APAC Research
Summary: With a tug of war between inflation and recession concerns ensuing, central bank speakers (such as Fed Chair Powell’s testimony) and economic data (such as flash PMIs) will continue to be parsed closely in the week ahead. Asia’s trade and inflation data also out this week will press further the need for further tightening in the region. Commodities start to be pressured as well - we have an energy crisis brewing in Australia and US gasoline developments will be key. Focus will shift further away from industrial metals as China lockdowns will likely linger, to safe havens like Gold.
Fed Chair Powell delivers his semi-annual testimony on monetary policy before the US Senate Banking Committee in the week ahead. He will likely be grilled on what a more aggressive Fed could mean for jobs and the economy. This could be key as the debate around a 50 vs 75bps rate hike in July is still open.
A series of Fed surveys are due from the US this week, which will be scrutinized to signal if there are risks of a recession on the horizon. These include the Chicago Fed National Activity index, Kansas City Fed Manufacturing Activity index, as well as the final print of University of Michigan sentiment index. Also on the horizon is the preliminary print of the S&P Markit manufacturing PMI for June which is seen to be slowing down from May’s print of 57, but still remain strongly in expansion. Services PMI is however likely to gain some strength. Meanwhile, US home sales are tipped to show further strain on Wednesday with existing home sales data out for May. Gold (XAUUSD) is likely to see more strength if data disappoints, suggesting that stagflation fears are on the rise.
The US dollar top looks to be in place as other major central banks follow the Fed with strong tightening signals. Swiss National Bank announced a surprise 50bps rate hike on Thursday, along with Bank of England’s hawkish 25bps rate hike which has opened the door for a 50bps rate hike in August. Adding to the dollar’s weakness were reports that ECB President Christine Lagarde told finance ministers that the Bank’s new anti-crisis tool will launch if borrowing costs for weaker nations climbs too fast. While it is still hard to imagine a sustained case for any central bank to out-hawk the Fed, there may be signals that the dollar rally is peaking if yields start to top out.
Flash PMIs for the Euro area will be on watch to signal the extent of slowdown in the economy as shortage of natural gas supplies continues to weigh on business sentiment especially after the latest disruptions to Gazprom’s supplies to Germany. UK’s inflation is also out on Wednesday, and expected to climb higher to 9.2% y/y from April’s 9.0% y/y amid rising food and fuel costs.
Bank of Japan stuck to its easy monetary policy despite the pressures from global tightening and market participants challenging the Bank’s yield curve control over the last week as the Fed delivered a 75bps rate hike and other central banks jumped on the tightening bandwagon as well. Japan reports nationwide CPI in the week ahead, which is expected to stay above the central bank’s 2% target, but unlikely to threaten Kuroda to change his mind as wage growth pressures remain subdued. Singapore also reports May CPI which is expected to rise to 5.5% y/y from April’s 5.4%, likely led by food (with Malaysia’s chicken ban an added factor) and transport costs, but also due to the recovering demand as the economy reopens. Monetary Authority of Singapore is likely to tighten policy further at its next meeting in October. Malaysia also reports May CPI this week which will also show upside pressures amid supply-driven factors but also showing a reviving consumer demand.
The data may offer investors a glimpse of the status of the industrial activities in the region given Korea being a key supplier of industrial intermediate goods. Fewer workdays (13 days) than the same period last year (15.5 days) will bias the data negatively and make the anticipated year-on-year decline difficult to interpret.
The NPC Standing Committee is scheduled to convene from June 21 to 24. Agenda items include reviewing and ratifying the State Council’s financial report and audit report of fiscal income and outlays for 2021. Investors tend to focus on if the NPC Standing Committee will increase this year’s local government special bond (LGSB) quota, which was determined in March this year at the “Two Sessions”, to boost infrastructure spending in the second half of 2022. The NPC Standing Committee will also review the Anti-Monopoly Law amendment draft.
With gas prices surging above US$5 per gallon, the Biden administration has ramped up calls to increase and lower costs at the pump especially in light of the mid-term elections in November. Discussions around capping gasoline and diesel exports have also picked up and may see further announcements over the coming week. Even if the government were to change its stance on energy, and provide some capital investment, that won’t have an impact on prices immediately. The oil market will remain very tight until crude demand destruction becomes more noticeable in the fall. The US releases its weekly crude oil inventory report on Thursday and this will be keenly watched.
United States Market Holiday
Germany Producer Prices (May)
Eurozone Construction Output (May)
Hong Kong SAR CPI (May)
United States National Activity Index (May), Existing Home Sales (May)
Bank of Japan policy meeting minutes
New Zealand Annual Trade Balance (May)
United Kingdom CPI (May), PPI (May)
United States Mortgage Market Index (Jun)
Canada CPI (May)
Eurozone Flash Consumer Confidence (Jun)
South Korea PPI Growth (May)
Australia S&P Global Flash PMI, Manufacturing & Services (Jun)
Japan au Jibun Bank Flash PMI, Manufacturing & Services (Jun)
UK CIPS/S&P Global Flash PMI, Manufacturing & Services (Jun)
Germany S&P Global Flash PMI, Manufacturing & Services (Jun)
France S&P Global Flash PMI, Manufacturing & Services (Jun)
Eurozone S&P Global Flash PMI, Manufacturing & Services (Jun)
US S&P Global Flash PMI, Manufacturing & Services (Jun)
Singapore CPI (May)
United States Current Account (Q1)
United Kingdom GFK Consumer Confidence (Jun), Retail Sales (May)
Germany Ifo Business Climate New (Jun)
Malaysia CPI (May)
US University of Michigan consumer sentiment (June, final)
US new home sales (May)
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Commodity Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy