All eyes on Fed's Sept rate decision

The US-China trade relationship has shown credible signs of thawing in the past fortnight, but the focus this week will be on the US Federal Reserve's September meeting on Wednesday.

Having already lowered US interest rates in July, the street expects the Fed to cut rates this month by another 25 basis points, with more easing to follow before the end of 2019.

United Overseas Bank (UOB) economist Alvin Liew anticipates a 25-basis-point policy rate cut but acknowledges that it is not a unanimous view.

According to a Bloomberg poll, 41 out of 65 economists expect a 25-basis-point cut but the remaining 24 expect no change.

The Fed's rate decision this week comes after the European Central Bank (ECB) last Thursday announced a fresh round of economic stimulus and with it, a rate cut that takes the deposit interest rate to -0.5 per cent. The Bank of England also has a monetary policy decision meeting on Thursday but no changes to policy rates are expected.

Last Friday, Wall Street was little moved following an equities rally driven by positive developments around the US-China trade relationship.

The Dow Jones Industrial Average inched up 0.1 per cent to close at 27,219.52, around 140 points below an all-time high set on July 15.

The broader S&P 500 edged down 0.1 per cent to end at 3,007.39, while the Nasdaq dipped 0.2 per cent to finish at 8,176.71.

The three indices all recorded a third straight week of gains, with the benchmark Dow notching an eighth session of gains, its longest winning streak in more than a year.

On the local market, the Straits Times Index (STI) ended last week at 3,211.49, up 16.53 points or 0.5 per cent. The blue-chip index added 67.01 points or 2.1 per cent from Aug 30's close of 3,144.48.

This week's key data release in Singapore is the August non-oil domestic exports (NODX) figures tomorrow. According to a Bloomberg poll, NODX is expected to edge higher in August by 0.5 per cent month-on-month from July.

But respondents are forecasting that compared with last year, such exports are likely to contract by 13.5 per cent year-on-year (yoy) in August, following the 11.2 per cent yoy contraction recorded in July.

FXTM market analyst Han Tan noted: "Singapore's August external trade data will offer investors another check point on the trade-dependent economy, which had a trade-to-gross domestic product (GDP) ratio of over 300 per cent in 2018."

China will release industrial production and retail sales figures for August today.

UOB's Mr Liew believes that China's industrial production growth may come in at 5.2 per cent yoy, compared with 4.8 per cent in July.

Retail sales for last month are expected to grow at 8 per cent yoy, compared with 7.6 per cent in July, he added.

Elsewhere in the Asia-Pacific, Indonesia's August trade data will also be out today. Thursday sees the release of Australia's unemployment rate for August while on Friday, Taiwan's export orders for the month will be revealed.

Among the region's central banks, three have monetary policy decisions to make this week.

But with the US Fed likely to cut rates and the ECB having already done so, ING Asia economist Prakash Sakpal feels a rate cut by the Bank of Japan (BOJ) during its Thursday meeting "shouldn't come as a complete surprise for the markets".

Mr Liew expects the BOJ to "re-assert its easy monetary policy position without changing the policy targets".

The central banks of Indonesia and Taiwan also have meetings on Thursday but are expected to keep their policy rates unchanged at 5.5 per cent and 1.375 per cent respectively.

Malaysia will be closed today for the Malaysia Day holiday.

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