A QUICK LOOK AT GLOBAL FINANCIAL MARKETS
Korean missile tests continue to tense the country’s relations with US and tension spreads over Asia, primarily China. However, higher than expected growth in China, heightened risk appetite in emerging markets as well as upward revision in IMF’s global and China growth estimates keep market activity live. Note that IMF, in its latest World Economic Outlook report revised up China’s growth estimate to 6.58% from 6.17%.
There will be several releases to help us gauge economic activity in emerging markets this week. Manufacturing and service PMI for April in China will be announced on Tuesday and Thursday at 9:00 a.m. GMT+8 respectively. Market consensus is 51.0 against previous realization of 51.2 while there is no consensus for non-manufacturing PMI. Yet, market will follow whether realization will exceed March index level, 52.2. A weak standing will be no good news for second quarter growth performance.
Hong Kong, Malaysia, Singapore, India and Indonesia PMI will also be announced where no consensus estimate are available. Data are important as Malaysia PMI in March to be announced on Tuesday stood at 49.5 and Hong Kong PMI to be announced on Friday stood at 49.9, below critical threshold of 50 while Indonesia’s to be announced on Tuesday was 50.5, barely exceeding 50. Index levels need to exceed over 50.0 for markets to see sustainable recovery in Asian economies. Singapore and India PMI to be announced on Thursday and Tuesday in the meantime were somewhat stronger at 52.2 and 52.5 respectively in March.
In LatAm, manufacturing PMI and industrial production in Brazil will be the main releases of the week. There is no market consensus for manufacturing PMI to be announced at 10:00 a.m. however market will follow whether March index at 49.6 will be able to exceed 50 threshold. Industrial production to be announced on Wednesday at 9:00 a.m. GMT-3 is expected to post 0.8% y/y contraction over previous year which will not be considered good in the markets.
PMI and inflation will be closely followed in Russia this week. Y/Y inflation to be announced on Friday is expected to further ease to 4.1% in April, from 4.3% a month ago. This might lead the Central Bank continue with rate cuts in the policy rate currently at 9.25%. A positive surprise would strengthen ruble against USD which have been depreciating by the Central Bank’s FX purchases to help exporters. PMIs in the meantime have no market consensus but manufacturing PMI in March stood at 52.4 while service PMI was 56.6. Data will be announced on Tuesday and Thursday respectively.
In Turkey, main event of the week will be April inflation where it may see a new peak after having hit 11.3% in March. Market consensus is 1.3% which would carry annual inflation to 11.9% while our expectation is 1.0% (11.5% y/y). This would hurt USD/TRY which showed a dramatic decline thanks to declining DXY as well as positive mood in the market after referendum.
Trumpflation trade which refers to boost to economic activity and hence asset prices by Trump administration has been on play during the first weeks of the year. However, GDP numbers show that’s not actually been the case in the first quarter of the year. GDP grew 0.7%, weakest pace in three years, having posted 2.1% at the final quarter of last year. Hence, growth indicators of this week will be quite important as markets will see whether weakness is temporary or not. Together with the fact that looser fiscal policy might have ended with higher interest rates, investors’ tendency to hold risky assets keep US bond rates low.
Data agenda is quite heavy this week in US this week. FOMC decision will be one of the main market movers while first tier data in terms of market impact like ISM manufacturing and service as well as non-farm payrolls in US will also be widely followed. No rate change is expected from the FOMC meeting result of which will be announced on Wednesday at 2 p.m. Eastern time. However market will seek a hint over the timing of next Fed rate hike as well as any consideration of balance sheet shrinking.
ISM manufacturing to be announced on Monday at 10:00 a.m. is expected to come down to 56.4 in April from 57.2 a month ago while ISM service due Wednesday is expected pick up to 55.8 from 55.2 within the same period. ADP private payrolls in the meantime is expected to generate 175k increase against market consensus of 263k.
Non-farm payrolls as the second mostly weighted market mover of the week will be announced on Friday at 8:30 a.m. and is expected to rise to 185k from 98k a month ago. Average hourly earnings growth is expected to slightly pick up from 0.2% to 0.3%. Any realization better than market consensus will boost DXY which is hovering below 100 due to Trump administration's expected loosening in fiscal policy.
In Eurozone, GDP, unemployment, final PMI and retail sales will be the main releases of the week. Manufacturing PMI to be announced on Tuesday at 8:00 a.m. is expected to stay at 56.8 in April compared to 56.2 a month ago while service PMI to be announced on Thursday is also expected to improve, to 56.2 from 56.0. Unemployment rate to be announced at the same day at 9:00 a.m. is expected to further ease to 9.4% in March from 9.5% in February. GDP in 1Q17 will be announced on Wednesday at 9:00 a.m. and is expected to remain flat at 1.7% compared to previous quarter according to preliminary statistics. Retail sales as another important indicator of economic activity is expected to accelerate to 2.1% in March from 1.8% a month ago. Data in line with or better than expectations will support EUR/USD rate which has been pricing Le Pen’s failure in elections.
In UK, only important release will be April PMI manufacturing and service to be announced on Tuesday and Thursday respectively. March manufacturing PMI which stood at 54.2 is expected to ease to 54.0 in April while service PMI is also expected to come down from 55.0 to 54.5. Any weakening in the index will confirm the expected slowdown in British economy after Brexit and may hurt GBP/USD.
In Japan, April manufacturing and service PMI will be the only important data releases within the week. The former will be announced on Monday while the latter will be out on Tuesday at 9:30 a.m. Manufacturing PMI is expected to remain flat at 52.8 while there is no consensus for service PMI. It should exceed March realization of 52.9 to help Yen against USD.
06 Jul 18 (Fri)
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