Asia week ahead: central banks, jobs, more earnings

Chinese stimulus, positive developments in the US-EU trade relations and rosy earnings results provided a boost for Asian equity markets in the week, sending most regional bourses higher through the week.

Bank of Japan
Source: Bloomberg

Looking to the week ahead, we are staring at one of the busier weeks in the year, with a slew of central bank meetings, US jobs data and more earnings to anticipate. 

Bank of Japan preview

Carrying forth from the previous week would be the speculation over the Bank of Japan’s next move. A recent Reuters report suggesting that the Bank of Japan is close to exiting had sent the Japanese bond market into disarray, placing the heat on next week’s meeting. While our base case scenario is for the status quo to continue given the lack of impetus from economic indicators and due to the repercussions of such a move upon Japanese markets, the guidance would still have to be watched from the BoJ.

Indeed, it had not been long since last November’s mentions of the ‘reversal rate’ invoked a reaction from the market, to which, the BoJ had to step in to provide clarifications. This time round, the need for further flexibility as other developed central banks step towards accommodation removal increases the likelihood of the BoJ moving, though the timing remains a huge uncertainty. With any changes, it would mark the first for the Bank of Japan since 2016, notwithstanding the ‘stealth tapering’ of cutting back bond purchases. Look to USD/JPY movements, which will be a function of the yield curve implications, where any lift in the yield curve cap will likely give the imminent 50-day moving average, last seen at $110.57, a good test.

US leads

Following the BoJ monetary policy decision, we would also find the Federal Open Market Committee (FOMC) deciding rates, though no changes are expected. In line with this week’s European Central Bank (ECB) meeting, the upcoming meeting unaccompanied by any updated projections is expected to be a non-event. The expectations are for two more hikes to unfold this year, likely at the September and December meetings, thus leaving the current meeting one to continue channelling this view.

The above being said, a string of US indicators would nevertheless be on the radar, particularly with the string of labour market data due on Friday. July’s non-farm payrolls, unemployment and average hourly earnings takes the spotlight once again with the current consensus pointing to expectations for the labour market to remain strong. Reuters estimates has the current payrolls up at 195k, unemployment to tick down to 3.9% and average hourly earnings to accelerate by 0.1% to 0.3% month-on-month. Watch for any pick up in the greenback strength with the affirmation that would likely aid equities higher as well. 

Notably, earnings will also carry on in the week ahead and likely to find their impact trickling down to Asian markets. The comprehensive S&P 500 index will receive an approximate 30% of the companies reports in the coming week including Apple Inc. that would likely capture the market’s attention. Do look to this string of releases for leads for a market that otherwise lacks clear direction. 

Asia indicators

As per the start of the month, the spate of PMI numbers will likely have the market on edge once again. China’s official PMI unveils on Tuesday ahead of the manufacturing and services PMI on Wednesday and Friday respectively. Forecasters are looking for another slowdown for July’s manufacturing readings, which upon realisation could have repercussions upon the rest of the Asia space. The reserve bank of India meets as well though no changes expected. Data wise, tier-1 data, the likes of GDP numbers from Taiwan and several inflation updates will also be seen for the region.

For the local Singapore market, the first two of the trio of bank earnings will be expected in the week ahead with strong expectations once again. DBS and UOB will be seen on Thursday and Friday respectively. Taking the lion’s share on the STI, the performance will drive the benchmark index and possibly away from the gravitation pull at around the 3300 level. 

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