• Central banks policy meeting dominates Asian economic calendar

• Japan: 2Q GDP growth is likely to ease

• UK: economy could experience a notable slowdown in 2Q19

The week ahead features interest rate decisions Asia-Pacific central banks, as well as several potentially market-moving data from around the world. But after US President Donald Trump brought trade tensions back to the boiling point this week, sentiment is going to be heavily influenced by any trade-related headlines in the early parts of the week, with China already saying it will retaliate.

After the Fed’s latest rate cut, the market is now more than 90% sure we will see a follow-up cut in September, despite the central bank giving out a not-so-dovish signal last Wednesday. As such, upcoming US and global economic data will be crucial over the next month and a half. Unfortunately, apart from the ISM non-manufacturing PMI on Monday, there isn’t a lot on the agenda in terms of US data next week. Still, the markets will be wondering whether the escalation in US-China trade dispute may increase the odds for further rate cuts anyway. The USD has already fallen sharply since Trump tweeted about the additional tariffs. Indeed, the tariffs are likely to cause a sharp slowdown in economic growth over the second half of the year, which is another reason to expect the Fed to cut interest rates further by early 2020.

Regional central banks in action

While there is a dearth of G7 central bank policy decisions, it will be a busy August week for Asia-Pacific central banks. Some of them have signalled a pause in easing, some are continuing to cut rates further, and some are likely to embark on that path. Of five Asian central banks reviewing their monetary policy next week, two have signalled a pause in their easing cycles. The central banks of Australia (RBA) and India (RBI) fall into this category. The RBA has already cut rates in June and July.

1) The Reserve Bank of Australia (6 Aug, expect on hold at 1%)

2) The Bank of Thailand (7 Aug, expect on hold at 1.75%)

3) The Reserve Bank of New Zealand (7 Aug, expects 25bps cut to 1.25%)

4) The Reserve Bank of India (7 Aug, expects RBI to be on hold but market expects 25bps cuts)

5) The Philippine Central Bank (9 Aug, expect 25bps cut to 4.25%)

The RBA appears to be in pause mode for now after delivering 2 consecutive rate cuts. Rates are at record lows and improved inflation in 2Q19 has taken the pressure off the RBA for a third cut. At 1.6%, inflation is still far from the RBA’s 2.5% policy goal, though the bank is also waiting to give recent fiscal policy a chance to achieve the target. India’s RBI has eased in all three meetings so far this year, cutting by a total of 75bps. But according to RBI Governor, the bank has done even more than that and we read this as a hint that the RBI has done enough. We expect the RBI to remain on hold next week, while the consensus is looking for another 25bp cut. The key question of the week is whether the Bank of Thailand (BoT) sheds its hawkish bias and becomes part of the global easing wave. The BoT is expected to maintain the policy rate at 1.75% since the Thai economy will likely grow more slowly than its potential amid uncertainties stemming from the US-China trade tensions.

Source: BIMB Securities Research - 5 Aug 2019