A Colossal Week Ahead For Asia

It’s starting to feel a lot like Christmas, but that’s not from cheery perspective mind you, but instead, traders are beginning to fold their cards as the market has that remarkable tendency to swing one way into year end. But with month-end approaching and when combined with year-end flows markets could get both messy and noisy next week

USD

The key for the dollar next week is Fed Chair Powell, and Vice Chair Clarida will be speaking – after their most recent appearances triggered the great debate on the 2019 US interest rate glide path although December is a lock. Again, the markets will be susceptible to these headlines

G-20
All eyes are on Buenos Aires – on Friday, world leaders gather for the G20 summit where the highlight will be the Trump-Xi meeting on December 1.

I’m cautious, but where there’s a will there a way, and perhaps even a practical suggestion to keep the dialogue open would certainly walk back some of the negativity from last weeks APEC muddle. However, also if US tariff war pauses, there’s a not so new battleground emerging, and that will be focused on the tech sector espionage and intellectual property rights giving rise to conflict beyond trade. The US government highlighted this swing is reportedly trying to persuade its foreign allies’ wireless and internet providers to avoid Huawei equipment. Which predictably sent China equity markets into a tailspin

A colossal week ahead for Asia

Regardless of the outcome of the Trump -Xi meeting the vast divide between both countries ideologies suggest we’re going to be dealing with trade issues in one form or another for some time to come

EM markets, they will be tracking the usual global macro with a significant focus on oil and the G-20 outcome

In Asia the Bank of Korea is expected to offer up a dovish hike on next weeks data, local investors will key on China Manufacturing PMI which is expected to soften in November with median estimate coming in at 50 right on the edge of expansionary / contraction cliff edge. A miss on the downside could be very harmful to regional equity sentiment

All the while local investors will continue to demystify the massive drop in energy prices which has both a positive and negative effect on regional economies. But overall the decline will be harmful to the large Oil and Gals constituents on the SGX and KLCI while falling pump prices have a stimulatory effect across all ASEAN counties

I think the market reactions to Trump -Xi meeting will be binary to either a Buenos Aries breakdown or breakthrough which will be good or bad for local currency sentiment

Malaysian Ringgit

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Despite an overly bearish Ringgit sentiment in the markets, much focus will revolve around the Yuan and its far-reaching implication for local currency markets. In trade discussion, I expect Pboc FX policy to keep the Yuan stable while ensuring it stays below USD/CNH 7 which could be the most natural trade concession for China to maintain which could temper broader USD topside ambitions

While slippery oil prices will be a massive negative for the MYR due to the negative impact on government coffers. There are nascent signs of a recovering in EM carry trades, But I think adding to the allure is this subtle shift in Fed rhetoric. This shift could encourage investors to buy into the softer Fed profile, and if we start to factor in a terminal Fed rate in at 3 %, I think some of the superb EM carries are looking increasingly attractive on this subtle shift in Fed narrative alone. I think the Fed will continue to raise interest rates in 2019 but at a much slower pace than market expectations.

Overall, this will take a lot of pressure of USD/MYR 4.20 next week however on a breakdown in Buenos Aries we could see a massive wave of risk aversion next week that will topple local sentiment.

Original post

Written By: MarketPulse