APAC Week Ahead: A Technical Recession

IIn a gloomy economic context, the American stock markets had ended the worst first half in 50 years. According to the Federal Reserve Bank of Atlanta’s GDPNow model, US GDP may have contracted by 1% in the second quarter after revised negative growth of 1.6% in the first quarter, implying that the world’s largest economy fell into a technical recession. The US nonfarm payrolls for June will provide clues for labor markets, where a possible slowdown in new hiring will add more pessimism to the economic trajectory.

By contrast, the Chinese economy is signaling a rapid recovery from the strict covid-related lockdowns. Unlike most Western economies, China’s stimulative monetary policy is fueling the rally in local stock markets, with the CSI 300 rising 5% in the past three months against a 16% decline in the S&P 500.

Comparison of CSI300 (+4.88%), SPX(-16.45), DAX (-11.31%) and ASX 200 (-12.95) from April 1 to July 31

Source: Tradingview (Click to see enlarged chart)

Key instruments

  • The benchmark U.S. yield on the 10-year Treasury fell to its lowest level since late May on Friday, suggesting bets on less aggressive rate hikes from the Fed are growing. See US Treasury prices
  • USD/JPY came under downward pressure on sharp declines in US bond yields, implying that improved bond market liquidity could dampen the selloff in equity markets. See USD/JPY movements
  • Crude oil markets could continue to be under pressure as US refineries operate near capacity. OPEC+ also decided to increase crude production by 50% in July and August. Check oil prices
  • Cryptocurrencies took a hit from the USDT crash, risk bursts, liquidity crunch and pullback stops. But there may be a chance for the crypto markets to stabilize since the worst may be over. Exchange bitcoins now

Key Economic Data and Events (July 4 – July 8)

United States – FOMC Meeting Notes, Nonfarm Payrolls (June)

Minutes from the June FOMC meeting will be released on Thursday. The Fed overshot the rate hike by 75 basis points at the June meeting amid warmer-than-expected US CPI data in May, which came in at 8.6% year-on-year. Fed Chairman Jerome Powell has repeatedly promised to rein in inflation with more aggressive rate hikes. According to the CME FedWatch Tool, the likelihood of the Fed raising interest an additional 75 basis points at the July meeting is 80%, and the fund rate will hit 3.5% by the end of July. the year. Therefore, a 50 basis point rise could provide significant relief to US equity markets.

As companies report a slowdown in hiring, nonfarm payroll data tends to be a crucial economic indicator for the labor market. The consensus calls for the creation of 290,000 new jobs in June compared to 333,000 in May. The unemployment rate is expected to remain unchanged at 3.6%.

China – Caixin Service PMI, Official CPI and PPI (June)

China’s official services PMI rose from 47.8 in May to 54.7 in June. Typically, Caixin’s data will follow a similar trend, with a forecast of 46.00 for June versus 41.40 in May. The data will be released on Tuesday. Positive Chinese economic data suggests the world’s second-largest economy is poised to recover quickly from its months-long lockdowns. China’s CPI and PPI data will also be released on Saturday.

Australia – RBA Rate Decision, MI Inflation Gauge

The Reserve Bank of Australia will announce its rate decision on Tuesday. The Reserve Bank is widely expected to raise the policy rate an additional 50 basis points to control inflation. RBA Governor Phillip Lowe expects Australian inflation to hit 7% by the end of the year, up from 5.1% currently in the first quarter. It also warns of higher rates ahead.

A quarterly report of CPI data is not frequent enough for the RBA to assess the path of inflation, making the MI Inflation Indicator a monthly import outlook for the consumer price .

New Zealand – ANZ Commodity Price Change (June), GDT data

The ANZ World Commodity Price Index tracks the average price of the country’s major commodity exports, including dairy, meat, horticulture, forestry and aluminum. The price index fell 2.8% in May due to the negative impact of shutdowns in China. The Global Dairy Trade (GDT) index had also fallen 6 times in the last 7 auctions. Data are expected to improve as China has eased health restrictions since June. Both data will be released on Tuesday.

Canada – employment change (June)

Canada is expected to have added 22,500 new jobs in June, compared to 398,000 in May. And the employment rate could remain unchanged at 5.1%. Strong Canadian labor markets will likely prompt the Bank of Canada to raise the interest rate by 75 basis points at the July meeting.

Upcoming European Week

  • EU and UK Services PMI (June)
  • J Sainsbury Q1 Results
  • Khaki Q2 results

Read more

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