Asia markets are expected to be volatile this week amid uncertainty caused by Russia’s invasion of Ukraine, despite a two-day bounce back in US stock markets.
Key instruments to be watched
The new series of sanctions on Russia could have a significant impact on the global commodity markets.
Russia is the largest natural gas supplier to Europe and the second-largest oil exporter globally and sanctions on Russia would further restrain tight supply. Crude oil futures have topped the $100-mark last week amid the intensifying tension. We could see the price continue higher, despite a sharp pullback last Friday.
Precious metals, including gold, silver, palladium, platinum, face further volatility amid the uncertainty. Gold is not only a safe haven asset but also an important industrial raw material. Last week, gold hit $1974, the highest seen since September 2020. The technical support between $1,870-1,878 needs to be closely watched, with the ongoing geopolitical conflict. Apart from gold and silver, Russia’s share in exports of global palladium and platinum are 45.6% and 15.1% respectively.
Russia’s agricultural exports, including wheat and corn, have been volatile. Russia could lose the ability for international trade with the ban from the SWIFT system.
US and Asia Stocks
US stocks appear to have found a footing last week as investors piled into cheap tech shares. Geopolitical unrest could cause the Fed to be less aggressive in its monetary policy, which could benefit tech stocks and negatively affect the financial sector
Key economic data and events for the week ahead
Powell’s testimony, US ISM PMIs, non-farm payrolls
The US Federal Reserve chairman Jerome Powell is to testify before Congress on Thursday and Friday. It will be the last public remarks before the Fed policy meeting on March 15-16. Powell will possibly give clues for the Fed’s next move on rate hikes. The odds for the Fed to aggressively raise interest rates have somewhat weakened due to the Ukraine crisis.
The US February ISM manufacturing PMI and the job of the nonfarm payroll data will be closely watched as key economic gauges. The manufacturing PMI is expected to keep its upbeat momentum as inflation rises. Slightly slower growth in the labor markets is predicted, with 450,000 new jobs vs 467,000 in January.
RBA’s cash rate decision, Australian GDP
The Reserve Bank of Australia board meets on Tuesday. It ended its bond purchase program at its February meeting. There is little expectation of a rate increase with the backdrop of less inflation pressure than elsewhere globally and a relatively strong local currency, supported by rising commodity prices. The Australian GDP is forecast to slow to 2.6% vs 3.9% YoY from the third quarter because of less business investment in the final quarter.
BOC to raise interest rates
The Bank of Canada is expected to raise interest rates by 25 basis points to 0.5% in the backdrop of growing inflation pressure and improving economic data, while the Ukraine crisis could be a positive for the country’s commodity exports.
OPEC and other major oil producers are not expected to change their plans for an output increase of 400,000 barrels per day, as prices increase due to Russia’s invasion of Ukraine.
Key economic events (28 Feb – 6 Mar) (AU time)
China NBS Manufacturing & Non-Manufacturing PMIs (Feb) 12:30 pm, Tues – Can manufacturing PMI hold above the 50 level for the 4th consecutive month?
China Caixin Manufacturing PMI (Feb) 12:45 pm, Tues – Can SME manufacturers stage a recovery in Feb after it fell to a 23-month low of 49.1 in Jan?
RBA Interest Rate Decision 2:30 pm, Tues – Will RBA start to hike rate after 14th consecutive months of standing pat?
US ISM Manufacturing PMI (Feb) 2:00 am, Wed – Consensus estimates manufacturing growth pick-up to 58 after a slow-down to 57.6 (Jan), its weakest reading since Sept 2020.
US President Biden State of the Union speech, Wed
AU Q4 GDP 11:30 am, Wed – Forecasts are calling for a slow down to 2.6% y/y from 3.9% y/y (Q3).
Eurozone Inflation Rate Flash (Feb) 9:00 pm, Wed – Another hot print of 5.2% y/y is expected.
BoC Interest Rate Decision 2:00 am, Thurs – Consensus is calling for a first-rate hike of 25 bps to 0.50% since 2018.
China Caixin Services PMI (Feb) 12:45 pm, Thurs – Forecasts are calling for a slight improvement in services sector growth to 52 from 51.4 (Jan).
US ISM Non-Manufacturing PMI (Feb) 2:00 am Fri – Consensus estimates services activities to show growth improvement to 61 from 59.9 (Jan).
US Non-Farm Payrolls (Feb) 12:30 am, Sat – Expectations are indicating a slow-down in hiring; +450K from +467K (Jan).
Read Chief Analyst Michael Hewson's Week Ahead for UK and Europe