Asia week ahead - trade and Fed focus

Volatile markets

The sliding of China’s official and private manufacturing PMIs into contraction territory painted a dull picture for markets this week. This had been reinforced with Apple’s guidance revision, explicitly listing China’s growth as a reason. The risk aversion interest coupled with the low liquidity midweek with Japan away simultaneously saw a sudden surge in yen strength, altogether highlighting the volatility that persists within markets. That said, a boost for Asia markets arrived late into the week with the anticipation for the US-China trade negotiation to commence in the coming week. While there are little doubts that emerging markets remain an interest for investors this year, it could be a long passage before concrete signs of a turnaround reaches our shore. The coming week may well depend on any US-China trade news.

Trade negotiations

There are little doubts that the US-China trade relation sits high on the list of market risks into the year of 2019 and have the corresponding ability to move markets. Friday’s confirmation for the resumption of formal talks between US and Chinese officials in the early part of next week comes at the heel of a relatively long absence of aggravating news for US-China ties. The latest of which surrounding the arrest of Huawei’s CFO saw President Donald Trump speaking out. This was before China outlined various policies conciliatory towards US-China trade relations. Alongside positive comments from China’s vice trade minister, these have so far fuelled hopes of a lift for stock markets in the coming week. Whether we would be receiving a meeting conclusion at this stage of discussion remains uncertain. That said, considering the extended truce period of 90-days, having no news could perhaps be taken equally as good news for the two-day meeting. One to watch.

Fed watch

While both December’s labour market update and Fed Chair Jerome Powell’s speech have yet to be seen at the point of writing, there are little doubts that next week’s December Federal Open Market Committee (FOMC) minutes and CPI reading remain of high importance. Concerns over growth had been far reaching with the rates market evidently already gunning for a Fed rate cut this year. The less dovish than expected meeting conclusion for December could use further details next week just as the CPI numbers potentially shape the market’s perception on the urgency for more Fed hikes. Fed Powell also makes his second appearance for the year next week. The impact is expected to spread to both the wavering greenback and battered equity markets alike, among others.

Economic indicators

Beyond the future development of US-China trade, expect the release of economic indicators to remain pertinent in addressing market concerns over growth and the impact of the tariffs. Next week would see a series of release across US to China.

From the US, one would have the likes of December’s ISM services reading on Monday and preliminary January University of Michigan sentiment on Friday. Over in China, December’s inflation and loan conditions are expected into the latter half of the week. There are certainly more high frequency indicators in the rest of Asia, but it would largely be the above two key items that holds the wheel for Asia markets in the next 5-session period. As far as prices have shown, the consolidation trend for both the local Straits Times Index and Hong Kong Hang Seng Index are still playing out for range trading.