Asia-Pacific: The Week Ahead (May 27-31)
South Korea’s economy appears to have taken a hit recently from U.S.-China trade-related effects, as the week ahead brings further color on the country’s consumer and business confidence, as well as a rate decision from the Bank of Korea.
The week gets underway Monday, with fresh consumer confidence figures for May after the Composite Consumer Sentiment Index (CCSI) for the prior month registered 101.6, a rise of 1.8 points month-over-month.
Monday, May 27
- Consumer Confidence (May)
Consumer sentiment concerning current living standards, for example, rose to 93, two points higher than March, with the outlook up one point to 95. Confidence about current domestic economic conditions climbed four points higher to 74, with the outlook up two points to 81.
Meanwhile, South Korea’s Business Survey Index (BSI) reflected similar results over the same period.
The BSI on business conditions in the manufacturing and non-manufacturing sectors were up by two points and one point from March, respectively, to 75 and 74. The one-month outlook was also bright, with a month-over-month increase of one point on both fronts.
Tuesday, May 28
- Business Confidence (May)
However, while South Korean households and corporations may be waxing optimistic about the country’s economic conditions, not all market participants hold the same degree of positive sentiment.
Marc Chandler, chief market strategist at Bannockburn Global Forex, recently noted that the U.S. tariff threat has “rocked” the Asia-Pacific region, underscored, in part, by South Korea’s first-quarter GDP contraction.
He said that while South Korea's manufacturing PMI rebounded back above 50 in April, its export orders were at nine-month lows.
Against this backdrop, the Bank of Korea is set to announce its monetary policy decision Thursday, May 30, following warnings by some ratings agencies that the ongoing trade feuds are bound to hamper the nation’s growth.
Thursday, May 30
- Bank of Korea – Interest Rate Decision
According to Fitch Ratings, South Korea’s economic contraction in 1Q’19 poses an increased risk to its outlook, as do rising U.S.-China trade tensions and the possible imposition of auto tariffs by the U.S. on national security grounds.
Fitch noted that the “direct effect of higher U.S. tariffs on Chinese exports should be limited, but the indirect effect of slower global and particularly Chinese growth could be significant for Korea's open economy.”
Auto exports to the U.S., for instance, account for around 3% of total Korean exports (1.2% of GDP).
Fitch added that the U.S. Federal Reserve’s “pause” in monetary policy tightening and “waning domestic inflation take pressure off the Bank of Korea to raise rates, and our baseline is for no policy rate changes” through the remainder of 2019. Indeed, the “weaker growth outlook could make room for policy rate cuts.”
The Monetary Policy Board of the Bank of Korea elected at its latest monetary policy meeting in mid-April to leave its Base Rate unchanged at 1.75%, where it has resided since at least November 2018.
Rounding out the week, South Korea will provide an update on its trade balance for May ahead of the weekend.
Friday, May 31
- Trade Balance (May)
Investors will likely be paying close attention to South Korea’s growth, especially in its semi-conductor and auto exports, as trade-related tariffs continue to stymie the pace of the country’s growth prospects.
Note: This material was originally published on IBKR Traders' Insight on May 21, 2019.
The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Business relationship disclosure: I am receiving compensation from my employer to produce this material.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.