Asia market week ahead - Brexit vote, US-China trade talks

A relatively stale week for markets saw the Fed and Brexit updates adding some colour. The market is expected to remain on Brexit watch at the end of the month in addition to a slew of economic data for growth conditions.

Source: Bloomberg

Geopolitics in focus

The lack of volatility had been an apparent theme this week seeing the likes of the CBOE volatility index briefly touching the lowest level since early October 2018. Across the FX market, the theme had likewise been similar, underpinned by the lack of insights into the clouded outlook. US-China trade negotiations remain enveloped by a sense of uncertainty just as the Brexit conclusion gets kicked down the road with an expected vote next week.

The above said, geopolitics would be a recurring theme next week. While the dates had not been revealed, another vote is expected for the Brexit draft deal which would guide expectations on a hard Brexit and the GBP. A third failure amid no further changes to the draft deal, which is the more probable outcome at present, would see the extension last until April 12 and likely heighten the sense of a hard Brexit occurring. An amplification of the possibility for a no-deal Brexit would severely undermine the British pound. Although, in the rather fluid development of Brexit, one can only keep a close eye on developments as one would expect Prime Minister Theresa May to work ceaselessly in avoiding such an outcome.

In addition to Brexit, US-China trade talks are expected to resume in Beijing next week before officials converge again in Washington in the following week. How negotiations would go this round looks to be critical for the eventual establishment of a deal and likewise for a market that remains in waiting of a signing in April. Expect markets, particularly in Asia, to ebb and flow alongside any dribs and drabs of information. The impact from both events are also expected to be cross-asset owing to the influence the geopolitical events have upon risk sentiment.

Economic indicators watch

Meanwhile the key updates this week came from the Federal Reserve March Federal Open Market Committee (FOMC) meeting. The notable takeaway had been the Fed’s lack of confidence in the economic conditions in the US, underpinning an overtly dovish stance from the March meeting. While it remains to be seen if the market would further entertain the plausibility of an ease in the Fed’s next move, one can be sure that economic data would play a quintessential guiding role in expectations and thereby market movements.

Watch the series of releases including a third update on the US Q4 GDP. January core PCE, consumer confidence and housing starts are also amongst the releases. In addition to the series of Federal Reserve members’ appearances, these will be the items to watch for the likes of the greenback as the US dollar index figure its way out of the ascending triangle pattern as seen below.

US Dollar Basket (SD1)

Over in Asia, a splatter of data would be seen in the week. Japan’s February employment, industrial production and retail sales may be the key ones. For the local Singapore market, February’s CPI and industrial production are also lined. What would be the highlight may instead be China’s March official PMIs, released only after markets had closed on Sunday. The private Caixin gauge will be out soon after on Monday. Watch for potential cautiousness for regional markets ahead of this release after the mixed performance of February’s numbers.


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Trading around Brexit

As we fast approach 31 October, find out how the UK’s exit from the EU continues to affect traders, and discover:

  • How you can profit from Brexit
  • The markets you should be watching
  • Brexit trading strategies for key assets

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