Asia week ahead: China activity data, Japan’s GDP and BSP policy decision

We start the week with a flurry of data from China on Monday. Upcoming reports include industrial production, retail sales, and fixed asset investment but the focus will be on new home prices and property investment.

Some cities in China have probably experienced home prices edging higher, as reported in the media, but most should still face downward pressure. We don’t expect any surprises in property investment. Meanwhile, the gap in construction activity should be partly filled by infrastructure outlays.

Next week also features the People's Bank of China policy decision with the central bank announcing the Medium Lending Facility policy rate sometime between 13-18 August. We expect a pause (2.85%) as the central bank is currently absorbing liquidity after a big jump in loan growth in June. A rate cut would offset the central bank’s previous liquidity absorption efforts.

Japan’s data release calendar is loaded with GDP, trade and core machinery orders. We expect Japan’s 2Q GDP to rebound to 0.6% quarter-on-quarter from a mild contraction of -0.1% in the first quarter. The rebound will likely be due to a recovery in consumption and investment. However, Japan’s trade performance will continue to weigh on GDP with the trade balance recording a substantial deficit in August.

Trade data out of Indonesia next week will likely show that the recent trend has been sustained, with exports and imports both registering double-digit gains. Exports, however, will likely outpace imports again this month, resulting in a healthy trade surplus. Indonesia has benefited largely from the commodity price spike and demand for energy, and these trade surpluses will likely support the Indonesian rupiah in the near term.

Bangko Sentral ng Pilipinas (BSP) is widely expected to tighten next week. BSP Governor Medalla pointed to a 50bp rate hike and we believe that's still likely despite the recent disappointing GDP report. BSP will probably retain its hawkish rhetoric as inflation stays above the central bank's target. We have the policy rate settling at 4.5% by year-end.