Asia week ahead - US CPI, China production

A data-centric week looks to follow the midterms elections that provided a short-term boost for markets.

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Source: Bloomberg

While the bigger looming issue on hand this month remains as trade tensions with the G20 meeting hanging ahead, one should not discount the relevance of the incoming data for hints on Q4 growth momentum for markets.

Rebound sustainable?

The recovery in riskier equity assets at the start of November was helped another leg higher by the elimination of US midterms uncertainties this week. While Thursday’s Federal Open Market Committee (FOMC) meeting conclusion knocked away some of the wind beneath the wings for the rebound, particularly for the Asia region, US markets still look to have another week of gains to speak of.

With the passing of the turbulent October inviting citing of year-end and post-midterm rallies, it is worth remembering that we still have the US-China trade tension complication to contend with. This is over and above the threat of tightening conditions. Perhaps a look into the string of data in the coming week could shed light on how these remain prevalent for markets.

US inflation

The mild decline in response to the sustained Fed hawkishness on Wall Street hit Asia markets multi-folds on Friday. For the key Hang Seng Index, the open past the 26,000 handle on Friday seems to have issued the invitation for profit taking as the region is expected to be hit relatively harder by the abovementioned woes.

Moving forward, the week ahead offers a string of data that could keep the sentiment rife for continued gradual Fed lift-off despite the recent equity rout. Wednesday’s CPI release for the month of October will be scrutinized for any acceleration, currently having such expectations pencilled in for its core reading. The impact from US-China tariffs may be present as contributors among items such as rental prices that could trigger an increase in price growth and keep the Fed going. Meanwhile October’s retail sales and industrial production will also be due next week. The former is expected to see an uptick, though it will be the ‘control group’ which feeds directly into the GDP tabulation that we should watch.

A hastening of the inflation growth or improvement in the high frequency indicators next week could once again provide the greenback with upside impetus. As it is, the US dollar index had edged up to a 1-week high into Friday, strong-arming Asia markets. In turn, EUR/USD have found prices near its 1-year low once again, having been watching for further downsides since the start of November. Notably, however, Italy budget developments, mixed with German ZEW survey and Eurozone tier-1 data would also play their part in guiding prices.

EUR/USD

Source: IG

Asia indicators

Mixed Chinese data did little to placate markets this week as the worries over trade tensions and tightening conditions mounted once again into the end of the week. One suspects that little could lift the veil of anxiety for the region in the interim waiting for the month-end G20 meeting. President Donald Trump and President Xi Jinping are expected to meet on the side-lines with trade on the agenda ahead of further tariffs plans. That said, we have the slew of industrial production, retail sales and fixed asset investments due Wednesday. The former two would be key for the markets with industrial production expected to have slowed as trade tensions continue to bite. Alongside the expected uptick in US core CPI, Asia markets may well sputter once again into next week.

In Asia hours, we are also expecting a series of central bank meetings in Thailand, Indonesia and the Philippines though no changes are expected across the board. Japan’s Q3 GDP growth could be of interest to assess the impact on growth from the natural disasters with Reuters consensus currently pointing to a slowdown by 0.3% quarter-on-quarter from last quarter’s 0.5% growth. Amid the lacklustre earnings performance for the Asian region, next week’s reports for the Japanese market will be worth watching as well.

Hang Seng Index

Source: IG

On prices, it is worth watching the HSI chart given the down move that had been following the trend to a tee. Watch for a re-test of the 25,000 handle should data continue to disappoint next week.

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