Asia week ahead: Reserve Bank of Australia takes centre stage

The market is pricing in the first 25bp rate cut from the Reserve Bank of Australia (RBA) next week on 18 February. While this is in line with our view and we place a 60% probability on it, we think the decision to cut or pause will be a close one – and it’s therefore not a done deal. Key to our thinking is that the wage pressures have eased more than expected and household consumption growth has been weaker than expected, which should give the RBA more comfort to ease. However, the unemployment rate is still below the central bank’s target, which could result in more uncertainty on the pace and timing of rate cuts.

The main economic data dump will not be published in February as the government tends to bundle most January-February monthly data together to avoid distortions from the Lunar New Year. However, next Wednesday will still feature the 70-city property price data, where markets will watch to see if the positive momentum from the last few months can continue. We expect to see prices eventually bottom out sometime this year. On Thursday, the loan prime rates will be published, where we expect rates to remain unchanged at 3.1% and 3.6% for the one and five-year LPRs, respectively, after no major monetary policy moves were announced this month.

It is a fairly quiet week ahead for Taiwan. The main data point ahead will be the January export orders data, where we are expecting new orders to contract at -3.3% year-on-year amid the impact from the Lunar New Year as well as the end of export frontloading.

Healthy growth and rising inflation will be the key themes we expect from next week's data. 4Q24 GDP is expected to rise 0.4% quarter-on-quarter (seasonally adjusted) on the back of a recovery in private spending and exports. Monthly activity data pointed to an improvement in wages and retail sales, and the rise in domestic asset prices should have a positive impact on private spending. Meanwhile, the normalisation of car production should have a positive impact on exports. Exports are expected to grow solidly by 7.7% year-on-year in January, but this is partly due to last year's low base caused by the earthquakes. The positive tone of the data can be seen in the flash PMI. We expect service-led growth to continue in the coming months, thus services PMI should gain, while the manufacturing PMI should remain somewhat subdued. On the inflation front, we expect the CPI to rise to 4.0 % YoY in January, mainly due to a surge in fresh food prices, including rice, the main staple food item. This will add to the upward pressure on services with a time lag, as eating-out prices are likely to rise.

Consumer and business sentiment surveys should show a continued recovery after the December dip. However, uncertainty about the global economy is likely to limit the pace of recovery.