Asia week ahead: Australia central bank decision and several inflation reports out

What was shaping up to be just a position-setting meeting ahead of an actual hike later this quarter is now looking likely to deliver not just a rate hike, but perhaps a 40bp one together with a strong nod towards front-loading at subsequent meetings. This follows a much higher-than-expected inflation reading for 1Q22. The market is already heavily pricing in rate hikes from the RBA so the market reaction may be modest.

Next week features several inflation reports from the region. Taiwanese inflation should edge higher due to elevated energy prices. Taiwan is again on the brink of electricity shortages beginning on 26 April due to hot weather. Imported energy prices have risen as well and both factors should push inflation higher.

Meanwhile, the Philippine April inflation should breach the Bangko Sentral ng Pilipinas' (BSP’s) target with food and transport costs pushing the headline rate to 4.8%. Accelerating inflation and decent GDP growth numbers should be enough to convince the central bank to turn hawkish and hike before the end of 2Q. Faster inflation will also be noted in Korea with April headline inflation set to accelerate by 4.3% from 4.1% previously.

Regional economies will also be releasing PMI reports with the focus being on China’s service sector. CAIXIN will release its April China services PMI and we expect it to come in below 50, reflecting the lockdown impact on retail and other service sectors. Mobility restrictions may impact the Golden Week holiday in May and with leisure trips being shorter, retail sales could be impacted a lot.

The ongoing conflict in Ukraine has clearly affected global trade but the impact across economies is varied. Australia’s March trade surplus could improve to AUD11.73bn from AUD7.45bn the previous month due to positive terms of trade shocks. Korea, on the other hand, is expected to post a wider trade deficit ($4bn from $0.12bn) with export growth expected to decelerate to 13.2% from 18.2%. Philippine imports should sustain the trend of double-digit gains, driven by an expected surge in fuel imports given elevated global crude prices. The overall trade deficit should remain sizable at roughly $4.9bn and exert depreciation pressure on the Philippine peso in the near term.