Asia week ahead: Fed, ECB minutes up next

While the concern lingers, items including minutes from the Fed FOMC and ECB meetings are expected to be highlights in the week, accompanied by a series of data updates.

Market recap

In a bid to thwart North Korea’s nuclear programs, United Nations’ latest sanctions had invited a war of words between US and North Korea, firing a wave of panic across global equity markets. Markets broadly sank with the S&P 500 and Dow Jones both printing the worst 1-day percentage drop since mid-May on Thursday. Over in Asia, neighbouring KOSPI index was seen with the one of the steepest week-to-date decline of over 3.0% into Friday afternoon, as proximity played an apparent role in the geopolitical tensions.

The elevation of risk-off sentiment in the market had correspondingly enlivened safe haven demand as gold and yen alike printed recent highs, the latter against the US dollar. Moving forth into the new week, the uncertainty surrounding this geopolitical tension may very likely retain and any fading of concerns over the issue could be a long-drawn process. With the momentum sending gold prices up to eye the $1300 level and USD/JPY breaking below $109.00 psychological support, expect the trend in safe haven trade to dominate markets in the upcoming week.

What about monetary policy?

For a week that was supposed to find US’ CPI data as the most influential piece of release, given the Fed’s scrutiny over price inflation, we have certainly seen North Korea rhetoric trumping. While we have yet to hear of the US CPI update as we pen this, expected upsides from an acceleration in consumer price inflation have so far been capped with jitters crowding US markets. Barring sudden escalation of geopolitical tensions, the upcoming week could find monetary policy return to become the talk of the market with minutes from both the Federal Reserve and the European Central Bank (ECB) reminding the market of the disparate pace of tightening.

Due focus on the Fed’s balance sheet plans will be paid though the series of Fed comments that has tailed the 25^th to 26^th July meeting had remained dovish thus far, once again reinforcing the case for USD selling. Vice versa, one would recall hawkish words coming from ECB President Mario Draghi post July meeting and the coincidence of the two releases would make the EUR/USD pair an interesting one to watch once again. Eye a rebound here with the downward momentum waning.

Besides monetary policy, US leads in the week ahead also includes retail sales figures while remaining earnings from large retailers such as Target Corp. and Wal-Mart Stores Inc. will be ones to observe.

Asian indicators

Amid the steep drop in USD/JPY on haven demand, Japan’s Q2 GDP number may offer some consolation for the Japanese market returning on Monday, should we find the realisation of stronger Q2 growth numbers. The market’s consensus currently point to an acceleration of Q2 growth to 0.6% quarter-on-quarter from 0.3% previously. Malaysia, Philippines and Taiwan will also release Q2 GDP numbers next week.

In addition to the above, China will also release its industrial production, retail sales and fixed asset investment figures at the start of the week. A moderation of industrial production and retail sales have been pencilled in by the market, in line with the trade figures seen this week though the impact upon markets may be limited with expectations likely priced in already.  The local Singapore market will see July non-oil domestic update due on Thursday.