Asia Morning Bites

Caution likely to dominate sentiment on Wednesday as conflict in Europe intensifies

Authors

Iris Pang

Min Joo Kang

Nicholas Mapa

In this article

Macro outlook What to look out for: Geopolitical developments

Macro outlook

Global: Given the war raging on the outskirts of western Europe, it is some surprise how little markets have responded in total, with negative days punctuated by dip-buying in some markets. This is especially true of the equity market, where 1.5% falls yesterday in the NASDAQ and S&P500 leave both bourses some way above their lows for the year and with equity futures suggesting a more positive outlook. It’s a different story in bond space. European bond yields were down sharply yesterday. 2Y German bond yields fell more than 20bp and 10Y bund yields were down 21bp to -0.08%. US Treasury yields also fell heavily, with 2s and 10s down about 9 and 10bp respectively. The EURUSD, in contrast to equities, did hit its lows for the year yesterday, touching 1.1090 before recovering slightly to 1.1127 currently. Asian FX was fairly muted. JPY, THB and IDR led the pack in terms of gains but movements were fairly small. The AUD bounced back strongly, however, reaching 0.7259, despite the RBA yesterday offering little new information in their rate statement and sticking to their dovish stance.
The Russia-Ukraine conflict will probably continue to dominate markets for the foreseeable future. The announcement yesterday that Russia will not pay coupons to foreign holders on its government debt should push investors further into safe-havens. Support for starting the EU membership process for Ukraine shows the unity of support for Ukraine from Western Europe but is unlikely to help calm tensions.
On the data calendar, the US releases the ADP labour report ahead of Friday’s non-farm payrolls number. But this is probably not as market moving as it usually is, with Russia-Ukraine conflict worries apparently shifting market expectations of fed hawkishness on rates this year. US labour is already tight enough to warrant tightening, while no one is really looking for a 50bp March hike now.
Australia: 4Q21 GDP rebounded after the 1.9% decline in 3Q and posted a gain of 3.4%QoQ (4.2%YoY), just a little lower than the 3.5% consensus expectation. Still, it’s wages growth, not GDP that will be the catalyst for any change in rate outlook for the RBA, and we will have to wait almost a full quarter for the next wage cost index release, with no guarantee that it will post a 3%+ figure which would be consistent with the RBA beginning to move on rates.
Korea: January Industrial production was a mixed bag with strong manufacturing and construction activity, but weak services and public administration. Mining and manufacturing production rose 0.2% m/m (sa), well above the market expectation of -1.5%, and registering the third monthly gain in a row. Semiconductors and autos were particularly solid, rising by 6.1% and 3.2% respectively, while machinery was down -3.2% in contrast. The weakness in services was mostly concentrated in the financial industry, probably due to poor recent KOSPI performance. In sum, the all industry production index dropped -0.3%MoM, the first fall in three months.
February’s manufacturing PMI index rose sharply to 53.8 (vs. 52.8% in January), with both output and new orders indices rising, posting another rise to mark four months of consecutive gains. Today’s data releases were a bit mixed overall, but together with yesterday’s positive export data, Korean manufacturing and exports have been leading the current quarter’s growth, partially offset by the weaker private consumption and services.

What to look out for: Geopolitical developments

Korea industrial production (2 March)
Australia GDP (2 March)
Singapore PMI (2 March)
US ADP jobs report (2 March)
Korea GDP (3 March)
Australia trade balance (3 March)
China Caixin PMI services (3 March)
Malaysia BNM policy meeting (3 March)
US initial jobless claims, ISM services (3 March)
Korea CPI inflation (4 March)
Philippines CPI inflation (4 March)
Thailand CPI inflation (4 March)
Singapore retail sales (4 March)
US non-farm payrolls (4 March)

Authors

Iris Pang

Chief Economist, Greater China

Min Joo Kang

Senior Economist, South Korea and Japan

Nicholas Mapa

Senior Economist, Philippines

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