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Trade deals remains a contentious topic as emerging Asian markets received little support in the week despite the strong leads from Wall Street.
US policy mixed with the Fed
While the S&P 500 and the DJIA rallied, the latter touching a new all-time high, emerging Asian indices had been largely suppressed.
The North American indices continued to bask in the optimism of what Trumponomics could bring for the economy. We have seen the industrial sector pushed up on hopes for increased fiscal spending while financials benefitted from President-elect Donald Trump’s apparent distaste for the Dodd-Frank regulations. As of Thursday, we see the comprehensive S&P 500 up 1.05%, looking set to end the week in gains. A break above August’s all time high of 2190.15 could also see the rally accelerate.
On the other hand, Asian markets have been mixed with the majority of emerging markets in red for the week while the Nikkei outperformed due to JPY movements. There remains little insights on how trade relations would be shifted with the change in Presidency. Although it is largely within market’s expectations, the Obama administration’s halt in pushing for the Trans-Pacific Partnership (TPP) still casted a layer of gloom on Asian markets. Attention will be shifted to this weekend’s Asia Pacific Economic Cooperation (APEC) Summit in Peru where the focus will likely be on the progress of free trade for Asia Pacific.
Notably, the USD index had been a strong gainer this week, printing a fresh 14-year high of 101.37 into Friday underpinned by Fed hike expectations. The implied probability of a December Fed hike rose through the week from last Friday’s (13 November) 84.0% to 96.0% after Federal Reserve Chair Janet Yellen’s first set of public comments since the US elections. The Fed Chair provided a clear signal that a December Fed hike is on the way and shared her observation that the economic conditions had pointed to “strengthening growth and improving labor market”.
The week ahead will see the Fed FOMC minutes from their November 1-2 meeting, shedding light on pre-election thoughts of committee members. At 96.0% implied probability, the Fed FOMC minutes is unlikely to significantly shape the market’s belief of a Fed hike further. US markets will be closed for Thanksgiving Day on Thursday.
High frequency indicators continue to provide mixed signals for Asian markets. The week ahead will have the market watching for Thailand’s Q3 GDP on Monday while Malaysia’s central bank will announce their interest rate decision on Wednesday.
For the local market, we will see October’s inflation data due on Wednesday, followed closely by the final estimate for Q3 GDP on Thursday and October industrial production on Friday. The market is expecting an upward revision for this worst QoQ GDP figure in four years which could alleviate some of the SGD weakness.