Asia week ahead - G20 meeting risks ahead

A week shortened by the Thanksgiving holiday has seen mixed updates surrounding the US-China trade item swaying markets, all while crude prices buckled further into the week, altogether set to see global equity markets conclude the week in mostly losses.

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Source: Bloomberg

Amid a series of tier-1 data, the spotlight falls on the Trump-Xi meeting expected into the end of the week, making it one to watch for whether we could be closing in on a turning point for markets.

Trump-Xi at the G20

The highlight for the week ahead is with little doubt the meeting between the head of states of the US and China at the side lines of the G20 meeting. As illustrated last week, the base-case scenario that we are looking for remains one in which a ‘deal’ or framework for further talks is being put into place that could lessen the likelihood for further tariffs escalations up ahead, a bullish scenario at its base. Evidently, it will not be in the best interests of both parties to see further ramp-up of tensions, though the thorny nature of the issues undermines the probability. Markets have continued to suffer the turbulence of the tension in US-China ties this week via last weekend’s APEC meeting’s conclusion and the latest accusations from the US Treasury Representative. The result of the meeting into the end of next week is anybody’s guess and certainly a reason to drive markets regardless of the outcome. For Asia markets that had largely been in consolidation, such as the A50 index below, this may be the event to trigger a breakout from within.

US monetary policy views

While the markets await the G20 meeting with bated breath, the series of Fed updates and US data will colour the week. The concerns of further Fed tightening remain central to global markets in light of the weight from expectations of a global growth slowdown.

Fed minutes from their November meeting will be released on Thursday, one to be scrutinized for the meeting statement’s latest recognition of business investment slowdown. Fed chair Jerome Powell will also be speaking on Wednesday and having kept the broadly optimistic tone in his last appearance, the Fed official will be heavily watched for any signs that he could be joining his more dovish colleagues. This is particularly so with November looking set to see a consecutive month of drop for global equity market with the likes of the S&P 500 index down 2.3% month-to-date. Meanwhile, a series of data will also be anticipated including the second reading of US Q3 GDP, October core PCE, personal income and spending, and preliminary November conference board consumer confidence index.

For the US dollar index, there had been some signs of a bearish divergence despite the short-term uptrend. Watch for any potential of a slide lower should more dovish rhetoric arrive or data disappoint.

China PMI slowdown?

Asia markets would be finding a series of key releases during our hours with the highlight being China’s November NBS PMI readings. Having seen the figure soften to a 2-year low of 50.2 for the manufacturing gauge, thus dragging on regional indices, the fear is for a repeat next week. Early consensus points to further dips to the 50.0 mark, closing on contractionary territory, one to watch. The bias is tilted to the downside with the potential PMI gloom and likelihood of risk aversion ahead of the Trump-Xi meeting.

Other releases worth watching includes retail sales, industrial production, employment and consumer confidence from Japan. The local Singapore market will also update October’s industrial production performance. Evidently, the waiting game for the G20 meeting continues and it may not be until the following week that we would get more definitive direction for Asia equity markets.

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