The Week Ahead: Central bank meetings to dominate headlines

This article first appeared in The Edge Malaysia Weekly, on September 14, 2020 - September 20, 2020.
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Central bank meetings are expected to dominate this week’s economic calendar in Asia. The monetary authorities of three Asian countries — Japan, Taiwan and Indonesia — are set to make a monetary policy decision.

ING Asia senior economist Prakash Sakpal expects all three central banks to leave policies on hold.

Bank of Japan’s (BoJ) monetary meeting will be the first since Prime Minister Shinzo Abe’s resignation in late August, and there is speculation of policy easing to soften Covid-19’s blow to the economy.

The markets will also be watching Japan’s August CPI inflation and trade figures this week. A Bloom­berg poll estimates August core CPI to fall 0.4% year on year, exports to decline 15.9% y-o-y and imports to shrink 17.8% y-o-y.

On Monday (Sept 14), Japan’s ruling Liberal Democratic Party is scheduled to vote on its new leader. Abe’s top aide, Chief Cabinet Secretary Yoshihide Suga, is touted to be the country’s next prime minister come Sept 16.

In Indonesia, Bank Indonesia (BI) left its benchmark rate unchanged at 4% in August. UOB Global Economics and Market Research expects the central bank to maintain the seven-day reverse repo rate.

Indonesia will also be releasing its trade data on Tuesday (Sept 15). ING Bank forecasts exports to fall 10.2% y-o-y and imports to contract 25.3% y-o-y.

The Central Bank of the Republic of China (Taiwan), on the other hand, had kept its benchmark discount rate unchanged at 1.125% in June.

China’s remaining activity data for August, including industrial production, retail sales, fixed asset investment and home sales, will be in focus this week.

All eyes will be on Australia’s jobs report for August, as an increase in the number of Covid-19 cases in the state of Victoria has resulted in a sharp slowdown in the country’s employment growth.

New Zealand will be releasing its GDP figures for the second quarter of 2020. UOB’s forecast is a contraction of 7% quarter on quarter, while Bloomberg’s estimate is a 13% y-o-y decline.

Singapore’s Ministry of Manpower will be releasing its final 2Q2020 Labour Market report on Monday (Sept 14). According to UOB, the overall unemployment rate is likely to stay at 2.9% and resident jobless rate at 3.9%.

In the US, the focus of the September Federal Open Market Committee (FOMC) will be the updated economic projections. The US will also be releasing its August data for industrial production, advance retail sales and business inventories, among others.

Equity markets were under pressure last week on stretched valuation concerns in the tech sector, with the Nasdaq down more than 9% and the Standard & Poor’s 500 almost 7% lower.

Maybank analysts pointed out that forex markets were in consolidation last week with the US dollar modestly firmer. The outlier was the British pound (GBP), as weakness was fuelled by fears of a no-deal disorderly Brexit.

The European Union (EU) has threatened legal action if the UK pushes for an internal market bill as it would alter some of the UK’s commitments in the Brexit withdrawal agreement and Northern Ireland Protocol.

“Prime Minister Boris Johnson had earlier threatened to walk away from trade talks and let the deal fail rather than compromise on what he sees as core Brexit principles. He even brought forward the deadline on the Brexit deal to Oct 15,” a Maybank report last Friday noted.

“It remains to be seen if this was Johnson’s strategy to toughen the UK’s stance on negotiations with the hope of accelerating progress on trade talks or if he plays rogue and intends to break trust and renege on commitments.”

EU and UK negotiators plan to meet again in Brussels this week, sooner than expected.

“If this is indeed another of Johnson’s art of negotiation in hope of accelerating progress, then perhaps the urgency from both sides could lead to a deal. This would turn out to be positive for GBP. For USDSGD and USDMYR, we see some signs that bullish momentum may be fading,” said Maybank.

Meanwhile, on the corporate front, listed companies that will be holding their annual general meeting this week include Hartalega Holdings Bhd and AirAsia X Bhd (Tuesday), Datasonic Group Bhd (Thursday), and Pensonic Holdings Bhd and Cocoaland Holdings Bhd (Friday).

On the local political front, campaigning for the Sabah state elections will be closely watched as nomination day is Sept 12 — two weeks before polling day on Sept 26.

Last Friday, the Federal Court had dismissed an application by former Tamparuli assemblyman Datuk Jahid @ Noordin Jahim for a stay of the state election pending the hearing of former Sabah Chief Minister (CM) Tan Sri Musa Aman’s appeal over who should have been the rightful Sabah CM following the May 2018 general election.

Jahid, the incumbent for the Tamparuli state seat, will defend his seat in the coming election under the Parti Bersatu Sabah (PBS) ticket.

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