Week Ahead for FX, Bonds : U.S. Jobs Data in -2-

May 31, 2024 at 07:50 pm IST

The reading for China will be particularly keenly watched, after official PMI data showed a surprising contraction in manufacturing, weakness in construction, fanning concerns about a dimming growth outlook.

Investors will be looking for signs of strength in the Japan print for more certainty about how the economy is faring. Recent data has been mixed, with the flash May PMI showing the fastest private-sector activity growth in nine months, industrial production data disappointing in April, but retail sales rebounding.

Manufacturers are facing significant challenges and the production outlook is fragile. "Output should pick up in the months ahead, but after adjusting for historical bias, business forecasts point to a recovery that is only gradual," Moody's analytics economist Jeemin Bang said.

The week will also see Indonesia, Philippines, Taiwan and Thailand CPI data for May. Markets will watch the figures to assess how central banks' efforts to bring inflation to target are doing. Hotter or colder-than-expected prints could shift views on interest-rate paths going forward.

JAPAN

The data slate is light in Japan, with the manufacturing PMI kicking off the week on Monday, followed by auto sales-both for May-and Friday's household spending numbers for April.

A speech from a Bank of Japan member will likely garner attention, as traders continue to guess how much and how fast the central bank will tighten monetary policy further. BOJ policy board member Toyoaki Nakamura will speak to business leaders in Hokkaido on Thursday.

Market participants will also probably monitor the Japanese Ministry of Finance's auctions of 10-year government bonds on Tuesday and 30-year sovereign notes on Thursday to assess the extent of investor demand for the securities.

INDIA

India's central bank makes its policy decision Friday, coming on the heels of growth figures for the fiscal year and heightened attention on the country's election and its impact on the economy.

"Whoever wins the election will start their term overseeing an economy in good shape," Capital Economics economists Shilan Shah and Ankita Amajuri said. "From the macro perspective the key thing for investors to watch for is whether the election can deliver a government with a working majority, as this would ease the passage of needed structural reform."

Like many other economists, they expect the central bank to stand pat as the dust from the election settles but signal a potential policy stance shift.

Capital Economics' prediction is that the Reserve Bank of India will drop the reference to "being focused on the withdrawal of accommodation," adopting more neutral language that may lay the groundwork for a rate cut at its next meeting in August.

Slightly above-target and choppy headline inflation lead UOB economists to think the RBI will keep peak policy rates steady for some time to anchor disinflation. They pencil in a cut for the October-December quarter, but also think the central bank may shift its stance to signal rate cuts further down the road, economist Lee Sue Ann said.

SOUTH KOREA

On Tuesday, data is expected to show that inflation in South Korea remains firmly above the central bank's target.

Headline inflation for May is tipped to come in at 2.8%, according to the median forecast of 13 economists polled by The Wall Street Journal. That would be marginally softer than the prior month's 2.9% reading but still well above the Bank of Korea's 2.0% target.

Citigroup economists Jiuk Choi and Jin-Wook Kim believe inflation was likely led by higher prices for industrial products amid rising commodity prices but partially offset by tamer prices for agricultural products.

The BOK expects inflation to average 2.6% for 2024 before easing to 2.1% in 2025.

(All references to days are in local times.)

--Additional reporting by James, Glynn Kwanwoo Jun, Ronnie Harui, Megumi Fujikawa, Emese Bartha, Miriam Mukuru, Ed Frankl and Paul Vieira

Write to: Jessica Fleetham at jessica.fleetham@wsj.com and Fabiana Negrin Ochoa at fabiana.negrinochoa@dowjones.com