APAC Week Ahead: Spotlight on CPI, PPI and Chinese Tech Profits in the US

JBroader Asian stock markets will be under pressure this week following the Fed-induced storm in broader markets amid recession fears. However, the argument now comes from two key factors. Have stock markets sufficiently priced in the face of central bank tightening approaches? Is there a chance that inflation will peak? Investors need to be convinced of a bottoming out solely based on the two outcomes, an undervalued stock market and spike in inflation. Thus, the CPI data from the United States will be a crucial economic element that will have a major impact on the trajectory of the market.

In Asia, another objective is a political roadmap of divergence between China and the West. Most developed economies are accelerating monetary policy tightening to curb inflation, while the Chinese government is going all out to stimulate the economy following the intense Covid lockdowns. China’s top tech companies will launch their earnings report this week, which will be key for stock markets in the region.

Key points

  • The price of crude oil hit a one-month high of more than $110 a barrel amid the EU’s proposal to ban exports from Russia completely, but gradually. Will heightened geopolitical tensions push the price of oil back to its March high of $130?
  • With the Nasdaq down 22% year-to-date, are the broader markets bottoming out in the near term? Could the upcoming US inflation data offer opportunities for a rebound?
  • The US dollar index hit a new pandemic high, leading to an intense devaluation of the Japanese yen since March. Will the USD/JPY rally blow since the Fed pushed back a 75 basis point hike?
  • In a context of divergent monetary policy, can China ignore pessimism?

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Key economic data and events

US CPI and PPI data

Despite a sign of softening tone from Fed Chari Jerome Powell at last week’s FOMC meeting, markets seem unconvinced that a ‘soft landing’ could be on the cards unless inflation cools . The consumer price index (CPI) for the United States in March was 8.5%, and the core CPI excluding food and energy was 6.5%. CPI and PPI (Producer Price Index) data are expected to fall in April. The annual headline CPI may have been softened, with a forecast of 8.1%, and the core CPI is expected at 6%, according to Thomson Reuters. While the PPI is expected at 8.9% vs. 9.2% in March.

China’s international trade balance and new loans

China’s imports and exports are expected to fall sharply in April, due to Covid lockdowns. The consensus calls for a 3% drop in Chinese imports year-on-year. The total surplus is expected to come in at US$339 billion, up slightly from March data of US$301 billion.

China’s new loans could be increased in April as part of Beijing’s stimulus measures, which is a key indicator of its economy. In March, new loans from Chinese banks totaled 3.13 trillion yuan, compared to 1.23 trillion yuan in February. The rise in new lending is a key indicator that China’s economy could be taking a political tailwind, coupled with signs of easing lockdowns.

Japan current account in March

Japan’s current account is expected to grow for the third month, driven mainly by investment income, such as interest, dividends and profits. JOB’s policy of tight yield curve control aims not only to support economic activities, but also the huge holding of leveraged assets overseas. Therefore, the JOB could express concerns if the devaluation of the yen causes an outflow of capital.

Inflation expectation in New Zealand

Headline inflation in New Zealand hit a 31-year high of 6.9% in the first quarter. Domestic inflation may continue to rise due to the devaluation of the NZD and higher energy prices in the second quarter. The Reserve Bank of New Zealand is giving a clear indication to hold rate hikes at 50 basis points at every meeting for the rest of the year, which could provide a bullish factory for the local currency.

Europe week ahead

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