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

May 10, 2024 at 05:15 am EDT

Japanese Finance Minister Shunichi Suzuki said the authorities are strongly worried about the negative impact of yen weakness, such as higher import prices, and that the authorities will take appropriate action in the foreign-exchange market when necessary.

Investors will look to the preliminary GDP numbers for signs of economic strength. Given their provisional nature however, the data could be taken with a pinch of salt.

For the October-December quarter, the initial estimate of GDP had tipped a slight contraction, fueling worries about a technical recession. GDP was then revised upward in the final data release to show modest growth thanks to stronger-than-initially-estimated capital spending.

PHILIPPINES

The country's central bank announces its rate decision on Thursday after first-quarter GDP data slightly disappointed market views.

Economists cited restrictive policy settings as having weighed on growth at the start of the year, but don't pencil in a rate change at May's meeting.

Tight monetary policy settings have sapped investment and credit demand, with household consumption slowing markedly in the first three months of the year.

The longer policy stays tight, the larger the drag on growth will likely be, HSBC economist Aris Dacanay said.

While that might make the country's full-year growth target hard to reach, it is unlikely to prompt a move by the central bank. The Philippines central bank kept its policy rate unchanged at 6.50% at its last meeting in April to rein in a recent pickup in inflation.

ING doesn't expect a rate change next week, but thinks BSP Governor Eli Remolona will likely factor in the below-consensus growth figures when the monetary board meets.

Prior comments from Remolona pointed to a first rate cut by the first quarter of 2025, but recent data could prompt him to bring that timing forward, ING's Nicholas Mapa said in a comment.

"A sustained deceleration of inflation and disappointment on the growth front could convince the BSP to cut rates as soon as the Fed does later this year," Mapa said.

UOB economists cite inflation risks as "still skewed to the upside amid an uncertain path toward Fed rate cuts this year."

Though inflationary pressures and restrictive monetary policy settings will keep weighing on household consumption and investment over the next few quarters, a continued recovery in the external sector and government spending will help mitigate that, they said.

HSBC economists only expect the Philippines bank to cut rates after the Fed, to help support the peso and mitigate FX-induced inflation.

SINGAPORE

In Singapore, focus is on trade data for April, including non-oil domestic exports. Friday May 17's release will be preceded by a review of the financial hub's trade performance during the first quarter.

Market watchers will be looking for signs of recovery in exports.

The city-state's non-oil domestic exports sharply contracted by 20.7% in March, owing to a high base a year earlier as well as due to a decline in both non-electronics and electronics shipments.

Data showing a rebound would help soothe any concerns about a slowdown in the economy.

In mid-April, the Ministry of Trade and Industry's advance estimates showed that the economy expanded 0.1% on a quarter-over-quarter seasonally-adjusted basis in the first quarter of 2024, down from 1.2% in the fourth quarter of 2023. Manufacturing and modern-services activity slowed after having expanded strongly in the preceding quarters.

Recent data prints have been patchy, with a key gauge of Singapore's manufacturing activity growing for an eighth straight month in April, but at a slower pace. A breakdown of the data showed slowdowns in the subindexes for new orders and exports.

PMI data from S&P Global suggest that Southeast Asian manufacturers continue to face uncertainty around muted global demand, with confidence in the sector's outlook in many areas dimming.

MALAYSIA

Malaysia publishes final first-quarter growth figures on Friday May 17, coming on the heels of a central bank decision in the second week of May.

Initial estimates put gross domestic product growth at 3.9% on year, supported by a continued expansion in all main sectors. Exports also grew in the first quarter despite an uncertain global demand backdrop, suggesting that the trade-reliant economy was resilient at the start of the year.

Seeing as Bank Negara Malaysia cited the economy's resilience in its decision to keep rates on hold, extending a pause since May last year, the 1Q figures will be looked at to see how justified its view is.

Bank Negara gave an upbeat view of Malaysia's economic prospects. "The latest indicators point towards higher economic activity in the first quarter of 2024, driven by resilient domestic expenditure and a positive turnaround in exports," it said.

Bank Negara also expects the recovery in exports to gather momentum, backed by the global technology upcycle. "Tourist arrivals and spending are also poised to rise further," it said, with continued growth in both employment and wages supporting household spending.

OCBC economists expect Malaysia's economy to grow 4.2% this year from 3.7% in 2023, within BNM's 4%-5% forecast range.

HONG KONG

Final first-quarter growth data is due from Hong Kong on Friday May 17.

Initial estimates showed that Hong Kong's economy lost steam at the start of the year, as consumer and government spending weakened. But export strength still helped growth beat consensus views that had tipped a much sharper slowdown.

The city's gross domestic product expanded 2.7% in the first quarter from a year earlier, but concerns about lackluster domestic demand remain.

Recent retail sales data haven't been so encouraging, with March sales contracting both in value and volume terms. That snapped a more than one-year run of growth.

"The changing consumption patterns of visitors and residents may continue to pose challenges," a government spokesman said at the time. However, inbound tourism and rising household income could lend support.

Friday May 17's release will also be looked at for the government's outlook for growth in 2024.

(All references to days for Asian events are in local times.)

- Additional reporting by James Glynn, Ronnie Harui, Dominic Chopping, Emese Bartha and Miriam Mukuru

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