Asia market week ahead - Brexit, Chinese data

This week in markets: Growth concerns brewing

Global equities market came under pressure this week with a multitude of factors aggravating concerns surrounding growth. The 2019 Work Report from China’s National Party Congress saw to the lowering of 2019’s growth target. This was followed by a disappointing Australia’s Q4 GDP release and the suggestion of moderation in economic activity in the US Fed beige book.

Capping off the week so far had been February’s trade numbers from China that saw a sharp downturn, pulling Asia markets along with it. The attempt to dismiss the weaker showing as the Lunar New Year effect had so far been futile in light of the extent this downturn had taken. While US’ February payrolls figures have yet to be released at the point of writing, the fear is that a strong showing may instead be inducing worries of further hikes in an environment of delicate growth.

Brexit vote(s)

Amid all the growth concerns, the last thing we may perhaps be needing at this point of time will be further political noise surrounding Brexit. The UK parliament is expected to vote on Prime Minister Theresa May’s draft deal on Tuesday, March 21 with revisions being sought following the earlier rejection. A failure, which may be the likely scenario, would see to a vote on a no deal the next day. Earlier indicative polls have pointed to a slim margin for the vote against a no-deal Brexit to emerge victorious. This would be where the risks exist as a no-deal Brexit scenario certainly presents itself with significant plausibility. Given the proximity to the March 29 deadline, the ruling out of a no-deal Brexit would then mean the UK parliament would also have to vote on a delay to the deadline to allow for the establishment of a deal, expected to take place on Thursday. Note with the last vote next week, there likewise exists the potential for market disappointment is an extension is not being favoured as the possibility of a no-deal Brexit heightens.

Altogether, it could make a rough week for the UK and eurozone alike as Brexit warnings from the likes of central bankers resound in our ears. The direct impact will be upon the GBP/USD with price still oscillating no-man’s land at around 1.30 when last checked, caught between the two poles of a hard Brexit and no Brexit. The trickle-down effect for Asia markets if a no-deal Brexit becomes a plausibility relates back to growth after being trodden down by the series of updates this week.

Economic indicators

Further updates on economic activity would likely be scrutinized with the same amount of intensity next week, particularly those from China. The combined year-to-date January and February industrial production, retail sales and fixed asset investments will be released on Thursday with the current prognosis mixed. Industrial production and retail sales are expected to be slightly weaker at 5.5% year-on-year (YoY) and 8.1% YoY respectively. FAI may instead pick up slightly to 6.0% according to consensus. Weak leading indicators, however, sets the data up for the possibility to disappoint, one to watch into the end of the week.

Notably, the Bank of Japan (BoJ) meeting will also conclude on Friday with dovishness expected to be retained. The question will be to what extent amid the growing sense of further support is expected from the BoJ’s limited toolbox. One to watch.