Asia week ahead - the Trump-Xi G20 meeting
Following the growing recognition of risks which have turned central bankers progressively dovish this week, the market would turn to trade tensions in the coming week with the G20 meeting in the spotlight.
Central banks recognizing the risks
To recap, the past week had mostly been one characterized by a dovish turn of the Federal Reserve among other central banks. Both the Fed and the Bank of Japan (BoJ) were seen citing risks and uncertainties that would prompt for more easing and stimulus. In turn, the equity market had charged ahead with the comprehensive S&P 500 index chalking up a new record close on Thursday while both US treasury yields and the US dollar index, measured against six major currencies, had receded.
While we have yet to hear from the series of Fed speaker on Friday, the coming week would continue to line several Fed members. This includes Fed chair Jerome Powell and the only dovish dissenter in the June meeting, St. Louis President James Bullard, both on Tuesday. To a large extent, the timing of the next expected Fed rate cut would have both data and the risks presented from the US-China trade item to guide, but any fresh updates from the Fed members may nevertheless speak volumes for markets.
The G20 low downs for markets
The biggest item on the table in the coming week would have to be the G20 meeting for Asia markets, now that we have the Trump-Xi meeting announced to be back on this week. The latest update on the matter had been the fact that negotiators will be communicating ahead of the G20 to pave the way for the meeting between the two Presidents. One would recall that President Trump had previously threatened additional tariffs on another $300 billion of Chinese imports, as the consultation carries on. This remains the risks for markets despite the back and forth rhetoric seen.
Judging by the current situation and comments from US officials such as commerce secretary Wilbur Ross, we may as well have strike out the possibility of seeing a US-China deal at the G20. The best-case scenario may be a repeat of the Buenos Aires G20 meeting whereby a trade truce is announced and the market continues to celebrate the relief. The base-case scenario, however, may remain one of on-going stalemate in light of the array of difficult issues for resolution at such a high-level congregation.
Any surprising conclusions would find reactions permeate equities, FX and bond markets. Look in particular to the likes of the risk assets such as USD/JPY, the treasury market and gold prices for apparent changes post the meeting. President Xi Jinping and President Donald Trump had held their meeting after the G20 in late 2018 and the same could be the case this round which could delay the reactions to the following week. As it is, we have seen the market cook in high expectations on the upcoming Trump-Xi meeting which may result in a knee-jerk reaction if things do turn awry.
A series of economic indicators across the US to Asia would likewise be watched for trade in the coming week alongside central bank meetings over in New Zealand and Thailand. No changes in rates are expected from either of the abovementioned central banks.
With the US dollar trampled this week on expectations of Fed cuts, next week’s release of the conference board consumer confidence index, durables goods data and personal income and spending numbers will all play a part in validating the conviction. A final reading of the US Q3 GDP will also be seen though the impact may be limited given the backward-looking data.
Over in Asia, an array of numbers will be out though it would be China’s industrial profits and the early June official manufacturing PMI gauge that will be of interest. The latter will be seen over the weekend on Sunday, June 30, for a Monday morning reaction alongside the G20 conclusion for Asia markets.
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