Investors to digest effects of US job data

Asian equity markets, including Singapore's, have much to contend with to start the week.

Investors will be digesting the latest information on the two big needle movers on sentiment in the last two months: the prospect of US Federal Reserve rate cuts and the ongoing US-China trade conflict.

Last Friday, Wall Street stocks dipped after the S&P 500 wrapped a three-session run to close at record levels.

The Dow Jones Industrial Average fell 43.88 points or 0.16 per cent, to 26,922.12; the S&P 500 lost 5.41 points or 0.18 per cent, to 2,990.41; and the Nasdaq Composite dropped 8.44 points or 0.1 per cent, to 8,161.79.

Ironically, a better-than-expected US payrolls report had led investors to think that US interest rates would not be cut as much as they like. US nonfarm payrolls rose by 224,000 jobs last month, beating expectations of 160,000. June's figure was the highest in five months.

This suggests that the US economy is in better shape than people think and, therefore, investors now expect the Federal Reserve to cut interest rates by only 25 basis points when it meets later this month.

While US markets opened lower last Friday, investors reacted positively to White House economic adviser Larry Kudlow's disclosure that US-China trade talks will resume by phone this week. Trade talks have been stalled since May.

Vanguard markets managing partner Stephen Innes noted that "trade friction will never leave the headlines, but markets will continue to gravitate and remain in a state of trade war risk neutrality".

He added: "Presidents Trump and Xi may have only postponed their argument, so no one willing to sell that risk premium as short-term positions remains held hostage to any escalation."

On the local front, investors will be looking to Singapore's advance gross domestic product (GDP) estimates for the second quarter. The Ministry of Trade and Industry will be releasing the data on Friday.

FXTM market analyst Han Tan said: "Singapore's advance Q2 GDP figures are likely to reveal the effects of heightened US-China tariffs imposed during the quarter. Given the economy's exposure to external trade, the Singapore dollar could come under pressure should the GDP... point to waning domestic growth momentum."

ING Asia economist Prakash Sakpal noted that the advance estimate, which is usually based on data for the first two months of the quarter, could be lower with export weakness intensified by declines in non-oil domestic exports in April and May.

He said: "This export weakness transmitted into weak GDP via manufacturing. The manufacturing PMI remained in contractionary territory in June, suggesting that the drag continued into the third month."

Mr Sakpal acknowledged that Monetary Authority of Singapore managing director Ravi Menon "flagged Q2 GDP growth coming in weaker than Q1, hinting at the possibility of an intra-meeting policy adjustment to support growth".

"If true, will our forecast of 0.8 per cent year-on-year (negative 0.2 per cent quarter-on-quarter annualised) Q2 GDP growth be enough to trigger central bank easing before October? It could quite well possibly be," he added.

On the same day, May's retail sales figures will also be out.

Elsewhere in Asia, China will be releasing inflation data for last month on Wednesday.

However, Friday's trade data releases for June will be more keenly looked at for the effects of the US-China trade fallout.

June unemployment figures will be out in South Korea on Wednesday.

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