Asia week ahead: Central bank watch

The bout of earnings and economic indicators will also be looked at closely to sustain the current market optimism.

Central bank meets

The Bank of Japan (BoJ) and the European Central Bank (ECB) meets this week with monetary policy decisions due on Tuesday and Thursday respectively. After episodes in the second week of the year that shook the bond markets from the two bodies, the market will be keeping a close eye for forward guidance in the coming week.

The reduction in long dated bond purchases by the Bank of Japan and a perceivably hawkish December meeting minutes from the ECB had certainly contributed to the displacement of US dollar strength last week. Following the moves in EUR/USD and USD/JPY, we have heard from one of the two central banks exhibiting concerns of the currency trajectory. ECB’s Constancio and Nowotny this week spoke of the perils of a strengthening euro, bringing EUR/USD off its three year peak. While a large part of the euro’s movements depend on this weekend’s political development within Germany, one suspects and would not be surprised should ECB President Draghi utilise the occasion to further jawbone down the currency’s strength, one for the radar. Similarly, the BoJ will be another contesting this likelihood, after having just quashed easing speculations in their last meeting. On rates however, no changes are expected with both still far from targets.

Besides the abovementioned, a slew of data will likely grab the headlines in the coming week including Q4 GDP results from the UK and US on Friday. A realisation of the market’s consensus for a 3.0% quarter on quarter (QoQ) growth in Q4 GDP would mark the third consecutive quarter in which growth touched President Donald Trump’s 3 percent target, falling short nevertheless when computed for the full-year. Prior to the ECB meeting decision on Thursday, Markit PMI updates in both the Eurozone and US on Wednesday may also be factors for EUR/USD fluctuations.

Asia indicators

Over in Asia, a packed data calendar appears to be the case as well. Tier-1 data including growth updates from the Philippines and South Korea, adds on to a slew of inflation readings in next week’s calendar. Specifically for Japan, December’s CPI will also be released on Friday with core CPI expected to hold steady at 0.9% YoY.

For the local Singapore market, December’s CPI and industrial production are expected with a moderation to the latter in line with the latest NODX trend. The Straits Times Index (STI) had largely consolidated between 3510 and 3550 in the week. With approximately 16% of the companies on the S&P 500 index and four on the STI itself reporting earnings, the results will run alongside economic indicators in guiding the market next week.