Asia week ahead: US inflation, China data in focus

Characterising trade for markets in the past week had been earnings performances and this scrutiny is expected to intensify for the Asian region, over and above data releases.

Market recap

A mixed set of earnings from the US has seen the comprehensive S&P 500 clocking near neutral returns on a week-to-date (WTD) basis, while the NASDAQ and Dow Jones indices headed in disparate directions.

Meanwhile Asian markets charted its own path with mixed returns cutting across markets in the region. The surprise in the Caixin private gauge at the start of the week was seen boosting several Asian markets including the outperforming HSI. On the flipside, valuation concerns appear to be seeping into several Southeast Asian bourses, inducing some foreign selling for the likes of the Indonesia and Philippines indices.

At what price?

Aside from earnings driven movements in the markets, the US dollar decline may arguably be one of the most watched at the current moment. July’s non-farm payrolls data has yet to be released as we pen this, but we have seen the US dollar index hanging precariously above the 92.48 support level with dovish Fed comments and concern over politics weighing on prices this week. The USD weakness trend may have been favourable to the US market, particularly for exporters, and has also provided some support for emerging Asian markets. Moving forward, the question for the upcoming week would be whether we would see prices head further southwards or demonstrate a reversal.

Leads for the week ahead includes comments from Federal Reserve Presidents James Bullard, Neel Kashkari and Robert Kaplan. Similar to comments by Fed speakers this week, a deviation from the current dovish outlook appears unlikely without a fundamental improvement in data. This could lead to July’s PPI and CPI being the highlights for the week. Offering a first look into price inflation for the month of July, expectations have been penned in for Friday’s CPI to show month-on-month growth at 0.2% and could lead to further optimism in inflation outlook should we find surprises on the upside. Note movements in USD pairs with this piece of release.

Asian indicators

Taking a close look at Asian markets, one would find the slew of Chinese data remaining key items to evaluate for trade in the coming week. This will be set alongside the burgeoning number of earnings reports for Asian markets.

The set of Chinese data due next week includes foreign reserves, trade, FDI, price inflation and loan conditions data in chronological order. Of the lot, China’s trade data may be viewed with additional attention. Diverging headline official and Caixin PMI numbers and their export orders components put into question July’s exports performance. As things stand, the market is expecting a relatively steady export growth at 11.0% year-on-year (YoY) (USD terms) and significant deviations here could elicit reactions from Asian markets.

Notably, OPEC and non-OPEC members are expected to convene in Abu Dhabi to discuss compliance issues over Monday and Tuesday with conclusions that could be actionable for investors of energy markets. Against the backdrop of declining US inventories, positive conclusions from OPEC and Co. could further aid the recovery in crude prices and pump up prices for energy stocks.

Other items expected from the region includes Japan’s machine orders and PPI updates. Indonesia and Hong Kong are also expected to release their Q2 GDP on Monday and Friday respectively while central banks in New Zealand and Philippines concludes their meetings, both on Thursday.