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Week Ahead APAC: Geopolitical tensions weigh on markets, RBNZ meeting ahead

ukraine tension

Asia markets are expected to face another volatile week with the geopolitical tensions ongoing over the Ukraine crisis. The same time, investors will keep assessing the Fed policy, which is the second factor pushing risk-off sentiment across global markets.

SPI futures indicate a 0.7% decline at the open of the S&P/ASX 200. A2Milk shares have jumped 4% in early trade on the New Zealand Stock Exchange, against a flat NZX 50 so far this morning.

Infant formula specialist A2 Milk has reported net profit down 53% for the half year to December as higher costs slashed margins. In a statement, A2 said China’s infant formula market was rapidly changing and affected by a falling birth rate. Net profit for the period was $56.1 million, down from $120m in the same period a year earlier. Revenue fell 2.6% to $658.8m.

Key instruments to be watched

This week, safe haven assets, including gold, US government bonds, and Japanese Yen will be the leading instruments for investors to gauge on sentiment, while oil price is hovering around an 8-year high.

Last week, gold surged for the third straight week, popping above $US1,900 at an 8-month high due to the Ukraine tension. The 10-year US Treasury yield also fell from 2%. The same time, oil market momentum somewhat faded with the possibility for a deal to be reached in the Iran nuclear negotiation.

US stocks are on course for a correction from the November highs. The key technical support levels from January 27 will be closely watched, with geopolitical tensions and the Fed policy weighing on sentiment. Also, the last patch of company earnings are to be released, including Moderna and Coinbase this week.

Ukraine tension

The pro-Russia rebels triggered fire with the Ukraine force last week. US President Joe Biden repeatedly warned that Russia will attack Ukraine in the coming days.  The Ukraine President Zelensky has called for more military aids from his Western allies to secure the county’s border, while the Russian President Putin denies for an invasion.  

US PCE inflation, Prelim GDP

It will be a 4-day week this week in the US markets as Monday is a public holiday, for Presidents Day. The January personal consumption expenditure inflation data (PCE) will be in focus for investors as it is one of the most important economic gauges for the Fed to decide monetary policy, which reflects changes in the prices of goods and services purchased by consumers. It is expected the PCE inflation will rise 0.5% monthly, showing no signs of slowing down and indicating ongoing price pressure.

On Friday, the second read of the fourth quarter GDP will also catch investors’ attention. The forecast is to be revised higher at 7.0% from 6.9%. The January PMIs and CB consumer confidence will released on Wednesday.

RBNZ policy meeting

The Reserve Bank of New Zealand (RBNZ) will hold the first policy meeting this year. The RBNZ increased its Official Cash Rate (OCR) two times last year. It is one of the hawkish central banks in the major economies. Markets have priced in for 25 basis points each time in its seven meetings this year. But a more aggressive lift of 50 basis points this week is expected due to flaring domestic inflation. The NZD is a relatively strong commodity currency due to the hawkish bank policy and expectation for the country to reopen its border in October.

Key economic events (21 Feb – 27 Feb)

AU Markit Manufacturing & Services PMIs Flash, Mon – Can Services PMI return to growth trajectory after contraction in Jan?

Japan Markit Manufacturing & Services PMIs Flash (Feb), Mon – Growth in Manufacturing is expected to ease slightly while Services forecasted to contract for the 2nd consecutive month.

China 1 & 5 YR Loan Prime Rates (Feb), Mon – Will PBOC cut rates again after a -10 bps (1 YR) & -5 bps (5YR) reduction in Jan?

RBNZ Interest Rate Decision 12:00pm, Wed – will the bank increase OCR by 50 bps?

US Personal Income & Spending (Jan), Sat – a 0.5% increase is expected, no signs for slowing down

 

Company earning/announcements (21 Feb – 25 Feb)

Cochlear (AU) – HY 2022, Tuesday

Rio Tinto (AU) – FY 2022, Wednesday

Alibaba (US ADR/HK) – Q4 2021, Thursday After HK Market Close

NetEase (US ADR/HK) – Q4 2021, Thursday After HK Market Close

Moderna (US) – Q4 2021, Thursday Before US Market Open

Nikola (US) – Q4 2021, Thursday Before US Market Open

Coinbase Global (US) – Q4 2021, Thursday After US Market Close

EOG Resources (US) – Q4 2021, Friday Before US Market Open 


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