APAC Week Ahead: Volatility ahead amid influential economic events and data

JThere is no longer any doubt that US equity markets are now falling into a bear market, with the S&P 500 having briefly fallen above the 20% mark since the start of the year last Friday. Hopefully ‘bad news’ can make ‘good news’ because people’s wealth in their stocks has declined so frighteningly, which will result in weaker demand and help calm inflation, thanks to the accelerating rate hikes, falling prices of risky assets and no solution to war-induced supply chain disruptions. The Fed’s policy approach could begin to take effect, which is to fight inflation at the cost of slowing growth, or worse, economic recession.

Despite the rout in US equities, major Asian stock markets are more resilient. Notably, Australian equities have outperformed all other major equity markets, down 7% year-to-date (see chart below), amid high commodity prices. With Labor winning the election, it will be ingesting to see how stock markets react on Monday. Meanwhile, Chinese stocks benefited from policy tailwinds last Friday, with the CSI 300 jumping 2% after the PBOC cut the 5-year loan prime rate (LPR) by 15 basis points, the biggest reduction since the redesign of the mechanism. in 2019.

(Click to see enlarged table) YTD performance of the S&P 500 (-18.14%), HSI (-12.04%), Nikkei (-16.43%) and ASX 200 (-6.94%) in US dollars. Source: Bloomberg

Key points

  • Are there rebound opportunities for US stocks after the S&P 500 briefly fell into a bear market? Can the tech-heavy Nasdaq index begin to build bullish momentum after falling 23% from its April peak?
  • Will Chinese stock markets take off following the easing of Covid-related containment measures, coupled with dedicated government stimulus measures?
  • Did we see a short-term top in USD/JPY as US bond yields quickly retreated from the highs in May? Weakness in the US dollar index is starting to kick in after hitting a new 20-year high.
  • Additionally, falling bond yields and weaker USD may have helped gold establish a bottom reversal opportunity, with a bullish breakout on the descending trendline. See the latest market movements

Key economic data and events

US GDP, Good Orders, PCE and FOMC Meeting Minutes

A series of upcoming US data will be the main indicators to see if the Fed’s rate hikes will start to weigh on economic growth. The April PCE data in the US is in focus, if it points to a continued high cost of living, which could lead to a deterioration in risk sentiment. The second reading of first-quarter US GDP will be released on Thursday, which will provide further evidence if the macroeconomic landscape has deteriorated after the first release of negative 1.4% growth. Additionally, the flash U.S. manufacturing and services PMIs for May will provide projections of economic activity for the current month on Wednesday. The FOMC meeting minutes are certainly a spotlight for finding more clues to the Fed’s policy roadmap, in which a 50 basis point rate hike has been priced in for each of its next two meetings. .

RBNZ Policy Meeting

The Reserve Bank of New Zealand is expected to hike the official exchange rate (OCR) by 50 basis points, to 2% next week to curb 30-year high inflation, which stood at 6.9% in the first trimester. The Reserve Bank expects more rate hikes of 50 basis points to occur at each of the meetings for the rest of the year. While the New Zealand Treasury has predicted a gloomy economic outlook from the second half of the year, any dip in the RBNZ rate hike could send the local currency plummeting again.

Australia flash PMI, retail sales, construction production and capital expenditure

Australia released strong new jobs data last week, coupled with better-than-expected wage growth. Good economic data could support more aggressive moves by the RBA, which would be a bullish factor for local currency and equity markets. Upcoming Australian economic data, including flash PMIs for manufacturing and services in May, construction production and private capital expenditure for the first quarter, will offer more clues about economic health, with expectations that Q1 business spending may have recovered strongly from the omicron disruptions.

Upcoming European Week

  • Marks & Spencer annual results – Wednesday

  • Flash PMI Germany, France (May) – Tuesday

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