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Asia week ahead - Earnings, US Q2 GDP watch

Following China’s Q2 GDP release, it is now time to assess the US performance during a period where trade war escalation was seen. This is while the stream of earnings develop into a flood next week.

US earnings

A mixed week watching the bank earnings out of the US had seen the financial sector ETF (Financial Select Sector SPDR Fund) trading softer as of Thursday’s close. A divergence between the performance of the consumer business and trading income had provided little reprieve for bank stocks. That said, dovish Fed comments coupled with surprises seen in early tech companies’ earnings report had altogether helped to lift the broad market into the end of the week.

Against the arguably lowered earnings expectations this quarter, the approximate 14% of companies on the S&P 500 index that had reported so far have 79% and 65% of companies beating in earnings and revenue respectively. Another 29% of the companies on the S&P 500 index are lined up in the coming week including various FAANG stocks such as Meta Platforms Inc (All Sessions), and Alphabet that should keep the market watching and busy. The likes of Caterpillar, seen as the bellwether of the industrial sector, will also carry weight for Asia markets in the coming week’s trade.

US Q2 GDP in focus

On the key data highlights in the coming week, it will be none other than the Q2 GDP out of the US. The current market consensus points to a slowdown to 1.9% quarter-on-quarter (QoQ) from 3.1% previously. After business investments disappointed in the first quarter, the market is expected to be intently watching this component. A continued slowdown looks to be the case amid the trade war escalation with China. Although, the recent set of consumer sentiment indicators have suggested the consumption is expected to remain resilient that could help to offset some of the gloom.

With the US dollar index, measured against six major currencies, trending lower and breaking from the uptrend on dovish Fed expectations, next week’s data will be watched for a fuller picture on how the US economy had fared in Q2. Any disappointments coming just ahead of the July 30-31 Federal Open Market Committee (FOMC) meeting may reinforce Fed cut expectations and could see to the greenback softening and vice versa.

Other US data to watch in the week of the Fed FOMC blackout period includes durable goods orders, existing and new home sales numbers.

Source: IG Charts

Asia indicators

It had been a mixed bag for Asia markets this week seeing China’s June retail sales and industrial production surprise while the likes of Singapore’s non-oil domestic exports fell to multi-year lows. China’s GDP had also arrived in line with consensus at 6.2% year-on-year (YoY) for Q2 against some fears of disappointments. It appears to be a case of the haves and the have nots in Asia, referring to policy support that had helped to shore up the economic performance.

Looking into the fresh week, a series of mostly tier-2 data continue to arrive across the region to provide a better picture into the mid-year performance of the economies. Thailand, Taiwan and Hong Kong are expected to update their June trade numbers next week, ones to measure against the local Singapore market’s slowdown. Industrial production from both Taiwan and Singapore will also be seen, ones to watch.

The local STI can be seen faring relatively well into the end of the week, no surprise in light of the dovish Fed support though a bearish divergence can be seen on the MACD. Both June’s CPI and industrial production will be items specific for the local market, but with the wave of US earnings, the latter may play a more significant role in driving movements for the Singapore market.

Source: IG Charts

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