Asia week ahead: US GDP, earnings

Relative clam was seen enveloping markets in the week following the ratcheting up of tensions. 

US flag
Source: Bloomberg

That said, early disappointments in the Chinese data and the drag from lower crude prices can still be seen leaving their mark upon equity markets. Earnings, however remained a beacon of hope, one to continue watching into the much quieter week ahead.

US data

The tail end of the month presents little for markets, though we would still have a series of US data including a second reading of the US Q2 GDP. This is set against the backdrop of the Federal Reserve’s blackout week, ahead of their 31 July to 1 August meeting where little expectations are in store for a move during which.

With the US dollar’s continued ascent, the slew of economic indicators, including June’s durable goods, trade balance and Q2 GDP would likely find themselves being highlights for the markets. In particular, expectations are rife for an improvement for both June’s durable goods to 2.5% month-on-month and Q2 GDP to be revised up to 4.0% quarter-on-quarter from 2.3% initial read. Short for the EUR/USD and USD/CAD, major and Asian currencies have broadly declined against the US dollar in the past 1-month period. Any strength that the incoming data may assert on the greenback would be worth watching in the coming week. For the likes of the GBP/USD and USD/CNY, this will determine their trajectory from their multi-month lows and highs respectively.

Notably, it will be the week for Q2 earnings next week where 34.5% of the companies on the comprehensive S&P 500 index are due to report. Of the current 15% of companies that have presented their Q2 earnings, a strong 86% have topped estimates, painting a positive start to the season. It is therefore of little wonder to find gains for the financial sector coming in strong at 1.5% in the last 5-session period following the string of bank updates. The week ahead will find highlights such as Alphabet Inc., Facebook Inc. and Amazon slated to issue their performance report that could have huge implications upon the IT sector and equity indices alike. With the technology sector ETF, XLK ETF, finding the support at the $72.25 level after printing an all-time high, watch for continued gains in the current uptrend with these key earnings coming through. 

EUR movements

On the monetary policy end, the European Central Bank meeting on Thursday will likely be the most watched update though no changes are expected on monetary policy nor guidance. The ECB’s last June update notably packed both the QE exit announcement and guidance on rates, all expected to remain status quo into the July meeting. The impact for the EUR/USD could therefore be limited from the event, in comparison to other updates such as Eurozone’s Markit PMI and the Ifo numbers on Tuesday and Wednesday respectively. Keep watch of a breakout for the EUR/USD currency pair from the current $1.15 to $1.18 consolidation.

Asia indicators

For Asian markets, tier-1 updates including South Korean Q2 GDP and inflation updates from Hong Kong and Singapore are expected with a focus on the GDP numbers for implications on the Bank of Korea’s impetus. That said, Asian markets are still likely to find most of its cues externally, particularly from the US given the greenback’s strength and sentiment changes surrounding earnings and trade tensions. For Australia, do watch for the Q2 inflation updates with an acceleration expected to 0.5% MoM that could yield a reaction for the AUD. 

For the local STI, a slew of earnings can also be expected including Singapore Airlines Ltd. and Singapore Exchange Ltd. next week.

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