Asia market week ahead - US NFP, China PMI, geopolitics

A yield-curve inversion ignited bout of growth concerns captured the market’s attention this week. With the turn of the month, expect markets to track the slew of fresh indicators to assess if these worries had been justified.

Source: Bloomberg

Source: Reuters (US 3-month/10-year treasury yield spread)

The inversion of the US treasury yield curve between the 10-year and 3-month rates had garnered sizeable attention from the market this week. On whether this inversion truly serves as a predictor for recession, the quick answer is that it remains uncertain. The limited historical samples coupled with the vastly different bond market situation at present circumscribes the predictability of the latest inversion. That said, one would still be intently watching how much further the inversion may carry on. The past two instances in 2000 and 2007 certainly had dips past 50 basis points prior to the significant market downturn, perhaps one to watch. With the reflection of the 10-year yields as a barometer of growth concerns, look to the slew of the data indicators with the arrival of April.

China slowdown bottomed?

Asia Pacific markets had largely edged higher into the end of the week against the backdrop of positive US-China trade negotiation rhetoric and in anticipation of the weekend NBS PMI data out of China. Both the official and the Caixin manufacturing PMI gauges are expected to reflect an improvement in the sector in the upcoming March releases, with the consensus pencilled in at 49.5 and 50.0 respectively. This is perhaps no surprise following the improvement in new orders in the previous release and the departure from the Lunar New Year distortions fuelling hopes for a turnaround. If this does materialize, it will likely help to placate some of the growth fears for the region.

There will, however, be a multitude of avenues for pitfalls to present themselves in the coming week for markets in light of the economic data releases in the region. Japan’s first quarter tankan, or business sentiment survey should not be taken lightly on Monday in providing insights into the manufacturing outlook for this country in the far east. A series of inflation numbers will also be out in the likes of Indonesia and South Korea.

US labour market update

Meanwhile amid the dovish Fed, a series of indicators in the region will also be arriving to test the central banks’ conviction to remain patient. The focus will be on Friday’s non-farm payrolls (NFP), in addition to February’s retail sales, durable goods and March’s ISM manufacturing spread through to the earlier part of the week.

The market had pencilled in a healthy 175k for NFP after February’s 20k disappointment. Unemployment is due to stay unchanged at 3.8% and average hourly earnings is expected to continue growing at a slightly slower pace of 0.3% month-on-month (MoM). Such a set of numbers would likely provide some confidence for the US market given the robustness of the labour market. Watch the retail sales and ISM manufacturing data, however, after both having had volatile reading in recent months.

Overhanging geopolitics

Lastly, geopolitics will retain its staple spot alongside the abovementioned economic update for markets in the coming week. These will primarily take shape in both on-going US-China trade negotiations and the Brexit chaos once again.

The US-China trade talk contingent is expected to return to Washington next week. While progress had been hailed and encouraging developments had been noted so far this week, particularly with China’s shifting stance towards sensitive technology transfer issues, it remains to be seen as to when a deal will be established. White house economic advisor Larry Kudlow’s suggestion that an extension may occur nevertheless puts pressure on both sides to provide comments on next steps after the planned talks conclude.

GBP/USD had another wild week on the back of Brexit twist and turns. At the supposed last day of the Brexit deadline and as we pen this, the acceptance of a draft deal remains a question mark. Some support can be seen gathering for Prime Minister Theresa May’s third vote, though the odds are slim. Whether this passes through, it does appear that the deadline will be a mere few weeks again as we grapple with this political issue.


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