Asia week ahead: see-sawing sentiment?

Oscillating sentiment surrounding trade guided global equity markets in the week, with seemingly more to come in the following week as the Q4 earnings season jumps into the picture. 

US Trader
Source: Bloomberg

While markets appear to have learnt to find a better footing in the aftermath of the latest directive from President Donald Trump on additional tariffs, there is no doubt that this would not be the last we will hear from this turmoil.

Trade sentiment in view

Certainly, President Donald Trump’s latest order for the US trade representative to consider $100 billion in additional China tariffs have further clouded the outlook in the latest trade skirmish. China’s response that followed shortly came in a strong manner, with the Ministry of Commerce stating that China is ‘not afraid of a trade war’ and ‘will follow suit to the end’, strong words that promise more in this latest tit-for-tat fashioned muscle flexing, one to monitor in the sessions ahead.

Nevertheless to be objective on the matter, reactions have reflected the lack of conviction that things are moving in the direction of a full-blown trade war with havens swift to recover. While the weight that the slew of threats carries remain questionable, the volatility that comes along are of little doubt making this theme one to keep at the top of the radar.

Concurrently, the attention on monetary policy have also largely been overshadowed by the focus on trade ties, as Fed speakers partook the voicing of concerns over the impact of trade frictions with China. The uncertainty surrounding the matter of trade had been seen as a prominent factor that could limit the Fed from additional hikes, blunting some of these impact coming from the data end. That being said, next week’s Fed minutes and inflation results remain items pertinent to both the currency and equity market, running alongside the trade theme. 

Q1 earnings season

With markets in Asia seemingly externally led of late, the effect of the US earnings season should be another matter to weigh against the pressures from trade friction concerns. According to FactSet, earnings growth of 17% had been expected for the first quarter, whereupon realisation would make it the highest since Q1 2011, one to beckon with. Friday would see the first amongst major banks in the US including JPMorgan Chase & Co. and Citigroup Inc., ones to note, particularly for investors looking at the financial sector ETF (XLF ETF). Amid the volatility we have seen since early February, a good portion of the market had likely been counting on the earnings performance to shore up some upsides for prices as we dive into the season.

Asian indicators

The Asian region would certainly have a number of items to watch with Chinese data to take the spotlight. Following mixed PMI numbers, China’s March trade arrives on Friday, expected to taper from February in the speed of growth. Prior to which, March inflation figures will also be released.

For the local Singapore market, it is shaping up to be a huge one with both advanced Q1 GDP and the Monetary Authority of Singapore meeting decision expected on Friday. Growth is expected to come in at 4.4% year-on-year (YoY), accelerating from the previous quarter just as QoQ figures slow. The key contention would perhaps be with the MAS decision which might find a change to the current monetary policy stance, likely to have its impact upon the local market.

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