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APAC Week Ahead: a slowdown in rate hikes

Fed

Snap’s disappointing earnings put the tech-led market rally into a pause on Friday, but the US stocks still ended the week higher, with the three benchmark indices finishing at the highest levels in nearly two months. This week, the FOMC rate decision and ongoing major tech companies’ earnings will continue volatilities. While A 75 basis point rate hike by the Fed is widely expected, clues about the ongoing monetary policy will possibly determine the market trajectory. Also, the US GDP will confirm if the world's largest economy is already in a technical recession.

Despite darkened economic outlooks, the bets of a slowdown in rate hikes by the central banks may continue to support a further rebound in risky assets. At the same time, the recent decline in commodity prices may also help reduce inflationary pressure. The CMC Markets Q3 outlook reports (Part1, Part2 & Part3) for you to forward look at the global trends, we will also keep you updated with our analysts’ US earnings previews promptly, with Apple, Alphabet, Meta Platforms, and Microsoft reporting earnings this week.

Key Instruments

  • The USD’s weakness mounts with US bond yields falling sharply last week. The rebound in EUR/USD and the retreat in USD/JPY are major trends worth attention. See the lastest movements of US dollar index 
  • Will tech rebound continue? Watch out for the mega-caps earnings this week. Check on the US stock markets 
  • Crude futures went sideways on an outlook of demand disruptions amid weak economic data. However, the undersupply issue may keep oil’s strength for the time being. Trade crude oil now

Key economic data and events (25 July – 29 July)

US – FOMC statement, Q2 GDP (advanced), Core PCE (June)

The two key Fed members, both Fed Governor Christopher Waller and St. Louis Fed President James Bullard, backed a 75-basis points rate hike, which makes it almost certain for the upcoming meeting. Hence, further guidance will have more impact on the financial markets, and the clues can usually be explored in Fed’s dot plot and the following press conference this Thursday morning.  

In addition, the first read of the US second-quarter GDP to be released after the Fed meeting will be on close watch this week after a negative growth of -1.6% in the first quarter, where a second consecutive shrink in GDP confirms a technical recession. The consensus calls for a 0.9% increase for the first quarter, which may provide relief to the downbeat sentiment caused by the recession fears.

The Personal Consumption Expenditures (PCE) on Friday will then give an idea of how the recent inflation trajectory plays out. The core PCE, excluding food and energy, fell to 4.7% in May from 4.9% the prior month. However, the headline PCE stays elevated at 6.3% since April. The price index is expected to fall in the wake of a decline in the oil prices since June, which may support the odds for less aggressive rate hikes after September.

Japan – Tokyo core CPI (July), prelim industrial production (June), retail sales (June)

Japan’s core CPI printed at 2.2% for June last week, which is the third straight month above BOJ’s target rate. The Tokyo core CPI data for July will give clues about the further inflation trajectory, based on which the BOJ is expected to adjust its monetary policy to reduce the cost of living due to a nosedived Yen this year.

In addition, the prelim industrial production for June is expected to pick up sharply, forecasting a 3.7% growth from a month ago vs. -7.2% in May. But the retail sales may slightly down to 2.8% from 3.7% the prior month.

Australia – Q2 CPI

On Wednesday, Australia’s second quarter CPI data is forecasted at 6.3%, a jump from 5.1% for the first quarter. The ramp-up inflation may keep the pace of a further 50 basis points rate hikes by the RBA in August.

New Zealand – ANZ business confidence

New Zealand’s business confidence is a barometer data to gauge the local economic trajectory, which printed at -62.6 in June at the lowest since April 2020. Hence, a weaker read of the figure may make the outlook into a darker shape. But on the flip side, an improvement of the data may support a further rebound of the NZD and the local equity markets.

Canada – GDP (May)

The Canadian GDP for May is due for release this Friday, which is forecasted at -0.2% from a month ago. However, the data is a lagging indicator so it will not have a major impact on the Canadian dollar or the equity markets. 


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