Asia week ahead: FOMC meeting amid trade

Alongside concerns of US-China trade ties development, the market will receive an update on the Fed’s assessment of the US growth situation next week, one to keep us attuned.

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Market recap

The positive rhetoric and series of concessions from China reported this week had been the key propeller for gains this week, once again going to show that the US-China trade issue remains the leading item among the list of concerns for market. Despite the erosion of some of this optimism sinking Asia markets into the end of the week, most Asia markets look to conclude the week with gains. Other major happenings in the week including the delay to the Brexit draft vote in the UK and the confidence vote on Prime Minister Theresa May’s leadership had mostly seen its impact been contained locally. Concerns for Asia markets once again boiled down to US-China trade negotiations as the impact have undeniably been showing in economic indicators such as Friday’s release of China’s November retail sales and industrial production updates.

FOMC hikes 2019

In what should have been a quiet patch of the year as investors take-off for the holidays, the Federal Open Market Committee (FOMC) meeting retains its special place for markets. This had been a phenomenon we have been used to since the rate hike cycle commenced in 2015.

That being said, the stark difference this round would be the contemplation of how many fewer hikes the Fed could be suggesting for the new year. The latest tally in September finds the Fed’s median projection looking for three hikes in 2019, after the upcoming 25 basis points hike this month that is currently priced in by the market. This contrasts with the market’s view of the likelihood of about one hike for 2019 according to probabilities gathered using the CME Fedwatch tool. The probability that the medium consensus for the number of Fed hikes in 2019 and 2020 would be one to watch for a turn in dovishness from the Fed. Certainly, we have heard from Fed chair Jerome Powell himself on the broaching of the neutral rate that could see members likewise adjusting their calls on interest rates. Similarly, language from the statement will also be scrutinized for changes. In light of the strength the US dollar continues to sustain despite the softening of yields, it will be worth watching to see if the likes of the US dollar index will display a change in direction here. Note that US politics could also come into play with the threat of a partial government shutdown into the end of the week, though the influence could be muted with the lack of apparent concern of this matter comparatively.

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Besides the Federal Reserve, monetary policy committees in Japan, UK, Thailand and Indonesia will also be meeting next week among others. Bank of England is expected to stand pat against the backdrop of political turmoil while the Bank of Japan is unlikely to bring fresh views to the market. In South-east Bank of Thailand and Bank Indonesia, hikes will be carried out in their upcoming meetings.

Economic indicators to watch

Besides the series of central bank meeting rushed into the end of the year, we would also find economic indicators to follow. This includes the third reading for US Q3 GDP, November core PCE, personal income and spending. A mild month-on-month acceleration for core PCE is expected, though together with the third reading of the US Q3 GDP, the backward looking data could find the attention diffused.

Japanese indicators including November’s trade and inflation will also be updated on Tuesday and Friday respectively. Exports are expected to see a steep dip in year-on-year terms that could see the trade deficit widen, one to watch for reactions. Core CPI meanwhile is expected to stay largely unchanged for the month.

For non-Japanese Asia economies, a series of inflation updates will be seen in the likes of Hong Kong and Malaysia. The local Singapore market will commence with an early Monday update of November non-oil domestic exports reading.

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