Monetary policy focus
Asian markets saw a coordinated sell-off alongside the US as unease surrounding an accelerated lift in rates creeped in ahead of Fed chair Jerome Powell’s first testimony to Congress. Against the perception set by last Friday’s monetary policy report, the lift in expectations for four hikes through the week certainly saw global equity markets coming under stress. This theme persists into the fresh week as we await February’s labour market update next week, the key event in the week for US monetary policy watchers.
One would recall that the upside surprise in January’s average hourly earnings fed into the recent bout of volatility as markets adjusted their rate hike views. A repeat of February’s turmoil should not be ruled out as we welcome updated figures, where positive labour market expectations certainly appear to be the case. The current market consensus points to figures little changed from last month’s strong 200k job additions, 4.1% unemployment rate and 0.3% month-on-month (MoM) wage growth. Economists have also noted indicators such as January’s Institute of Supply Management (ISM) non-manufacturing index’s employment sub index all point to a tighter labour market, supporting the abovementioned likelihood. An update of the ISM non-manufacturing index will be seen on Monday prior to Wednesday’s Automatic Data Processing employment change, ones to follow ahead of Friday’s release. A string of Fed speakers including the much missed Governor Lael Brainard will also be due on the wires.
Central bank meetings
Speaking of monetary policy, we also have a slew of central bank meetings expected in the week ahead, commencing with the Reserve Bank of Australia on Tuesday, followed by Bank Negara Malaysia and Bank of Canada on Wednesday. The European Central Bank (ECB) and Bank of Japan, two of which that had strongly inspired tightening expectations at the start of the year, also decide monetary policy on Thursday and Friday respectively. No changes are expected from all of which, though forward guidance particularly from the ECB may be of interest with more hawkish intonations anticipated, one to watch for EUR reactions post Sunday’s Italian elections.
China’s NPC and trade concerns
Taking the baton from monetary policy in trampling upon equity markets this week had been trade concerns, ignited by President Donald Trump’s latest plan to introduce tariffs upon steel and aluminium imports. Details of the plan are expected to be unveiled next week, though more importantly, reactions from US’ trading partners such as China remains to be seen in the lead up to the country’s 2018 National People’s Congress (NPC). The country’s stance would be the crucial one for Asia markets, though likely measured despite the string of provocations. Meanwhile, further actions by other major trading partners should not be ruled out, with Canada and the European Union ones to have pledged countermeasures in the near future thus far.
Watch for details on economic policy and growth in China’s upcoming NPC, while a slew of Chinese data such as the Caixin services Purchasing Managers' Index, trade and also inflation will be released in the week for Asian markets to track.