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Asia itself is expected to continue looking to Chinese leads in the coming week.
Mixed movements have been seen for markets in the early part of the week with Asian markets seemingly shrugging off data from the Chinese end. Into the end of the week, however, a surprise on the upside by the private ADP report from the US hints at strong payrolls number to come and provided a boost for stocks. For the markets, strong jobs numbers would be a refreshing boost against the backdrop of mixed data performance in the past month and could further enliven markets ahead of the next Fed FOMC meeting.
While we have a slew of indicators coming through in the week ahead, the key focus could instead be on developments in Europe, particularly from the UK general election and ECB meeting. Prime Minister Theresa May's calling of a snap election in April had been seen as a positive for the pound, with the expectation of political continuity. The latest bout of polls ahead of Thursday’s election have confounded the markets instead. From five to twenty percent, a wide array of margins in which PM Theresa May’s Conservatives lead their Labour rivals have been reported and certainly adds to the jitters for the markets. The pound is likely to live or die by next Thursday’s general election as the absence of a majority for PM Theresa May will likely be seen as a negative in UK’s Brexit negotiations.
Falling on the same day would be the European Central Bank’s meeting. As per recent meetings, no change in interest rates are expected, though the post-meeting rhetoric would be intensely followed. Prior to this week, the market had been widely anticipating the ECB to strike a more neutral tone with improvements in economic conditions. This anticipation had been complicated by the ECB President Mario Draghi’s latest dovish comments and the market will likely trade according to the stance adopted by the committee post-meeting. For the widely popular EUR/USD, this could mean a deviation from the current $1.12 consolidation.
In addition to the above European focus, Thursday invites the highly-anticipated testimony from former FBI director James Comey in the US, a cornerstone in the Trump-Russia investigation. US markets have staged a remarkable recovery after the memo leak first erupted, though an aggravation of the situation could trigger a repeat. This item certainly represents a risk event in the coming week.
Looking more closely at Asian figures, the focus could once again be tuned to Chinese indicators with China’s trade balance and inflation numbers due. As things stand, a slight moderation has been expected for exports by the market from the 8.0% year-on-year growth in USD terms. This would be in line with the trend seen in the Caixin manufacturing PMI figure this week and only significant disappointment could further dampen regional markets. Separately, against a backdrop of slowing commodity prices, we could further see China’s producer price index slide in the coming week.
In addition to the above, the market could find the attention tuning to Australia and India’s central bank meetings during Asian hours. Australia and Japan’s Q1 GDP figures would also be key amid trade and inflation updates from around the region.