See important Research Disclaimer.
Nonetheless, it may invigorate fresh expectations that other central banks may pursue additional easing or restart stimulus programme. All for the sake of countering possible headwinds in the coming months.
While the Bank of Japan (BoJ) disappointed hopes for more easing, the Bank of England (BoE) was more aggressive than expected, announcing a large and diverse package. Not only have they lowered the policy rate to the lowest in its 322-year history, the BoE restarted a bond-buying programme which has been on pause for four years, and announced that it will also purchase corporate bonds.
Moreover, the central bank said it expects to cut its benchmark interest rate towards zero in the months ahead.
Naturally, equities were buoyant on expectations of more easy money flowing through the markets. Japan also announced a ¥28.1 trillion stimulus package, which boosted risk sentiments.
The question that follows is whether other central banks will follow suit. For the US, it is unlikely they will turn around and introduce QE4. What is possible will be more delays in increasing the interest rates. At the moment, futures markets are pricing in an 18% chance of a rate hike in September, with a December hike at a rather low 37%.
The fact that the odds have been at such low levels reflected the scepticism of investors at any rate tightening this year. In my view, we seem to see a series of strong data out from the US for the markets to be convinced of any Fed action for the rest of the year. The November presidential elections is also an event to consider.
While tonight’s non-farm payrolls numbers will still be monitored, it may not materially change the rate hike expectations.
China back in focus
Investors will shift their attention to China’s economic performance next week when a data-heavy week awaits. We can expect industrial production, retail sales, trade, inflation, credit and money supply numbers to be released during the week.
The overall impression from various PMI surveys was one of persistent weakness in the manufacturing sector, while strength in services activity is testing. A round of weak numbers in the coming week could pressure the government to consider adding more stimulus.
In Asia, we will be seeing a number of central banks’ meeting, including India, Korea, the Philippines and New Zealand. The BoJ will release the minutes from the July meeting. Meanwhile, Singapore, Malaysia and Hong Kong will report GDP results.
Earnings season continues
We will continue with more earnings results from companies such as Prudential, Toshiba Corp, Munich Re and News Corp. In Singapore, eight STI constituents will be releasing quarterly earnings, including DBS, Singtel, Wilmar, Thai Beverage, GLP and Golden Agri-Resources.
Valeant Pharmaceutical, a drugmaker who was under short-selling pressure recently and struggling with debt, will release its Q2 results. Investors will focus on any comments relating to liquidity as Valeant works to service its debt. Since the 60% plunge in Valeant’s share price in March, the price level has fluctuated within $20-30 from April to July.
*You may wish to follow me on twitter at https://twitter.com/BernardAw_IG