Asia Week Ahead: Thinner Liquidity, Busier Central Banks

Thinner market liquidity and busier central banks will define trading in Asia next week. The Lunar New Year holiday in most countries will reduce liquidity. Four regional central banks hold policy meetings, with the key question being whether those of India and the Philippines will ease policy or stand pat. Gong Xi Fa Cai!

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Thin market liquidity

It’s going to be a dull week with Chinese markets on holiday all of next week for the New Lunar Year, the first of two Golden Weeks holidays in China in a year, while most other Asian markets are also out for a day or two to usher in the Year of the Pig. The week is also scant on economic data from the region.

However, any trading that does take place in regional markets next week will be driven by US-China trade tensions. Skepticism about progress from the ongoing high-level talks abounds but any positive news could put to rest expectations of prolonged trade tensions weighing on global growth.

Busy central banks

Central banks in Australia, India, the Philippines, and Thailand hold policy meetings. We expect all of them to leave policy on hold, though we do not rule out any surprises by central banks in India and the Philippines.

The Philippines’ central bank (BSP) meeting is on Friday, 7 February. Coming ahead of the BSP meeting is the all-important consumer price data for January (due 5 February), that’s expected to show a sharp deceleration in inflation to our 4.3% year-on-year forecast from 5.1% in December.

As Governor Nestor Espenilla recently signaled, policy will be data-dependent and the bank will observe prudence and caution in deciding any moves. He has also signalled a reduction in the bank's reserve requirement ratio (RRR), currently 18%, as inflation firmly returns to the central bank’s 2-4% target. It may not come next week, but our house view is for an RRR cut or two within the current quarter and a 25 basis point policy rate cut in the second quarter of the year.

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