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Fed policy, blue-chip earnings in focus

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US Federal Reserve decision expected between announcements by Bank of Japan and Bank of England

Hopes of accommodative central bank policies have been a key needle mover in global equity markets since June, dictating sentiment in the face of US-China trade tensions.

With that in mind, the US Federal Reserve's policy decision on Wednesday will be the week's main event, where investors are taking a rate cut of 25 basis points as a given, with further easing from September.

If cuts meet expectations, "it will inaugurate the beginning of a new Fed easing cycle but anything other will trigger an aggressive symmetrical response across a swath of risk assets", Vanguard markets managing partner Stephen Innes said.

The Fed's decision is sandwiched by those of the Bank of Japan (BOJ) tomorrow, and the Bank of England (BOE) on Thursday, though policy rates are unlikely to be changed at either central bank.

The BOJ might debate changes to forward guidance and reassert its easy monetary policy position, while BOE policymakers may need further clarity from Brexit before any talk of rate cuts commence, UOB senior economist Alvin Liew wrote on Friday.

In the local market, data releases will be on the back burner as attention shifts to the corporate earnings season, which has kicked into full gear.

Singapore's Straits Times Index (STI) ended Friday at 3,363.76, down 0.4 per cent or 14.2 points over the see-sawing week.

A third of STI components are due to report earnings for the April-June period this week, starting with banking stalwart DBS Group Holdings' second-quarter earnings today. OCBC Bank and United Overseas Bank (UOB) post results for the quarter on Friday.

Jefferies Singapore analyst Krishna Guha noted that earnings for the banks "may be influenced by gradual pick up in loan growth, sequential increase in Singapore and Hong Kong interbank rates and steady growth in annuity fee income streams".

Traders told The Business Times that they are expecting a positive showing from DBS, which could see shares in OCBC and UOB given a lift before their results are released.

"There are opportunities to sell into the rally," one trader added.

In early July, Ms Tan Min Lan, the Asia-Pacific head of UBS' Chief Investment Office, said the Swiss bank favours the trio among Asian equities for being "high cash-flow-generative names that can reinvest for faster growth, or can return cash through higher payouts and dividends".

Singapore Airlines will report Q1 FY2020 earnings on Wednesday. UOB Kay Hian analyst K Ajith, who has a "hold" call with a price target of $9.50, is expecting a 5 per cent year-on-year fall in bottomline based on pre-SFRS 16 estimates with incremental passenger revenue expected to be offset by weaker cargo earnings.

Other STI components to report earnings this week include Singapore Exchange, UOL Group, Genting Singapore and the Jardine quintet.

Singapore's July Purchasing Managers Index (PMI) - out on Friday - is likely to reflect growing headwinds from global trade tensions. If PMI continues to contract, there may be "some downward pressure on the Singapore dollar, which has been moderating towards the 1.37 mark against the US dollar in July", FXTM market analyst Han Tan said.

Elsewhere in the Asia-Pacific, China's official PMI for manufacturing and services are out on Wednesday while the private survey for manufacturing is due on Thursday.

ING's Asia economist Prakash Sakpal acknowledged that while China's PMI figures have tended to steal the limelight since the trade tensions were reignited in May, "we don't think the upcoming Chinese PMI data will be telling us anything different from recent releases".

The trade skirmish has hurt Chinese exports and manufacturing but activity in the services sector has held up for now, Mr Sakpal added.

Other key trade data for the week include Thursday's Q2 gross domestic product print for Taiwan and Friday's July trade figures for South Korea.

Both economies have felt the pinch of the global tech slowdown while Seoul has additional issues to handle with Tokyo over trade, which have dented economic prospects further.

For full listings of SGX prices, go to https://www2.sgx.com