Asia Week Ahead: In the shadows of the US election

Markets were shrouded by sentiment stemming from the US election in the past week. 

US trading
Source: Bloomberg

This influence is unlikely to let up significantly in the upcoming week though we will also receive more indicators on the health of Asian economies.


US Elections

The North American markets appear to be rejoicing over the potential ‘Trumpnomics’ could bring while emerging Asian markets have again entered into the taper tantrum phase. While we cannot emphasize enough the importance of seeking clarity on the policies of the new administration, we can only ride along with this wave of belief that a Trump presidency could bring about higher fiscal spending, in turn raising inflation expectations.

The S&P 500 index picked up four days in a row, up 3.95% for the first four sessions of the week. Meanwhile the DJIA rallied to touch a fresh all time high on Thursday and looked primed for further upsides with the strong momentum. The outperformer in Asia has been the Nikkei, which gained 2.78% this week despite the brief blip on Wednesday’s US election result release. A tsunami of decline had meanwhile been registered in other Asian indices on Friday. The recovery on Thursday was seemingly a short-lived event as risk aversion spread across these emerging Asian markets.

Reduced volatility and reassurances from the Fed have helped to keep the implied probability of a December hike high at 80.0%. Moreover, the expected focus on fiscal stimulus and infrastructure building by the new administration, which could in turn induce an accelerated pace of future hikes, created upward pressure for the dollar. The USD index appear to be restaging last year’s scenario, shooting up to trade just below 99.00 level into the end of the week and it was no surprise to see capital flight from emerging markets once again.

Nevertheless, we do recall prices normalizing as the Fed hike expectations reduced through the year. Given that the policy expectations had been the building blocks of the current USD rally, emerging market currencies could again find support should we hear a change or delay in policy rhetoric.


Asian indicators

Other key indicators will also be released in Asia. Japan’s third quarter GDP will likely be the highlight on Monday. The market is largely expecting the third quarter growth pace to remain unchanged at 0.2% QoQ, though this is a tad slower than the 0.5% QoQ in Q1. Meanwhile the market is expecting China’s October industrial production to pick up slightly to 6.2% YoY which could lighten some of the current gloom in Chinese markets.

Closer to home, we will also be expecting Singapore’s September retail sales data on Tuesday and October NODX on Thursday, the latter expected to revert to growth. 

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