Asia week ahead: trade watch, US CPI

Another week, another bout of trade tensions have kept global equity market suppressed, with the latest tariff implementation between the US and China finally in place and the market on the watch for further escalation.

FOMC
Source: Bloomberg

As with the headlines, the markets would very likely remain following the trade tensions, though we do have key data and earnings waiting to be released as well.

US markets

Trade tensions certainly dominated the week with the tariffs on the $34 billion of Chinese imports and Chinese countermeasures both having kicked in at the point of writing. We return to the waiting game, watching Washington for reaction, that could well carry forth into the weekend and the fresh week itself. While the market appears to have already priced in the abovementioned tit-for-tat tariffs with Asian equity markets shrugging off the eventuality on Friday, the introduction of further measures may very well have their impact, certainly something to keep our focus upon. Haven assets, the likes of USD/JPY have largely trended in an ascending triangle, still awaiting the breakout into the new week.

Notably, on indicators, we are welcoming an important few next weeks with the key attention settling upon US inflation numbers on Thursday. Expectations are for June’s inflation reading to remain unchanged at 0.2% month-on-month and the year-on-year CPI to see slight acceleration to 2.9%. While upsides surprises are unlikely to garner strong reactions following the Fed’s reasonably hawkish view for this year, as shown once again via June’s Fed minutes, any disappointments would be one to watch for the US dollar trade as well. Preliminary University of Michigan consumer sentiment will be due on Friday with expectations for the number to soften from June’s four-month high that could weaken the case for further greenback strength. 

Separately, Friday will also welcome US bank earnings from the likes of JPMorgan Chase & Co., Citigroup and Wells Fargo among others on the S&P 500 index. A look at the financial sector ETF, the XLF ETF, finds the current uptrend intact though the recent flattening yield curve can be seen taking a toll on the sector. Watch for any reactions to the first of US bank earnings with the immediate resistance seen at the $26.92 level for the XLF ETF.

Asia indicators

Amid the trade tensions, China’s June foreign reserves update and trade numbers will likely draw the greatest scrutiny for regional investors next week. Do look to the figures for the implications on the US-China trade relation. With the recent yuan weakness, expectations are for China’s foreign reserves to take a hit, though the extent will be of question given the flight towards bonds in China. Trade numbers due on Friday are seen to have moderated slightly based on the current market consensus, though not far from the robust May releases. Following in the heels of the softer headline PMI and its new order readings, the risk could be towards the downside, making this one to watch.

For the local Singapore market, the advance estimate of the second quarter GDP will be released on Friday, likely to have improved from the 4.4% YoY reading in Q1. The realisation of an acceleration in growth in Q2 may very well be the much needed support for the regional market following this week’s pullback from both trade tensions and the surprise property curb changes. Bank Negara Malaysia meets next Wednesday with no change in monetary policy expected.

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