Asia week ahead - post G20 meeting

Geopolitics in focus

Ahead of the G20 meeting, headlines suggesting a trade truce to be expected between US and China had briefly enthused global equity markets that had been waiting on the outcome with bated breaths. That said, updates from Friday had continued to suggest that things may not be quite as simple as it appears. China’s request to have the ban lifted on Chinese telecommunications company, Huawei, had highlighted one of many issues that continue to fraught US-China relations. This is while President Donald Trump remarked that no tariffs delays had been pledged during the meetings on Friday. Altogether, this had seen to Asia markets paring some of Thursday gains.

With President Donald Trump and President Xi Jinping set to congregate on Saturday, markets will have the conclusion of the meeting to digest in the week ahead. With a deal seemingly struck off the list of possible outcomes, the market’s best-case scenario is now a repeat of the Buenos Aires G20 meeting whereby a trade truce was announced and tariffs delayed. Notably, expect the market to read beyond what the respective statements from both US and China has to offer at face value and attempt an estimation of the gap between the two sides through all the information availed. A knee-jerk reaction may be the case if a breakdown in talks should occur that would bring forward the imminent threat of the next round of tariffs. As far as USD/JPY (大口） as the risk barometer have suggested, the market is expectedly cautious ahead of the pivotal meeting on Saturday.

US jobs data

While any fresh developments from the G20 will likely overshadow most items at the start of the week, there is nevertheless a handful of US data to assess alongside the G20 outcome for the July FOMC. The June ISM manufacturing PMI is expected at the start of the week with the market pencilling a slowdown to 51.5. A realization will mark the weakest reading seen since late 2016, one to reflect the dent from the trade tension escalation with China.

Besides the manufacturing index, Friday’s jobs report will be the key item for markets to follow on indications of upcoming Fed moves. Following the release of a surprise to the downside for May’s non-farm payrolls at 75k, Fed cut bets were seen increasing. A second round of disappointment in the headline payrolls reading or the unemployment rate could further cement this expectation, one to watch. Fed speakers including Fed Williams and Mester will also be speaking on Tuesday.

Asia indicators

A packed data calendar lies ahead for Asia markets with a flurry of Chinese economic releases to watch in addition to US-China politics. The Sunday release of China’s official June PMI will be tailed by the Caixin manufacturing and services PMIs on Monday and Wednesday respectively. In particular, the Caixin manufacturing gauge could risk slipping into contraction territory once again with the market pencilling a precarious 50.0 consensus.

Besides the above, Japan’s Q2 Tankan survey will also be released on Monday alongside their June consumer confidence reading. As told above, however, the G20 meeting outcome may unfortunately play a bigger part on Monday in guiding markets. The local Singapore market will also have its June manufacturing PMI update on Wednesday.