APAC Week Ahead: Cooling Inflation?

The equity market’s rebound has come to a pause as US earnings optimism faded in the last week, with the bets for a “peak Fed” weakening. Two clues for investors to trace here: Fed policy and economic trajectory. A less aggressive Fed and positive economic data will be the best combination for market sentiment; hence, the Fed’s rate hike path becomes the main driver to keep the rebound momentum since the recent economic data is relatively strong. However, Friday’s strong job data has sent jitters to the markets as “good news” received negative feedback from the risky assets, while bond yields climbed higher in response to the strengthened expectation for the Fed to keep its hawkish stance.

This week’s US CPI data will certainly be a barometer to trace inflation, in turn shaping further market trends. A slow increase in the consumer price will help the “Fed pivot” bet and possibly continue to fuel this current market rebound. In addition, the earnings season has kicked off in Australia, with the Commonwealth Bank reporting its half-year result on Wednesday. We will provide a forward view with our analyst’s insights.

Key Instruments

  • The trends of bond yields are the core for broad markets, which have inverse relationships with bond prices. Yields seem to start climbing again, and this could restrain the recent equity rebound. Check on treasuries’ pricing
  • The US dollar strengthened against the other major currencies on a fading bet of “Fed pause”. A strong dollar may continue to put pressure on gold and the other major currencies, such as the Japanese Yen and the Eurodollar. See the US dollar’s trend
  • The price slump in crude oil suggests that commodities are under pressure on darkened economic outlooks, but this will help cool down inflation. However, there is still no solution to the undersupply issue. Trade oil now
  • Cryptocurrencies have fared relatively well recently. A continuation of the rebound in growth stocks will certainly provide further strength to this asset class, and vice versa. See Cryptocurrencies movements

Key economic data and events (07 August – 12 August)

US – CPI, PPI (July)

Both US CPI and PPI will be reported on Thursday and both numbers are expected to come down in July. The core Producer Price Index (PPI), excluding food and energy, is forecast to increase 7.6% year on year, which peaked at 9.2% in April.

The US inflation is also expected to slowly elevate in July, with both petrol and grain prices falling from the peak for the last two months. The US headline Consumer Price Index (CPI) for July is expected to fall to 8.9% from 9.1% in June, and the core CPI excluding food and energy is forecast at 6.1% versus 5.9% the previous month. A fall in the headline CPI may further strengthen the odds for the Fed to scale back rate hikes.

China – Trade balance, money supply, CPI, and PPI (July)

China’s trade surplus hit a record of US$ 97.94 billion in June after Shanghai came out of lockdown. The country’s exports increased 17.9% year on year in June. However, the data is expected to drop to 14.8% in July. The trade surplus is forecast at US$89.7 billion, while imports may grow 3.2% during the same period.

In addition, the M2 money supply year-on-year change will also be released tentatively this week. The percentage change is printed at 11.4% in June when Shanghai eased lockdown measures. It is expected to increase at the same level in July. China’s new loan amount will also reflect how the credit markets perform with low business confidence due to uncertainties about the Covid-zero policy.

Australia – Westpac Consumer Sentiment, NAB business confidence

The Westpac-Malborne consumer sentiment slid 3.0%, down for eight straight months in July, approaching the lowest since February 2009 apart from the pandemic time in 2020. The data may not be better with inflation keeping elevating and RBA’s aggressive rate hikes. Also, the NAB business confidence fell 5 points to 1 in June, the lowest level since January. The retail sector got the biggest hit by the global uncertainties. Both data will be released on Tuesday.

New Zealand – Inflation expectation (Q3)

New Zealand’s CPI increased 7.3% in the second quarter to a record high. The RBNZ forecast inflation will be 7% by the year-end and will not be back to the target range until late 2023. The Reserve bank is expected to keep the pace for another 50 basis points rate hike in August.

UK – Q2 GDP

The UK’s GDP has grown 0.8% in the first quarter, and the economy is expected to contract 0.1% in the second quarter. The BOE has raised the interest rate by 50 basis points last week for the first time in 27 years, which could be a challenge for the economy for the second half of the year.

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