Asia week ahead: What will fill the vacuum?

The week after the Fed FOMC meeting has been a quieter one for markets thus far. That said, we do have the attention turning to the moderation of bullish sentiment.

USD Federal
Source: Bloomberg

We have US markets clocking one fresh high after another, rallying hard since the US elections, and inspiring a lift in global equities. This week, sentiment can be seen waning, particularly given the vacuum of positive leads.

The first decline of over 1.0% since October 2016 was printed for the S&P 500 index on Tuesday, with seemingly little reasons to significantly test investors’ faith. A close examination of the sectoral movements attributed the retreat to an unwinding of the Trump rally. Indeed with the upcoming vote on the healthcare reform bill, the new administration’s effectiveness may be put to the test.

Certainly it appears that we are lacking any strong themes for global market. If anything, we might still count on the Fed to sway markets despite the apparent gap between now and the next Fed meeting where we might see a lift in interest rates. Federal Reserve chair Janet Yellen has left the market little to work on this week and the USD continued to retreat. Specifically, USD/JPY dug deeper past the 100 day moving-average. The upcoming week will not be finding itself short of Fed comments and the bias pointing to the downside.

Watch for US data that includes US February wholesale inventories, personal income and spending, and also a third reading of Q4 2016 GDP numbers.

European Focus

As the European Union turns 60, the economic bloc is also expected to become officially notified that their second largest economy intends to depart. The United Kingdom is expected to trigger Article 50 on Wednesday. While a breakup would not be the most pleasant of items, the markets may have more to work on as talks of UK’s departure is expected to commence. The GBP/USD and EUR/USD pairs had reflected the initial shock after the UK referendum and have been moving in a more sluggish pace since. The initiation of the negotiations may, however, invite more volatility for the currency pairs as they react towards expectations of the divorce.

In addition to the focus on the UK, next week also marks the turn of the month into April, where we are expecting the first round of the French elections. The 23rd April election finds itself faced with a challenging set of candidates, including one that has avowed plans to take France out of the Eurozone - far-right Front National party leader Marine Le Pen. The current leader of the pack post the Presidential debate is centrist Emmanuel Macron. While I certainly would not want to be a fool believing in the polls, next week’s campaign rally by Presidential candidate Macron remains one to follow.

Asian indicators

Asia will find its own set of indicators to either boost or tame this spectacular rally. Japan will see to the release of a set of items including retail sales, jobless rate, inflation, industrial production and housing starts. For the waning USD/JPY and Nikkei 225, this will be a huge week in terms of domestic economic updates. 

Other than the sole central bank meeting from the Bank of Thailand, China’s March official purchasing managers’ index (PMI) figures will also be released on Friday. This set of data has its influence upon regional markets and as things stand, the market is expecting manufacturing PMI to remain largely similar to February’s figures. At 51.6, this remain on the high side in expansion territory and could keep alive this positive sentiment for the region. Private Caixin PMI gauge will see a delay and be released on Monday, 3 April. 

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