Asia week ahead - trade tensions, China's PMI watch

Over and above trade developments, the coming week will be one tracking early May economic releases to assess the impact of the latest round of US-China trade discord.

US-China trade tension keeps it grip on markets

We are no two steps removed from the US-China trade conflict this week despite the temporary relief seen with regards to the easing of trade restrictions surrounding Huawei. Concerns that the prolonging trade impasse could worsen, and impact economic performance further had weighed upon global equity markets into the end of the week. Week-to-date declines across the S&P 500 and MSCI Asia Pacific ex-Japan indices had been seen at 1.30% and 0.86% respectively as of Friday afternoon here in Asia. If this remains the case, it would mark the third consecutive week of fall for the above-mentioned indices.

Moving into the week ahead, it does appear highly likely that the twist and turns in the US-China trade impasse may sustain. The latest in threats had been the likes of reports suggesting that Chinese video surveillance companies may be targeted while the US commerce department had also put out a veiled threat on proposing duties currency manipulators. While China had not taken further steps in retaliation, the rhetoric had not been conciliatory either seeing Chinese President Xi Jinping rallying the nation to prepare for a protracted trade war with the US. As told in Friday’s morning note, the stakes had been raised as we await the next juncture where the two leaders are expected at the G20. Until then, one should not be surprised that the positioning may well continue and drive market sentiment.

Assessing economic performance

More importantly, while we continue watching the unfolding of the latest bout of trade tensions between US and China, it will be the assessment of the economic performance that would also play a part in shifting the sands for markets. US indicators expected in the coming week includes the likes of May’s conference board consumer confidence index, the final May reading of the University of Michigan sentiment index. More backward-looking data will cover the likes of the second reading of US Q1 GDP and April’s core PCE data.

While the upcoming consumer confidence reading may only be reflecting May’s developing sentiment in part, it will be crucial to assess if a deterioration had been registered here. After the US-China trade tensions took a turn for the worse in the month, US markets remain just a clip from its peak. The current market consensus points to an improvement for May’s consumer confidence index to 129.8 from 129.2 in April and the potential for disappointment here could see to downward pressure for both the US market and greenback, one to watch.

China PMI watch

For Asia markets, it would be none other than the official May PMIs to follow for any trade impact. The early May release will be seen on Friday with a consensus for manufacturing PMI to slide into contraction territory at 49.9. If this materializes, it will end the two-month streak where the index had returned to expansion. Look to the pressure this may have upon markets in the region. The private Caixin gauge will follow on June 3.

Other notable releases in the week includes the likes of India’s GDP, China’s April industrial profits. The Bank of Korea will also be deciding rates.

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