Asia week ahead: Catalysts aplenty

The coming week is expected to bring a host of catalysts.

Image of Europe
Source: Bloomberg

Financial markets will have a lot to digest, as key economic data and global events lined up. These would provide more information concerning the shape of the global economy, alongside developments in specific markets.

I expect the major risks to come from US inflation and jobs data, the European Central Bank (ECB) policy powwow, and the OPEC meeting.


US data are potentially market-moving

Investors have been a tad jumpy over US data, ever since the release of the April FOMC minutes, followed by a litany of hawkish Fed comments. The core PCE data for April and nonfarm payrolls for May are likely to bring another layer of clarity (or confusion) to sentiments surrounding the next Fed rate hike.

Weak capital goods orders appeared to have deflated some of those predicting a June move. While a rate increase in June remains a possibility, it is quite unlikely that the Fed will take it. If push comes to shove, July seems to be a better choice, with adequate room for incoming US data to show a convincing improvement in economic conditions.

Clearly, the markets seem to believe this, with probability of a July hike just above 50%. Moreover, I expect the Fed to use the June FOMC to further prepare the markets for the next rate tightening move.

A Fed talk-fest will take place next week, with FOMC voters Bullard, Powell, Brainard, and Mester, as well as Kaplan (Dallas) and Evans (Chicago), scheduled on the speaking circuit.


ECB to hold fire

The ECB is likely to keep policy rate unchanged on 2 June while releasing a new quarterly forecast for growth and inflation. Investors will do well to watch what ECB president Draghi says in his press conference.  He is likely to reiterate that risks remain to the downside and concerns about second round effects from persistent low inflation and expectations despite the recent increase in oil price. Mr Draghi may also step up his rhetoric on the need for more fiscal policies to complement the monetary measures.

Overall, the ECB will prefer to be in a ‘wait-and-observe’ mode, assessing its easing bazooka measures, including the new series of targeted longer-term refinancing operations (TLTRO II), which would begin from June, and the corporate sector purchase programme (CSPP).


OPEC: Much ado about nothing

There is a very low chance of OPEC hammering out an agreement to freeze production or any form of support for oil prices. With Saudi Arabia engaging in an oil war with Iran, it is unlikely that any of them will give way. Without their cooperation, the cartel is effectively paralysed from doing anything remotely cohesive.

In fact, there is a higher risk that Saudi Arabia may ramp up production in anticipation of the summer months, and to defend market share. The meeting on 2 June will also be the first time that long-serving former oil minister Al-Naimi will not be present, replaced by Khalid al-Falih, chairman of state oil company Saudi Aramco, who is a close ally of deputy crown prince Mohammed bin Salman. The prince’s intervention at the April 17 talks to freeze production was a major factor to the failure of the discussion.


Asia Data

China will be issuing manufacturing PMIs and industrial profits, while Japan is to release figures about retail trade, factory output, capital spending and the jobless rate. Australia, India, and South Korea will report its GDP performance.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.