Markets Insights

Focus on Fed meeting, Trump and trade data

China has agreed to cut tariffs on cars imported from the US, and placed major orders of US soya beans, but an analyst warns that "it may be too early for any celebrations".
China has agreed to cut tariffs on cars imported from the US, and placed major orders of US soya beans, but an analyst warns that “it may be too early for any celebrations”. PHOTO: AGENCE FRANCE-PRESSE

Rate hike forecasts and data releases will keep investors on their toes this week

Even as markets wind down ahead of Christmas and the new year, there is plenty on the agenda this week - from interest rate hike forecasts to trade data - to keep investors on their toes.

The US Federal Open Market Committee meeting from Dec 18-19 is expected to end with the last interest rate hike for this year, and investors will scrutinise its post-meeting statement for clues on what to expect next year. The Fed's last median projection in September indicated there would be three hikes next year, but after more dovish comments from Fed chairman Jerome Powell recently, markets are hoping for just one hike instead.

United Overseas Bank's (UOB) global economics and markets research team maintains its expectation of three hikes of 25 basis points next year, but said the policy path will become more uncertain if the Fed shifts from its well-worn "gradual rate trajectory" rhetoric to place more emphasis on data dependency.

The US is also staring at the possibility of a government shutdown if US President Donald Trump does not get the funding he wants for a border wall in federal funding talks with Democratic leaders before the Dec 21 deadline. However, markets are fairly unperturbed so far, for a couple of reasons. Mr Trump previously made similar threats to shut the government down over immigration demands, but did not follow through. Also, the majority of funding for US federal agencies was approved earlier this year, leaving fewer to be affected by a shutdown.

Data releases this week will be monitored for impact from the trade war, but are likely to be overshadowed by other events like Brexit talks and US-China trade headlines.

"Although trade tensions between the world's two largest economies seem to be easing following reports of China placing major orders of US soya beans and reducing US car tariffs, it may be too early for any celebrations," FXTM research analyst Lukman Otunuga said. "With trade disputes in the past re-escalating just a few days after cooling, investors should remain cautious and on high alert."

This week, Chinese leaders will be focusing on the annual Central Economic Work Conference on Dec 19-21, which will set the policy priorities and tone for the coming year. UOB expects their guidance for the 2019 economic outlook to include an early assessment of US-China trade negotiations.

 

Singapore releases its non-oil domestic exports for November today. UOB expects a year-on-year contraction of 2.8 per cent, from an 8.3 per cent rise in October - the first decline since March.

Other countries reporting November trade data this week are Indonesia today, Japan on Wednesday and Thailand on Thursday. All will be scrutinised for the trade-war impact, said Mr Prakash Sakpal, ING economist for Asia.

A version of this article appeared in the print edition of The Straits Times on December 17, 2018, with the headline 'Focus on Fed meeting, Trump and trade data'. Print Edition | Subscribe