The week ahead: Eyes on China’s 2Q GDP and trade tension with the US

This article first appeared in The Edge Malaysia Weekly, on July 16, 2018 - July 22, 2018.
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After the weekend’s football World Cup final that will see either France or Croatia emerge champions, investors will turn their attention to China’s second-quarter economic growth number, which will be out on Monday.

The world’s second largest economy is expected to register slightly slower 2Q growth of 6.7% year on year, compared with 1Q’s 6.8% growth. However, on a seasonally-adjusted sequential basis, growth is likely to be faster at 1.6% quarter on quarter from 1.4% in 1Q, according to Bloomberg’s survey median.

China’s 2Q growth announcement comes amid escalating trade tensions with the US. Earlier last week, US President Donald Trump drew a list of US$200 billion worth of Chinese goods that he plans to slap tariffs on following a review process.

In response, China threatened retaliatory action and vowed to lodge a complaint with the World Trade Organization.

It was just two weeks ago that US tariffs on US$34 billion in Chinese products took effect. China retaliated by slapping duties on the same amount in US goods.

Interestingly, data last Friday showed that China’s trade surplus with the US in June, at US$28.97 billion, had hit a record high.

Other key data expected in China this week include June’s retail sales and industrial production, also on Monday.

At home in Malaysia, inflation data for June is expected on Wednesday. Inflation, as measured by the Consumer Price Index (CPI), had grown by 1.8% y-o-y in May, the fastest pace in four months.

Data on Bank Negara Malaysia’s international reserves as at July 13 will be out on Friday. It will be interesting to see if reserves continue to slide. Reserves had slid 2.97% to US$104.7 billion as at June 29 from two weeks earlier.

Meanwhile, in the US, data that will be watched include industrial production for June (July 17) and the retail sales advance figures (July 16). Later this week, the US Federal Reserve will issue the Beige Book on economic conditions, which will offer some insight into how the world’s largest economy is doing.

Trump is expected to meet Russia’s President Vladimir Putin in Helsinki, Finland, on July 16. According to news reports, Trump plans to raise the issue of meddling in the 2016 presidential election with Putin. The two are meant to discuss topics ranging from the conflicts in Syria and Ukraine, to sanctions imposed by the two big nations against each other.

Apart from that, there will likely continue to be news flow early this week from Trump’s July 13 to 15 visit to the UK, where he was to meet prime minister Theresa May and Queen Elizabeth II.

In another important event in the US this week, Fed chairman Jerome Powell is expected to testify to the US Senate committee on banking, housing and urban affairs on July 17.

Indonesia’s central bank is the only major one in Asia-Pacific with a monetary policy decision this week (July 19). “While the market expects Bank Indonesia to keep the policy rate unchanged at 5.25% (after hiking rates by 100 basis points in May and June), a sudden bout of weakness in the currency could sway that decision,” says UOB Global Economics and Markets Research.

Indonesia’s trade data for June will be out on Monday.

Japan’s markets will be closed on Monday for the Marine Day holiday, while Myanmar’s will be closed on Thursday for Martyrs’ Day.

In Japan, June trade data will be out on July 19.

On the corporate front at home, Sapura Energy Bhd will hold an annual general meeting on Wednesday, while AYS Ventures Bhd will hold one on Friday.

Shareholders of Sapura Energy Bhd will likely have questions about the group’s listing plans after an article in The Australian on July 10 reported that the group is believed to be weighing an Australian listing, in a float that could be worth as much as A$2.7 billion.

According to the report, which cited unidentified sources, the plan comes as Sapura Energy moves to pay down its US$4.5 billion (RM18.13 billion) debt pile, largely to Malayan Banking Bhd, and as the oil price rally attracts equity investors to the resources space.

Sapura Energy has neither confirmed nor denied the report, saying it would make the necessary announcement should there be any material development on the matter.

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