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Following this bout of tariff deliberations in the US and central bank meetings, the market would likely focus on economic indicators in the coming week, particularly watching US’ inflation data.
In the lead up to the next Federal Open Market Committee (FOMC) meeting, taking place March 20-21, US’ February CPI will serve as a key event risk in the coming week. While we have yet to receive US’ February labour market update at the time of writing, we are certainly finding moderating expectations for February’s CPI in line with the consensus for average hourly earnings. The median estimate for headline and core CPI both sits at 0.2% month-on-month (MoM). Another surprise on the upside may once again add to the volatility for global equity markets and invite further speculations of hawkish expectations from the March FOMC meeting, one accompanied by the summary of economic projections and a press conference. Factors including a softer US dollar and elevated commodity prices certainly supports such a view, though economists have their doubts on the sustainability of inflation stemming from items such as apparels in January which would weigh on the figures. Look for surprises here that could generate reactions cutting across the currency, bond and equity markets.
Other notable data due in the US for the week ahead includes retail sales, industrial production and housing starts. The US treasury will also be auctioning some 10-year notes and 30-year bonds next week amid the FOMC’s blackout period.
Trade concern lingers?
After the unexpected announcement regarding steel and aluminium tariffs last week and the eventual signing by President Donald Trump this week with exemptions, we have certainly seen some improvements to risk sentiment across global equity markets. Helping matters had also been plans for a meeting between President Donald Trump and his North Korean counterparts on the latter state’s denuclearisation, improving risk sentiment in the region.
The key difference between last Thursday’s announcement and this week’s signed trade restriction had no doubt been a matter of expectation and reality. With exemptions being worked into the restrictions for the likes of Canada and Mexico, the impact had certainly been less than initially feared. Nevertheless, for Asian markets, one cannot help but notice the focus that has been shifted towards China with President Donald Trump making multiple references to the country and talking about a ‘reciprocal tax program’ on Thursday. While an all-out trade war still does not appear likely at the moment, the theme of trade friction remains and more so for the riskier emerging market assets here in Asia.
The new week also brings a slew of indicators to watch in the Asian region. As usual, China’s data sits in the spotlight, with February’s retail sales, industrial production and fixed asset investments out on Wednesday. Amid the rather mixed set of numbers we have seen thus far, the market is not holding strong expectations with industrial production expected to moderate to 6.2% year-on-year for the collective first two months of the year, one to watch for Asian markets.
Other items due in Asian hours include Japan updates such as machine orders on Wednesday and for the local Singapore market, February’s non-oil domestic exports will be out on Friday.