Asia week ahead: China gets back on its feet

Extended lockdowns are becoming the norm, as global infections of the Covid-19 disease surpass the one million mark, suggesting an even graver economic impact around the world than what we're already seeing. Frequent downgrades of economic growth have become the norm too. This week, we made sharp cuts to our growth forecasts of some Asian countries (Malaysia and Thailand) and further moves are likely in the coming weeks.

Meanwhile, what we think about the outlook for Asia and the rest of the world over the coming weeks and months could make for good weekend reading.

The economic calendar is crowded with inflation, retail sales, manufacturing and trade figures from around the region, which will offer some insight into the impact of the virus. Within these, March indicators are likely to grab more attention as these complete the picture for the first quarter when infections began to spread rapidly.

Above all, China’s data will remain key for markets given that the spread of the virus subsided in March and businesses began to operate again. A return to positive territory for the Purchasing Managers Indexes heralds a similar outcome for real economic activity, while stimulus continues to trickle down, as likely to be revealed by monetary indicators for March.

The Bank of Korea announces its policy decision next week (9 April). An outsized emergency rate cut by 50 basis point to 0.75% on 16 March has reduced the scope of another cut just yet. The country has managed to rein in the spread of the disease and economic activity growth has been surprisingly firm (11% surge in industrial production in February).

However, Asia’s heavily export-dependent economy still remains at risk from the so far unrestrained global spread of the disease, which is denting exports. We don’t think the BoK is done with easing yet. The house view is 50bp of rate cuts in the current quarter.

The outcome of the US jobs report will set the tone for Asian markets next week while Covid-19 and the policy responses globally continue to rule investor sentiment.

However, a slew of public holidays around the region might result in somewhat reduced market liquidity. China, India, and Thailand are going to be out on Monday, and most regional markets will be closed for Good Friday.