Markets Insights

Bears seen lingering in Asian markets

A factory in Lianyungang in China's Jiangsu province. Data released over the weekend showed profit growth in Chinese industrial enterprises slowed for a fifth month amid the ongoing US-China trade spat and a weakening domestic economy.
A factory in Lianyungang in China's Jiangsu province. Data released over the weekend showed profit growth in Chinese industrial enterprises slowed for a fifth month amid the ongoing US-China trade spat and a weakening domestic economy.PHOTO: AGENCE FRANCE-PRESSE

Eyes will be on BOJ's monetary policy decision, China's PMI; in S'pore, earnings releases are key

Whipsawed regional markets look set for another bearish week, without a clear catalyst to ease concerns over lacklustre corporate earnings and trade wars.

Better-than-expected United States economic data last Friday did not provide much lift to markets.

Data released over the weekend showed profit growth in Chinese industrial enterprises slowed for a fifth month amid the ongoing US-China trade spat and a weakening domestic economy.

This week, Asia will continue to take its cue from US corporate results, wages and payroll data. The latter two reflect the health of the US labour market and are expected to indicate whether the Federal Reserve will continue to hike rates.

Focus will be on US tech giants, carmakers, pharmaceuticals and oil majors. Apple and Facebook are among tech heavyweights due to report quarterly updates.

Ms Esty Dwek, senior investment strategist at Natixis Investment Managers, said: "Earnings expectations are likely to remain a question in the coming months, as we are probably at or near the peak of earnings growth, and we are likely to see ongoing downward guidance. How markets digest this transition could lead to further volatility."

This week, Asia will continue to take its cue from US corporate results, wages and payroll data. The latter two reflect the health of the US labour market and are expected to indicate whether the Federal Reserve will continue to hike rates. Focus will be on US tech giants, carmakers, pharmaceuticals and oil majors. Apple and Facebook are among tech heavyweights due to report quarterly updates.

The approaching Nov 6 midterm congressional elections in the US may add another dash of anxiety.

Mr Olivier d'Assier, head of Apac research at Axioma, said: "Right now, the consensus markets are operating under is that the Democrats will win back the House in the US, some eleventh-hour deal will be made on Brexit, the Trump administration will continue to make bilateral trade deals, and US interest rates will keep rising slowly. Any contrarian outcome on these will raise uncertainty for markets."

In Asia, eyes will be on the Bank of Japan's monetary policy decision and outlook report, and China's manufacturing Purchasing Managers' Index (PMI) on Wednesday.

IG market analyst Pan Jingyi said "it would not be a surprise to also find a stronger focus from investors upon the new orders sub-segment reading with the US-China trade tension hanging above our heads".

"In (the) light of the battering of Asian markets from the weak sentiment... watch for continued stress from these releases," she added.

In Singapore, the market will also be driven by a series of earnings releases. Local shares last Friday languished at near 22-month lows, with the Straits Times Index down 3 per cent for the week.

"Earnings reports and forward outlook guidance, especially with the banks, need to be watched," said Ms Joanne Goh, regional equity strategist at DBS Group Research. OCBC Bank's third-quarter earnings will be closely tracked after United Overseas Bank's disappointment last Friday.

Local data due at the end of the month includes bank lending and monetary aggregates for September on Wednesday, and the October PMI on Friday.

Despite the local market's recent fluctuations, CMC market analyst Margaret Yang said "fundamental elements remain resilient in Singapore and we have yet to observe early signs of a recession or downturn".

Ms Goh held a similar view, observing that the Singapore market should fare better on a relative basis compared to the region due to its macro-economic strength. She also said macro-prudential measures are in place to prevent Singapore from being impacted deeply by any potential global financial crisis.

A version of this article appeared in the print edition of The Straits Times on October 29, 2018, with the headline 'Bears seen lingering in Asian markets'. Print Edition | Subscribe