nov. 4-5, which the authorities are trying in vain to pass off as pure coincidence and solely aimed at speeding up the buying of riskier assets with its 5-trillion-yen pool of funds. If the yen shoots up after the Fed's decision, the BOJ may expand its asset pool to pump more money into the economy, although the size of its purchases will be far smaller than that of the Fed. The yen's surge would have to be noticeably large and dramatic and accompanied by sharp stock price falls for the BOJ to seriously ponder easing policy next week though. The more likely scenario is for the BOJ to kick off the asset buying scheme in full next week so that it is better placed to expand QE later in November or December. (



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