Asia week ahead - earnings and growth in view

This week’s market recap

Broadly positive rhetoric, though painfully lacking in detail, from the US-China trade talk this week partnered a visibly dovish Fed in powering global equity market higher this week. For the likes of the S&P 500 index, the first five-day winning streak had been recorded since September 2018 as of Thursday’s close. Cutting across to Asia, we have seen the likes of the local Straits Times Index (STI) eyeing its best weekly close since the week ending 2 November. While a couple of black marks had been noted in the form of the sharp drop in China’s December producer price index (PPI) to the lowest growth rate since September 2016 and US retailers’ poor showings, altogether invoking growth concerns, these largely paled to the abovementioned progress that had been made.

US Q4 earnings season

Going into a fresh week, the most important item on the table would perhaps be the fourth quarter earnings season in the US. Opening the curtain would be major banks in the country, starting with Citigroup Inc. before the market opens on Monday. As shared in our piece on Q4 US earnings season, earnings growth is still expected, although at a slower rate of 11.4% according to FactSet polls as compared to around 25% in the first three quarters of the year. Over and above the performance in Q4, it will also be the guidance that the market will watch for as drivers.

In light of corporates from Apple Inc. to retail giant Macy’s lowering guidance for the quarter, one should not be too surprised to find banks falling in line even with the expectations of higher interest rates boosting interest income. The outlook into 2019 would also be one in contention, putting bank stocks to test. While as much as the expectation for poorer showings could already be in the price, any shock would be registered on the likes of the financial sector ETF (XLF ETF), one to watch. Immediate support coming in at the September 2017 lows of around $23.80.

With the concerns boiling down to growth, the series of US data will also be worth watching in the coming week. December’s retail sales and industrial production will be released in the coming week where signs of moderation could deal a blow on the markets alongside any poor earnings showing. As it is, the market is expecting the growth for the latter to come in slower at 0.3% year-on-year.

Political noises to implications

Against the abovementioned items, there would be a series of political issues to continue following. For the US, the partial government shutdown closes in on record length, one set to break if the state of matter extends till the end of this week. Despite the Wednesday evening address by both President Donald Trump and democrat leaders, coupled with more exchanges on Thursday, we have seen markets largely unperturbed domestically and across to Asia as well. The list of implications goes on and, as mentioned previously, the impact is congruent with the length of the shutdown. With time, one should not be surprised to find this indifference changing.

Separately, the UK parliamentary vote for the Brexit draft deal could take place next week though there are little doubts that changes may take place once again. The situation is little changed from prior to the 17 December date where it later postponed, making this one that could see impact regardless of the outcome.

Asia indicators

Amid the slowing growth outlook, China’s trade data will be one to follow next Monday. After both the official and private Caixin manufacturing PMI declined into contractionary territory, it is no surprise finding the consensus for slower exports growth in December. Look to the reading against the forecasts for market implications with bias to the downside for markets in the coming week.

Other data due in the week in Asia includes Japanese inflation reading for December, where a softer core CPI growth is expected. The local Singapore market will see retail sales and non-oil domestic exports in the week as well, though the external factors may play a greater part in determining the likes of the local STI trajectory as it battles the 3200 handle.