Asia Week Ahead: Fed, BoE, China data

After the massive drawdown in US oil inventories last week, attributed to weather-related disruption to oil production and shipment, there will be more attention on the Energy Information Administration (EIA) report in the upcoming week.

Janet Yellen
Source: Bloomberg

A sustained fall in supply could suggest that the oversupply situation in the oil market may ease up. But this is unlikely, given that bad weather was the reason behind the massive drawdown.

Recent hawkish comments from a number of Fed speakers were in contrast with the latest US data. Next week will bring the spotlight on Fed’s voting member’s, Lael Brainard, speech, eight days ahead of the September Fed FOMC meeting. There will also be other Fed speakers on the speaking circuit, including Fed’s Kaplan and Fed’s Kashkari, whom are known to inject volatility in the market.

Latest Fed chatters have pointed to a potential hike before the end of the year. Fed’s Chair Yellen said at Jackson Hole that the case for an interest-rate hike “has increased in recent months”.

Though the latest US August NFP data disappointed alongside Wednesday’s (6 Sep) ISM non-manufacturing data, CPI data next Friday may offer early insights into the inflation outlook ahead of September’s meeting. Needless to say, a strong data may boost rate hike expectations.

The WIRP places a 58.5% probability of a hike for December which we concur as the earliest possible meeting for the hike (If US data shows a strong recovery). Perhaps the timing is a fortuitous one, marking the one-year anniversary since the last round.

 

BoE sees UK outlook looking better

After the European Central Bank (ECB) meeting left the market puzzled over the lack of additional stimulus, Bank of England (BoE) will be meeting on Thursday (15 Sep). The market is looking for a hold from the UK central bank, after the recent cut in August, though further cuts have not been ruled out into the end of the year.

More interestingly, any reaction from the BoE, EU Chief Juncker and Germany Chancellor Merkel to ECB President Draghi’s call for higher fiscal spending would be insightful for the ECB’s pending QE programme review. This is especially given the pinpointing of Germany amongst the lot. The long enduring issue on Brexit following the EU referendum would not be left forgotten and will likely receive its honorary mention in Thursday’s meeting.

 

China data to take centre stage

Key Chinese data will take centre stage for Asia next week. On Tuesday, we will be expecting China’s August industrial production, retail sales and fixed asset investments (FAI). While the market will not be expecting an improvement from the latter two, industrial production is expected to trend higher which will be consistent with the higher trade data released this week.

This is positive for the goods trade in Asia, particularly given the reversal of imports into growth at 1.3% YoY. Although it might be too early to regard this as the bottoming out of the decline in merchanise trade, it would be supportive for Asian markets and equities should this impact trickle down to Indonesia and Singapore. August trade data from the two countries will be of interest this week.

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