Asia week ahead - EM watch, central bank meetings

Global equity markets came under stress this week with regards to the waiting game on the updates in global trade tensions.

Source: Bloomberg

While notable developments have yet to be seen, the weight of on-going worries over emerging markets contagion had certainly been apparent and would likely dominate in the coming week even as we await major central bank decisions and data releases.

Emerging markets

The entrance into bear market territory for emerging markets this week had been underpinned by heightened risk sentiment over Canada’s NAFTA participation uncertainty and jitters ahead of further tariffs on Chinese imports. This is set against the backdrop of strong US data to affirm the Fed’s rate hike trajectory and, alas, the US dollar strength. Meanwhile, a reversal in the tech space in the US had also contributed to weak leads for markets after having powered Wall Street higher of late. The worst hit on emerging market notably saw the MSCI emerging market index decline by more than 20% from its January peak just as our EEM ETF look to test the $41 support level. Moving ahead, the near-term outlook remains a negative one for emerging markets that could keep further downsides in view. As for how much further the market may fall could be the biggest question in the coming week as we wait out political drivers.


Monetary policy

As iterated in our last week ahead, politics is expected to be the key driver going into the end of the year in comparison to the likes of monetary policy. We will nevertheless track the sentiment accompanying the Bank of England (BoE) and European Central Bank (ECB) meetings next week. No changes are expected from either central bank meetings nor for policy signals going into the medium term. The September ECB meeting, however, would still find the release of a new set of forecasts, expected to see downward revisions amid the softening European economic indicators. One to watch.

As for the US, inflation updates will be expected following the imminent labour market release this Friday. August consumer price index will be released on Thursday with the current consensus pointing to an unchanged 0.2% year-on-year reading. Along the payrolls results, this will simply be expected to reaffirm the Fed’s rate hike trajectory and may be regarded as non-events for the market.

Asia indicators

Amid the poor risk sentiment for Asian markets, Chinese data performance would either work alongside or help to offset the current trend, with the former holding higher likelihood. Monday will find the reaction of markets towards the weekend release of August’s trade numbers. This is prior to key releases including China’s August inflation, industrial production, retail sales and urban fixed asset investments next week. Forecasters have pencilled in a slight moderation in retail sales results while industrial production and urban FAI are due to maintain their pace. One would recall the disappointment that was seen in the previous release, and any further disappointment here could only further cement the downtrend for regional market. A revision for Japan’s Q2 GDP will also be seen on Monday amongst tier-1 data for next week.

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