Asia week ahead: FX watch

Markets were seen in orbit in the last week, caught between the gravitation forces from both the trade tension and positive earnings glow.

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This was prior to the aggravation from both political and economic concerns in Russia and Turkey respectively that weighed on markets into the end of the week. Into the fresh week, it will likely be another one watching economic indicators while the influence of geopolitics on markets remain commonplace.

US, EU leads

While we have yet to be updated on US’ July CPI numbers which carry weight on the direction for the greenback, it is undeniable that the US dollar had been favoured amid the emerging market FX turmoil that also impacted Asian equity markets. From amongst the indicators to anticipate in the coming week, the key releases from the US includes July’s retail sales, industrial production as well as August’s University of Michigan (UoM) consumer sentiment index to guide price movement. Mixed readings had been pencilled in by analysts, with improvements seen for the UoM sentiment while industrial production is likely to have moderated. Watch the impact of the economic releases for cascading effect across asset classes in the coming week as the US dollar index hangs at over 1-year highs. 

US dollar basket

On a relevant note, a series of key releases will also be seen in the Eurozone including the Q2 GDP and July inflation updates. The current market consensus points to a slowdown in Q2 GDP to a growth of 2.1% quarter-on-quarter (QoQ), which is unlikely to help the euro given the status quo view from the ECB in their last meeting to see policy on hold through to the summer of 2019. Likewise for the CPI number that is expected to moderate to -0.3% month-on-month (MoM) from the 0.1% reading in June. In addition to the abovementioned, the likes of Germany’s Q2 GDP, July’s CPI and ZEW survey will also be seen all on Tuesday for euro and DAX traders alike.

Asia indicators

For Asian markets, the Chinese data watch continues into next week with the release of July’s set of industrial production, fixed asset investments and retail sales numbers. The stepping in of the PBOC in stabilising the yuan through raising reserve requirement had served to support the Chinese markets at the start of the week. This had helped to nullify some of the impact from a slowdown in export growth for July, though notably, the 12.2 % YoY reading had also been above the market consensus. July’s industrial production is currently seen to accelerate to 6.3% YoY while retail sales and fixed asset investments are expected to hold their June growth rates. Watch any disappointments here which may aggravate concerns across Asian markets. 

Over and above the Chinese numbers, Asian markets will find a heavy calendar including the Bank Indonesia meeting on Wednesday. No changes in monetary policy are expected here. Other notable releases include Australia’s Q2 wage data and July employment update on Wednesday and Thursday respectively. GDP numbers from the likes of Singapore, Malaysia and Taiwan are also lined up. 

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