Asia market week ahead: FOMC minutes, US-China trade

US-China trade development watch

The past week had been one witnessing the ratcheting up of US-China trade tensions as China commenced the week with the announcement of retaliatory tariffs. The was followed by the Trump administration taking things a notch higher later into the week through limiting telecoms sales and placing the attention on the contentious topic of Huawei. Conflicting messages on whether talks are set to continue had also been seen particularly from China’s end stating that there is no information on any plans for US delegations to visit Beijing after the US alluded to the possibility.

That said, the heightening trade tensions appeared to have diminished effect for markets into the end of the week as investors await greater clarity. US indices, the likes of the Dow and S&P 500 index, and the MSCI Asia Pacific ex-Japan index look set to conclude the week better off than previous, particularly the former with only mild declines week-to-date. Over and above the expectation that the base case scenario remains one of negotiation for a deal, President Trump’s brief turn in tone midweek had likely also inspired dip buying. It remains to be seen at present if China will take further action after some of the stern warnings that came through. The weakness in the Chinese yuan, however, will be one worth watching. The offshore yuan, USD/CNH, had certainly reached levels unseen since November 2018. While reports had suggested that the authorities will be keen to keep the 7.0 psychological level intact, both the heightening trade tensions and anticipation for easing keeps the pressure on the downside for the yuan against the greenback, one to watch.

Source: IG Charts

FOMC minutes

Besides the overarching US-China trade theme, the key release in the coming week for markets across the US to Asia to watch will be the May Federal Open Market Committee (FOMC) minutes. One would recall that the Federal Reserve had surprised the market by being less dovish than expected. This is with both the views that the next move can go either ways and Fed Powell’s note that the weakness in inflation is transitory. As the meeting had taken place prior to President Donald Trump’s aggravating tweets and the tariffs implementation, there sits little expectations for the majority to dispute this view. Any clarification on the contentious issue as to whether the inflation weakness is transitory may however see to reactions.

Other US data expected in the week includes existing home sales, durable goods orders and the Markit manufacturing PMI for the greenback and US markets.

Asia indicators

Couple of markets will be away at the start of the week including the local Singapore market, Malaysia and Thailand that could make for slightly lower volume from the region. That being said, it is a packed week of data releases nonetheless. While external factors such as US-China geopolitics may retain their strong influence on the region, tier-1 data in the form of Q1 GDP should be watched across Japan, Singapore and Thailand for the domestic markets. Inflation numbers likewise will be released in Japan, Singapore and Hong Kong.