The minutes of the October 30 FOMC will be the key planned release this week to judge Fed divide, given the growing contingent of policymakers that have either voiced opposition to the latest rate cut or only supported the cut conditional on sending a hawkish signal with it. To be sure, traders will also be on the lookout for any developments on the trade policy front, particularly in the wake of last week's deadline for a Section 232 global auto tariffs decision, as well as the recent stops and starts in negotiations with China.
This week will be all about short strokes – well at least that’s how Larry Kudlow, head of the US National Economic Council, described the current state of play in the trade talks. If short strokes are in reference to golf, in which a player concludes each hole by making short strokes with a putter, there have been more than a few tap-ins missed and certainly neither the US nor China will concede a gimmie.
Trust remains a considerable problem, and there’s still little clarity on how that trust gap might be bridged, especially given that (1) China has made it abundantly clear that removing existing additional tariffs is a precondition for reaching a deal, (2) the US insists on China agreeing to sufficiently ‘stronger language’ on IP to trigger a tariff rollback, (3) China continues to waffle at providing a numerical target for farm purchases totaling $50bn – more than twice their previous level of agricultural imports. Singularly each issue doesn’t appear to be a bridge too far, but collectively that could be another story altogether.
And while there’s a massive payout waiting at the other end of the trade talk rainbow, the big question remains, in the absence of material de-escalation in the form of a credible roadmap for a rollback in tariffs, is the probability of a lasting détente worth the risk? Arguably more key to defining the quality of the US-Sino relationship beyond Phase One are the evolving (or devolving) narratives around Hong Kong and Huawei.
The US Senate is sounding very confident about getting the Hong Kong bill legislation to the floor. If passed, possibly as early as next week, Congress will need to reconcile the versions and put it up to the President to sign into law. Meanwhile, Huawei’s temporary general license expires on Monday. Failure to extend the trade license could be very detrimental to the broader US-China engagement.
With respect to the data, US housing will be the main focus this week as the NAHB housing market index (72 forecast vs. 71 previous), Tuesday’s housing starts (1.280 mn vs. 1.256 mn) and building permits (1.350 mn vs 1.391 mn), and Thursday’s existing home sales (5.40 mn vs. 5.38 mn) should generally point to a firming market as a result of the Fed’s past three rate cuts.
View all the events: AxiTrader Economic Calendar
Key dates and events on the ASEAN Docket
Weekly Look at the Yuan
The Yuan has had tracked the vagaries, twists and turns of the US-Sino trade talks. With the tendency for the Yuan to chase and react to the latest trade headlines, it’s creating enough noise to obscure the dreary Chinese economic fundamentals. And while trade talk sentiment is driving the bus these days and the current direction of travel makes sense, due to a lack in organic economic growth, Yuan fortunes below 6.95 USDCNH may hinge mainly on the US dollar weakness.
Critical economic releases by county in Asia
Economists expect Bank Indonesia (BI) to cut its policy rate by 25bps on 21 November and surmise this could be the last rate cut in this cycle for no other reason than the Fed has hit the pause button.
Analysts expect Thailand’s GDP growth to rise to 2.9% yoy in Q3 from 2.3% in Q2, thanks mainly to low base effects. This is despite economic data pointing to continued weakness in domestic demand. On the other hand, the pace of contraction in imports accelerated to 5% in Q3 from 1.8% in Q2, while exports rose 0.3% in Q3 vs. 1.8% fall in Q2, pointing to improvement in net trade contribution to headline growth in Q3, likely countering the impact of weaker domestic demand.
Analysts think Singapore is also likely to report a continued contraction in exports, 7.9% in October vs. 5.1% in September. There’s little change on the inflation front, with Hong Kong’s CPI inflation likely to remain elevated at 3.1% in October vs. 3.2% in September, while analysts expect Malaysia's inflation to remain muted at 1.1% in October, unchanged from September.
Expanded ASEAN Calendar
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies