Asia week ahead: US midterm elections, China trade

The transition to November has seen markets showing improvements. Earnings and data indicators came to the aid of markets while fresh positive developments in US-China relations jostled markets higher into the end of the week.

Source: Bloomberg

Moving into the new week, however, there would be much to watch on both the political and monetary policy ends for markets to weather.

Mid-term elections

The biggest political event in the coming week with market implications will no doubt be the US mid-term elections, with polls closing on November 6. Up for contest will be all seats of the House of Representatives, signalling a potential change of control, and the likely status quo Senate with about a third of which. In what could be regarded as an upset result – the giving up of the House to the Democrats in the US’ bipartisan system – the expectations will be for more legislative gridlock. The intuitive response towards such an outcome, which interestingly had been shown to be a base case scenario in polls, will be a slump for the US dollar. The equity market, meanwhile, may not be significantly afflicted. In light of the uncertainty as to when the narrowed results could arrive, traders will likely be on standby from the close of polls, midday Wednesday here in Asia onwards. The greenback, as seen via the US dollar index, lost grounds into the end of the week and supported Asia markets, though remaining in the short-term uptrend. Watch breaks here with the impact from the election results due to help guide prices. Support comes in only around the 95.00 figure.

USD index

Panel Title

FOMC meeting

Amid the uncertainty over the timing of the mid-term election results, we do however note that the week will be punctuated by the Federal Open Market Committee (FOMC) meeting conclusion due in the early hours on Friday here in Asia. This meeting will not be accompanied by a press conference nor projections, which leaves the meeting statement the key item to watch. The target range for the fed funds rate is widely expected to remain unchanged until the December Fed meeting. In light of the plunge for markets, where the S&P 500 index saw its worst monthly change since September 2011, there had been some expectations brewing for a Fed address. This is particularly so given that the concerns over rising interest rates been one of the key drivers for prices diving off the cliff. That said, the string of economic indicators we have seen of late continued to be supportive of the Fed in their rate hike trajectory, including the private ADP report which preludes to a robust jobs data that have yet to be released at the point of writing. As such, the FOMC meeting may amount to a non-event for markets, where the statement is kept largely unchanged.

Asia indicators

Despite mixed PMI numbers arriving from China this week, support from authorities and the positive development ahead of the US and Chinese Presidents’ meeting have brought a halt to the losing streak for many regional indices. The week ahead would nevertheless continue finding Chinese numbers to track including the Caixin services PMI, October’s trade and inflation numbers. Both exports and imports growth are expected to slow down, though September’s surprise had not been too far away in our memories. Watch for any deviation from consensus here for the Asia trade.

A slew of tier-1 reading such as GDP numbers will also be seen from Indonesia and the Philippines on Monday and Thursday respectively. Central bank meetings during Asia hours includes the Reserve Bank of Australia on Tuesday and the packed Thursday with the Reserve Bank of New Zealand and the Bank Negara Malaysia.

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