Asia week ahead: A shares’ MSCI bid, flash PMIs

Grabbing the attention of the markets could instead be the MSCI review before flash PMIs anchor markets into the end of the week.

Market recap

The past week had been one characterized by central bank meetings from several advanced economies, including the Federal Reserve, Bank of England (BoE) and the Bank of Japan (BoJ). The impact had largely been contained within currency markets. While none of the trio delivered interest rate surprises, the stance of central bank officials had been varied and sometimes surprising such as in the case of the Federal Open Market Committee (FOMC). A less dovish than expected rhetoric post FOMC returned some strength to the US dollar with moderate gains seen for the US dollar index on a week-to-date basis into Asia’s Friday afternoon. US stocks meanwhile saw muted response towards the Fed meet, retaining a broad consolidation trend.

Comparatively, Asian markets appear to have experienced a soft week, weighed significantly by the underperformance of the IT and materials sectors. Energy stocks had also declined in the week. Leads including the sell-off within the US IT sector and the sharp drop for crude oil prices had been factors underpinning the decline for Asian markets.

Flash PMIs

The diverse set of views arriving from the central banks this week detailed the diverging pace in which central banks see their economies moving. On one end, the BoE tilted to follow the Fed in a more hawkish stance. On the other hand, the BoJ had averted discussions of exit strategy, choosing to remain on the accommodative end for monetary policy.

With the theme remaining on growth momentum, the slew of data to be released next week could be welcoming in updating the market on economic performances. For the US, besides key releases such as the existing and new home sales for the month of June, a first look of June’s Markit manufacturing PMI will fall on Friday. These are the indicators that could drive movements for both the equity and currency markets.

While both the Eurozone and US manufacturing indicators had pointed to expansion for the sector in May’s reading, the deviating trend had in part contributed to the shift of attention towards Europe. Specifically, we have seen Eurozone’s manufacturing PMI holding at a six-year high for May. The market is currently expecting the difference between US and Eurozone PMIs to shrink and could certainly be the dynamic to track for trade next week.

Asian events and indicators

Prior to the set of PMI updates, Asian market could find MSCI Inc.’s Annual Market Classification Review a key event to follow. Amongst the items up for inclusion consideration is China’s A shares. The fourth attempt may be the best yet with MSCI shaving the number of companies to 169 large caps that are also accessible via stock connects with Hong Kong, which could greatly reduce many of the concerns that brought about last year’s rejection. A successful put-through of these yuan-denominated A shares into the Emerging Market index could significantly raise optimism for further liberalization of China’s stock market, thereby inviting demand for the stocks and would be seen as a plus for both China and regional markets.

Besides the abovementioned, we are also expecting several central bank meetings in the Asia Pacific region next week. This includes central bank meetings in Taiwan, Philippines and New Zealand, though no change in interest rates have been expected. Inflation data will also be released across multiple economies in the region. The local Singapore market could find the focus on May industrial production data after this week’s non-oil domestic export surprise.