Markets Aug 30

This week: PMI, Retail Sales and GDP data in focus

Positive economic news expected in the US, with Trump also tipped to support a further stimulus package, but data from India and Australia is likely to be less favourable

This week: PMI, Retail Sales and GDP data in focus
A police officer checks commuters' travel passes in Amritsar on Saturday August 29 after lockdowns were imposed for weekends and holidays in the Punjab as a measure to counter the coronavirus. The number of new cases has jumped to nearly 80,000 a day, with 3.5 million having caught Covid-19 and more than 63,000 deaths. Photo: Narinder Nanu / AFP.

Economic events

This week could see markets open on a cheery note after strong US economic data propelled Wall Street gains, while a report that Donald Trump is keen on signing the coronavirus aid bill also boosted sentiment.

Last Friday, the Dow Jones Industrial Average added 0.57%, the S&P 500 gained 0.67%, and the Nasdaq Composite advanced 0.6% following data that showed consumer spending increased more than expected last month. The Dow returned to positive territory for the year, and both the S&P500 and the Nasdaq closed at lifetime highs.

On the data front a comprehensive view of global economic conditions midway through the third quarter will be provided by worldwide PMI surveys, culminating with the US non-farm payroll report.

“PMI data will add clues as to the durability of China’s upturn, while GDP in India and Australia are expected to show economies contracting sharply. The RBA [Reserve Bank of Australia] is meanwhile expected to hold rates unchanged at 0.25% but analysts will be eager for clues as to what might trigger further action,” Bernard Aw, Principal Economist at IHS Markit in Singapore, said.

The world’s second largest economy’s recovery will be gauged amid lingering uncertainties regarding new waves of Covid-19 globally.

“In all, our big data sentiment analysis projects an improvement in the upcoming release of state manufacturing PMI for August, albeit not as strong as that of July,” Alicia Garcia Herrero, Natixis' Chief Economist for the Asia Pacific, said about Monday’s data release.

“The reason for the recovery not to strengthen further might be related to persisting uncertainties about the pandemic globally and/or the still relatively poor labor market in China, which continues to suppress consumption.”

Manufacturing data from July in Japan and Korea will indicate GDP growth trends in the ongoing quarter while India will report GDP, fiscal deficit and output data on Monday.

ING cuts India forecast

ING has already cut India’s GDP forecast for 2020 blaming macro policy snags amid stretched public finances and rising inflation, as the the rapid increase in infections this quarter provide “no hope of a near-term recovery”.

“This means pretty much nothing can save the economy from continued deep declines for the rest of the year. We have also cut our forecast of India’s full-year GDP growth from -5.2% to -8.6%, erasing the gains over the last two years,” Prakash Sakpal, ING’s Senior Economist for Asia, said.

Attention will also be paid to Japanese markets which were rocked by the 'shock' resignation of Prime Minister Shinzo Abe.

“Unsurprisingly, it’s a risk-off event characterised by sharp yen appreciation and rise in market volatility. Such an uncertainty could lead to investors recalibrating their views or expectations regarding future policy environment,” Shrikant Kale, senior micro-strategy research analyst at Jefferies, said.

Fund flows

Asia ex-Japan equity funds posted back-to-back positive inflows for the first time since January in the week to August 26, amid hopes of resumed talks between US and China. South Korea, which posted their biggest weekly inflow in five months, and China, posting its second straight inflow, were major beneficiaries. Taiwan, a proxy for the China rebound story, saw outflows for the sixth time in the past seven weeks.

“While investors are viewing Taiwan and China with some caution, fund managers continue to increase their allocations to Taiwan and the world’s second largest economy,” Cameron Brandt, EPFR’s director of research, said.

“Coming into August, China’s average weighting among Asia ex-Japan and the diversified Global Emerging Markets (GEM) Equity Funds stood at record highs and, year-to-date, GEM Equity Funds have rotated over 8% of their total exposure to China, Taiwan and Hong Kong.”

Bond funds extended their recovery following a $400 billion outflow in March. Last week was the 20th straight week of inflows and $16.4 billion was added.

US Bond Funds are the most popular, having attracted $340 billion over the past five months. Global Bond Funds with $62 billion, Europe Bond Funds with $27 billion and Emerging Markets Bond Funds, which saw an $11 billion inflow, the largest since January, were the next most popular.

“Investment Grade funds continue to record weekly inflows amid a continuous reach for 'quality' yield at play in the fixed-income world,” BofA Securities analysts said in a note.

“Long-term funds have been the key beneficiaries of such a trend, outperforming mid and short-term funds and highlighting investors' preference to own duration,” BofA’s Ioannis Angelakis, Barnaby Martin and Elyas Galou said in a note.

Meanwhile, investors continue to pull money out of money-market mutual funds, which saw a third straight weekly outflow, and 10th in the past 15 weeks, as the prevailing near zero rates forced investors to look elsewhere for yield.

Economic data calendar

Last week's rating changes