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Asia week ahead: ECB meeting, China GDP

A week focused upon monetary policy from the US Fed may find the attention travel transatlantic to the ECB. 

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Federal Reserve
Source: Bloomberg

Meanwhile, the Asian region is expected to remain transfixed upon China with a data dump due at the start of the week.

Market recap

Amid the broad focus on monetary policy, markets found fresh guidance from the Federal Reserve in the past week. A semi-annual testimony tinged with certain degrees of dovishness by Federal Reserve chair Janet Yellen triggered a broad risk-on atmosphere within markets. The prospect of an extension to the relatively accommodative climate for markets inspired global indices to notch fresh gains, with the likes of the Dow Jones touching a fresh all-time high at 21580.8 on Wednesday. Adding to the optimism for markets in the Asian region had also been the improvement in China’s June trade numbers, highlighting the robust demand for goods in the region.

Although US’ June CPI and the first of major bank earnings in the US have yet to be released at the time of writing, most indices look set to close the week on a positive note. In contrast, the US dollar index appear to be further weighed as markets pared back their rate hike expectations.

Monetary policy in vogue

Monetary policy is expected to remain a key focus for the week ahead with central bank meetings in both the Eurozone and Japan set to unfold. Although no change in monetary policy is expected for both the European Central Bank (ECB) and the Bank of Japan (BoJ), the market may find ECB President Mario Draghi’s words during the post-meeting press conference one to follow.

While the US Federal Reserve presented a more dovish stance on back of the lack in inflation growth, the ECB appears to be moving in the opposite direction. ECB President Mario Draghi’s in a speech in June highlighted to markets that ‘deflationary forces have been replaced by reflationary ones’, raising tapering expectations within the market and fanning hopes for EUR bulls. The scheduled appearance of the ECB President at the Federal Reserve’s August Jackson Hole conference have further fuelled expectation of tapering after his last attendance in 2014 marked the commencement of their quantitative easing.

Although the ECB is widely expected to only move from September, it will not stop the market from making its own interpretation of the ECB’s views. A key market to track the sentiment with respect to the press conference will be the EUR/USD pair, and overtly hawkish nodes could push prices up to test the $1.15 psychological barrier once again.

EUR/USD

EURUSD 140717

Asian indicators

Asian markets are widely expected to trade to the tune of US earnings reports in the week ahead. However, the highlight for the Asian region will likely be China’s Q2 GDP, to be released at the start of the week.

Despite the view that China’s GDP figure retains a lack of transparency, Asian markets would still concern themselves with the data should a significant disappointment materialise. Current market consensus however suggests that we should see a rather resilient figure at 6.8% year-on-year (YoY) for the second quarter, above the officials’ of ‘about 6.5%’ full year growth expectation, which could keep Asian markets buoyed. Not to forget, high frequency industrial production, retail sales and fixed asset investment numbers will accompany the GDP release and could be tracked with higher scrutiny. In terms of markets, we have seen a broad uplift for Asian markets on a week-to-date basis. The key Asian market to continue tracking for the week ahead would be the HSI with its strong upward momentum. We have seen a firm break above the 26,000 resistance for prices, clocking its best weekly gain since July 2016.

Separately, Bank Indonesia will also convene on Thursday with no change expected to their 7-day reverse repo rate. Inflation numbers from Hong Kong, South Korea and Malaysia may find its way onto the market’s radar. The local Singapore market meanwhile will see June’s non-oil domestic figures due on Monday.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. 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. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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