China: Whether the US-China tariff ceasefire can be extended is crucial
The main event of the week is US-China trade talks in Sweden. Tariffs were drastically cut in a 90-day ceasefire agreement that was effective in May. This is set to expire 12 August. One big question for markets is whether the tariff ceasefire is extended. We expect that an agreement will be attainable, but, in the interim, markets will watch closely to see if there are adjustments to current tariff rates in either direction.
In terms of data, the official July PMI will be in focus, set for release on Thursday. We expect the manufacturing PMI will remain in contraction at 49.6. The S&P's PMI (formerly sponsored by Caixin), out Friday, is more focused on private and export-oriented firms. Additionally, China's June industrial profits data is scheduled for release over the weekend. A rather steep drop in May sent the year-to-date profit growth negative. Markets are keen to see if there’s a rebound following the de-escalation in trade-war tensions or if the downward pressure remains.
South Korea: Front-loading expected to boost exports
South Korea will release data on June industrial production and July exports. Given the stronger-than-expected second-quarter GDP outcome, we believe manufacturing industrial production (IP), out Thursday, will rebound quite significantly. However, the manufacturing Purchasing Managers' Index might soften a bit further amid growing concerns over US trade policy. The real highlight is Friday’s data on July exports. We're expecting a 4.4% year-on-year gain, driven by semiconductors, vessels, mobile phones, and cars. The launch of new mobile phone products and front-loading of car exports should provide a temporary boost to overall exports.
Japan: BOJ likely to take no policy action
Markets widely expect no policy action at the Bank of Japan’s 30-31 July meeting. Yet markets will closely monitor the BoJ's quarterly macro outlook. Given the US-Japan trade deal struck this week, a big uncertainty factor has been removed. This could offer some relief for the BoJ. Also, possible upward revisions of inflation forecasts should offer markets hints about the near-term rate outlook. Meanwhile, weak June IP data will weigh on overall growth, but could be partially offset by a rebound of retail sales.
Taiwan: GDP growth expected to accelerate
Taiwan's second-quarter GDP release will be in focus next week. Given the continued outperformance of monthly data and inflation pressures cooling faster than expected, we’re looking for real GDP growth of around 4.6% YoY, or faster, in 2Q.
