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While we have yet to receive April’s labour market update, one that could potentially provide the current range bound indices with some direction, a peek into next week finds strong monetary policy and politics influences alongside data drivers that could play a part in driving prices.
Monetary policy had been a key focus with the May Federal Open Market Committee (FOMC) meeting unfolding this week. Despite a neutral tone being adopted by the Fed with the evident intention to keep market’s expectations to the gradual rate hike path, investors picked up on the Fed’s recognition that inflation are accelerating towards the Fed’s target and traded accordingly. Equity markets slipped while the US dollar gained against major trading partners.
On the theme of inflation, next week would find US’ April CPI shedding more light on the situation. Headline CPI is expected to accelerate to 0.3% month-on-month (MoM) from the -0.1% reading previously while core CPI could come in unchanged at 0.2% MoM. Any hastened pace would very likely re-ignite conversations on further Fed hikes beyond the base case scenario of three for 2018 and would very likely reach the greenback, one to watch. Expectations alone may keep the US dollar index supported going into the release. Likewise for equity markets, the CPI update alongside earnings release from 9% of S&P 500 companies will be the highlights.
Separately, central banks in the United Kingdom, New Zealand, Malaysia and the Philippines are expected to update their monetary policy decisions on Thursday with no changes expected for any. Early views that the Bank of England (BoE) could move once again in May had mostly been dispelled with the slew of mixed data coming through, though guidance remains one to watch. Asian markets would find the Bangko Sentral ng Pilipinas (BSP) meeting as one that could pack surprises as a rate hike looks to be on the horizon with the pickup in inflation.
In the current brave new world where political and geopolitical concerns have grown to become commonplace, the attention may nevertheless heat up next week with the 12 May Iran deal ‘waiver renewal’ deadline closing in. The Trump administration had in past weeks been shaping the broad expectation of a withdrawal, whereupon realised, could find market reactions cutting across the crude market to risk assets. Given the build-up of this expectation, the reaction may be more measured. Watch our crude oil charts here.
For Asia, voting for Malaysia’s 14th general election would also get underway on Wednesday. Compared to the previous round, the threat towards a win by the incumbent Barisan Nasional’s (BN) does appear to be greatly diminished, the current administration backed by steady improvement seen to the economy. This would also mean an upset result would have a catastrophic impact on the market. That being said, the likelihood is slim and the clearance of the event would have the Malaysian KLCI returning to trade according to fundamentals, one to watch.
Following the slew of PMI updates, we continue to have much to watch, particularly from China. Both the April trade and inflation numbers would be due on Tuesday and Thursday respectively. As the market continue to chew on the US-China trade talk conclusion this Friday, where a base case scenario of further talks had been yielded, the trade numbers might become an item for scrutiny next week. For Asian markets, some reprieve could come after March’s export disappointment induced jitters as market anticipates a reversion to growth in the upcoming release. Tier-1 data including Q1 GDP numbers are expected in Indonesia, Philippines and Hong Kong next week.
The local Singapore market would have retail sales due on Friday, though eyes would likely be on the extensive list of earnings expected. OCBC will be up early on Monday before the market open to measure up against DBS and UOB that reflected strong Q1 results.