The broader Asian equity markets are under pressure this week after the Fed-induced US stocks' turbulence in the broader markets amid recession fears. However, the argument comes to two key factors now. Have the stock markets priced in enough in face of the tightening approaches by the central banks? Are there any chances for inflation to peak? Investors need to be convinced for a bottom establishment only based on the two outcomes, an undervaluing equity market, and peaking inflation. Hereby, the US’s CPI data will be a crucial economic factor that has a major impact on the market trajectory.
In Asia, another focus is a divergence policy roadmap between China and the West. Most developed economies accelerate tightening monetary policies to curb inflation, whereas the Chinese government has its all-in magnitude to stimulate the economy in the wake of intense Covid-lockdowns. The major Chinese tech companies will kick start earnings report this week, which will be a key focus for the region's equity markets.
- The crude oil price advanced to a one-month high at above $110 per barrel, amid the EU’s proposal to fully ban Russia’s export. Will the intensified geopolitical tension send oil price back to its March-high of $130?
- With a 22% drop in Nasdaq year-to-date, are the broader markets reaching a near-term bottom? Could the upcoming US inflation data provide any rebounding opportunities?
- The US dollar index has reached a fresh pandemic-high, sending the Japanese Yen to devalue intensely since March. Will the soaring pair of USD/JPY take a breather since the Fed has pushed back a 75-basis points hike?
- In the backdrop of a divergence monetary policy, can China shrug off pessimism?
Key economic data and events
US CPI and PPI data
Despite a sign of softening tone from the Fed Chari Jerome Powell at the FOMC meeting last week, markets seem not to be convinced a “soft landing” could be approached unless inflation cools down. The US March Consumer Price Index (CPI) printed at 8.5%, and the core CPI excluding food and energy was at 6.5%. It is expected that both CPI and (Producer Price Index) PPI data are to fall in April. The annual headline CPI may have been softened, with a forecast of 8.1%, and the core CPI is expected at 6%, according to Thomson Reuters. Whereas the PPI is forecasted at 8.9% vs. 9.2% in March.
China’s international trade balance and new loans
China’s imports and export are expected to sharply decline in April, due to the Covid-lockdowns. Consensus calls for a 3% fall in China’s imports y/y. The total surplus is expected to be at US$339 billion, slightly up from the March data at US$301 billion.
China’s new loans might be elevated in April amid Beijing’s stimulus measures, which is a key gauge of its economy. In March, the Chinese banks’ new loans totaled CNY 3.13 trillion, which jumped from CNY 1.23 trillion in February. The growing new loans are a key indicator that the Chinese economy could take a policy tailwind, coupled with signs of easing lockdowns.
Japan’s March current account
Japan’s current account is expected to grow for the third month, mainly driven by investment income, such as interest, dividends, and profits. The JOB’s policy of strictly controlling the yield curve is not only aiming to support the economic activities, but also the huge leveraged holding of oversea assets. Therefore, the JOB could express concerns if the Yen’s devaluation causes an outflow of capital.
New Zealand inflation expectation
The New Zealand headline inflation hit a 31-year high at 6.9% in the first quarter. Domestic inflation may continue elevating due to the devaluation of the NZD and rising energy prices in the second quarter. The New Zealand Reserve Bank gives a clear indication to keep the 50-basis points rate hikes in each meeting for the rest of the year, which may provide an upside factory for the local currency.
Europe's Week Ahead
BT Group annual results-Thursday
UK GDP (Q1)- Thursday