1. Markets brace themselves for more turmoil as all look to China's next move
Fears that Chinese growth is weakening, dragging down the global economy with it, drove a brutal global sell-off last week in world stocks, emerging market currencies and commodities. All eyes are now on Beijing for more policy support with bets on China cutting interest rates again or relaxing banks' reserve requirements ratios.
Adding to tensions, North and South Korea are still locked in marathon talks over the weekend to end a military stand-off that is threatening to boil over into armed conflict.
2. How far more can emerging market currencies and commodities fall?
With the real state of China's economy in question, Beijing's move to weaken the yuan has accelerated the falls in other emerging market currencies and forced some other governments - such as those in Vietnam and Kazakhstan - to abandon currency pegs. Currencies including those of Malaysia, Indonesia, Australia, New Zealand and Turkey are also under pressure. The problem is that if many currencies of countries trading together fall at the same time - known in the jargon as competitive devaluations - nobody gets much of a boost.
Compounding the worries for emerging markets, the deepening slump in the price of commodities, particularly oil, is hammering big exporters like Russia and smaller economies like Malaysia. Oil prices have hit a six-year low, with US benchmark crude falling briefly below the key US$40 (S$56.50) level last Friday. Most other commodities have also slid sharply, reflecting falling demand from big buyers such as China.
Exports from emerging economies, particularly raw materials producers like Malaysia and Australia, are most at risk from the combination of slowing growth and lower worldwide commodity prices. The fallout is most apparent in their currencies, which have fallen to levels beyond what was experienced during the global financial crisis in 2008.
3. Signs of growth key for nervous markets
Concern over China and emerging market turmoil has widened to the overall outlook for world growth. Fears are that the US, Britain and Europe may not recover growth quickly enough to make up for the slowdown in China and emerging markets.
Against this backdrop, all eyes will be on US economic growth data this week. The key second estimate of US second-quarter gross domestic product is due on Thursday (Aug 27). Quarter-on-quarter, GDP is expected to be revised upwards to 3.2 per cent from 2.3 per cent, according to a Reuters poll. On Thursday, there is also a preliminary report on second-quarter corporate profits for US companies - important given that major US companies of late have seen their profits hit by weaker demand from China and the stronger US dollar.
Data out of Germany, Europe's biggest economy, will reveal how vulnerable it might be to a Chinese slowdown. On Tuesday (Aug 25) comes a second reading of its GDP and a the release of a key survey of German business leaders' confidence.
Japan, the world's fourth-largest economy, has a slew of economic data on household spending, inflation, retail sales and jobs out on Friday (Aug 28).
4. Clues on Fed's rate move at Jackson Hole?
The latest upheavals have increased speculation that the US Federal Reserve might hold off its first interest rate hike in nearly a decade - which, until the latest market turmoil, was expected to come in September. Anticipation of such higher US interest rates had started the outflow of funds from emerging markets but China's woes accelerated the capital flight.
But the prospect of a September move lessened last week when the Fed released minutes of its July meeting that showed concern about the weakness of the global economy, particularly China, although they were also more confident about US growth prospects.
This week, the US central bank is holding its annual retreat in Jackson Hole, Wyoming, where past Fed leaders have left clues about future monetary policy. But this year, Fed chair Janet Yellen will not be attending, lowering the odds for more clues about the timing of a Fed rate hike.
Instead, vice-chairman Stanley Fischer is set to speak about inflation to the gathering of the world's central bankers, finance ministers, academics and other financial market participants
5. Singapore's inflation numbers
Singapore's consumer price index for July is out on Monday. Headline inflation number is forecast to have fallen from a year earlier for the ninth straight month, a Reuters poll shows, while core inflation is seen as holding steady just above a five-year low. Annual headline CPI has been falling since last November, pressured by a slide in global oil prices as well as falls in housing rents and private road transport costs.
The benign reading in core inflation and the lacklustre growth outlook for Singapore have prompted some analysts to predict that the Monetary Authority of Singapore will ease policy at its next review in October. Most analysts, however, expect the central bank to keep policy steady amid expectations for inflation to rise next year, according to recent Reuters surveys.
Source: The Irish Times, Reuters