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Asia week ahead - China Q2 GDP, US bank earnings
China’s Q2 GDP will be in the spotlight in a week where we will also be seeing a flurry of corporate earnings, particularly from US lenders, datapoints to help us assess the current market climate for trade.
The top three items of concern for the market at present are perhaps central bank support, trade tensions and economic performance as a function of both the former two.
This week had seen markets staying cautious ahead of the highly-watched Fed chair Jerome Powell testimony to Congress, fearing for any changes in tone from the June Federal Open Market Committee (FOMC) meeting after the latest jobs data surprise. This concern had certainly been laid to rest post Wednesday with the Fed chair’s reaffirmation, sending the likes of S&P 500 and Dow Jones indices to record highs. A divergence in data performance had however been seen from Asia markets whereby the advanced estimate of Singapore’s Q2 GDP had been a significant miss, as with the latest June trade numbers out of China.
The takeaway from this week had perhaps been the continued support for markets from the monetary policy end this week, but the question will be how long this can hold up.
US Q2 earnings season
The coming week will see a string of second quarter earnings results from the US. Approximately 10% of the companies on the S&P 500 index will be shedding light on their Q2 performance, particularly from the major banks in the US. Amid a backdrop of slowing growth and the Federal Reserve’s embarkation on a rate cut cycle, the US banking sector had not seen as outstanding a performance as compared to the broader market. The S&P 500 index’s financial sector ETF (XLF ETF) notably had gains capped, while the bank ETF reflected a consolidation trend. Look to how results will fare against consensus and guidance. Any suggestions that the current risks in the market may continue to erode growth could put prices at risk of a short-term pullback.
Source: IG Charts
China’s Q2 GDP
China’s Q2 GDP will be the highlight at the start of the week alongside the barrage of high frequency indicators. The weakness in the external sector and the slowdown in the manufacturing sector had been two prevalent issues plaguing the Chinese economy into Q2 while trade tension escalations took place with the US. The current market consensus is pointing towards a slowdown in growth to 6.2% year-on-year from 6.4% previously. This falls within the authorities’ ‘about 6.0-6.5%’ growth forecast range for the year, but even a 0.1% disappointment here may warrant attention. High frequency retail sales, industrial production and fixed asset investments are expected to come in mixed when compared to prior month’s performances. Watch how Asia markets would react to this string of early Monday release.
Central banks’ easing bias
As told above, one of the takeaways this week had been the sustained Fed support despite pockets of data surprises. Fed Powell had telegraphed the Federal Reserve’s dovish bias on the back of downside risks to growth and weak inflation pressures among others, weakening the greenback. Meanwhile, opposing views had no doubt arrived from other Fed members including that of Fed Bostic and Fed Mester. While a 25-basis Fed cut appears to be of high likelihood, the question will be what is next for the Fed and data would be one to influence this outcome. Look to the likes of June’s retail sales and preliminary July University of Michigan sentiment for the consumer sector. Industrial production performance for May will also be seen.
Separately for Asia, central banks in South Korea and Indonesia will be convening in the coming week and both are expected to find their benchmark rates receiving a 25-basis points trim. If this materializes, this will be Bank of Korea’s (BoK) first rate cut since mid-2016 and Bank Indonesia (BI) from Q3 2017. The latter had already recently lowered their reserve requirement ratio in the easing process, pre-empting the likelihood for an interest rate cut. The local Singapore market meanwhile has June’s non-oil domestic exports lined up on Wednesday. After the weak Q2 GDP showing, the expectations are likewise for a soft reading in the coming week.
Denne informasjonen har blitt forberedt av IG Europe GmbH og IG Markets Ltd (begge IG). I tillegg til disclaimeren nedenfor, inneholder ikke denne siden oversikt over kurser, eller tilbud om, eller oppfordring til, en transaksjon i noe finansielt instrument. IG påtar seg intet ansvar for handlinger basert på disse kommentarene og for eventuelle konsekvenser som et resultat av dette. Ingen garanti gis for nøyaktigheten eller fullstendigheten av denne informasjonen. Personer som handler ut i fra denne informasjonen gjør det på egen risiko. Forskning gitt her tar ikke hensyn til spesifikke investeringsmål, finansiell situasjon og behov som angår den enkelte person som mottar dette. Denne informasjonen er ikke utarbeidet i samsvar med regelverket for investeringsanalyser, så derfor er denne informasjonen ansett å være markedsføringsmateriale. Selv om vi ikke er hindret i å handle i forkant av våre anbefalinger, ønsker vi ikke å dra nytte av dem før de blir levert til våre kunder. Se fullstendig disclaimer og kvartalsvis oppsummering.
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