Asia week ahead - jobs data, PMIs in view

Volatility has taken over as the new normal for markets as we trudge through the last quarter of the year bearing uncertainties in outlook with sentiment in the driver seat.

Source: Bloomberg

Week’s recap

A recap of the week found sentiment-driven trades sinking various Asian indices into bear market territory this week including the broad MSCI Asia Pacific index. This was despite the attempt from the Chinese authorities to jumpstart a rebound with both verbal and policy supports. Meanwhile, the simultaneous rise in the greenback's strength had also taken a toll upon Asia markets, a trend that may well sustain into the new week.

US earnings gloom

Deep into the corporate earnings season, with nearly half of the companies on the S&P 500 index having delivered an 80% beat in earnings, we have seen little coming to the aid of the latest drop. The S&P 500 index is on track for another week in red after barely managing to stay afloat last week. Guidance can be seen clearly trumping the impact of rosy earnings as the latter saw diminishing importance. Keynote items such as the likes of Caterpillar Inc., Inc. and Alphabet Inc. certainly laid testament to the trend this week.

Moving into the fresh week, where approximately 27% of the companies on the comprehensive S&P 500 index are due to report, the pressure will likely remain on how guidance delivers. Heavyweights such as Apple Inc. will find its influence cascading to Asia markets given the supply chain laid across the region, while Facebook Inc. of the FAANGs will also be due.

US indicators and the USD

On FX, the greenback’s surge would have a slew of economic indicators to reckon with in the coming week. Among the lot, October’s jobs data, conference board consumer confidence and ISM manufacturing indicators may have the greater influences. The market has pencilled in a consensus of 189k for October’s payroll additions, though disappointments here could be overlooked in light of weather implications. The unemployment and average hourly earnings components, however, are likely to stay solid and unchanged from before. In contrast, both the ISM manufacturing and consumer confidence figures are expected to come in with robust but softer readings from the previous releases. This does not mean we will find a slide in the US dollar, particularly if we should see external influences such as eurozone readings disappointing to a greater extent. Looking at the US dollar index’s surge to a near 2-month high, the watch will be on for any topping of the previous high at 96.98 to open further upsides. EUR/USD likewise at risk of a break lower.

US dollar index

Bank of Japan meeting

Central bank meetings in the UK and Japan will be the only ones to watch next week, although neither are slated to surprise. After having kept things status quo in their September meeting, including their view “to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time”, there had been a vacuum of new developments for the BoJ to react to. The improvement in September’s CPI release at 1.0% year-on-year certainly remains a great distance from the bank’s target. That said, the eventuality for the Bank of Japan to move continues to underpin the long-term bias for yen strengthening. For the upcoming meeting, however, there would likely be an apparent lack of fresh insights.

China PMIs

The start of the new month offers the regular PMI releases across Asia with keen attention on China’s figures. Chronologically, the official figures due Wednesday are expected at 50.7 for the manufacturing sector according to Reuters. This will mark a slight slowdown from the 50.8 reading in September. As for the private Caixin gauge due Thursday, the consensus currently points to an entrance into contractionary territory at 49.9 after having seen the index coming dangerously close at 50.0 in September. It would not be a surprise to also find a stronger focus from investors upon the new orders sub-segment reading with the US-China trade tension hanging above our heads. In light of the battering of Asian market from the weak sentiment this week, watch for continued stress from these releases.

For the rest of the Asian region, a series of tier-2 data will be seen. The local Singapore market having been whipsawed to a fresh low since January 2017 will also be driven by a series of earnings release next week such as OCBC after UOB disappointed on Friday.

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