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Asia's key risks this week: China flash PMI, Japan inflation

An investor observes stock market at a stock exchange hall in Jiujiang, China.
ChinaFotoPress via Getty Images
An investor observes stock market at a stock exchange hall in Jiujiang, China.

As financial markets in Asia recover from the Fed's decision to keep rates unchanged, other risk events will likely serve up fresh volatility this week.

China's flash Caixin purchasing managers' index (PMI) for September will be announced on Wednesday at 9.45am local time.

In the previous month, activity in the mainland's manufacturing sector slowed markedly, underlining signs of sputtering growth in the world's second-largest economy. The final Caixin/Markit PMI slipped to 47.3 in August, the lowest reading since March 2009, while the official PMI dropped to 49.7 - the weakest level since August 2012.

A print above 50 indicates an expansion in activity while one below points to a contraction.

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In Japan, consumer inflation, scheduled for release on Friday, is expected to stay flat last month, according to estimates from Moody's Analytics, underscoring the need for policymakers to offer fresh fiscal and monetary support to bolster a fragile recovery. Core consumer prices were muted in July from a year-ago period.

"Japan's inflation is likely to weaken thanks to lower energy prices taking inflation further away from the Bank of Japan's [BOJ] 2 percent target," Shane Oliver, head of investment strategy and chief economist at AMP Capital, said last Friday.

Taiwan is set for a data-heavy week, with exports, unemployment and industrial output for August due Monday, Tuesday and Wednesday respectively. Moody's forecasts the string of economic indicators will reveal further negative impact from China's slowing economy and weak global demand.

"Weak Chinese demand is weighing on export-oriented industries, while low global oil prices drag on chemical and plastic manufacturing. The outlook for industrial production is subdued, as softer global demand hurts the export‐driven economy," analysts wrote in a note issued on Friday.

As such, Taiwan's central bank may cut interest rates for the first time since 2009 when it meets on Thursday, economists polled by Reuters said, amid a weaker growth outlook. Eight economists out of 14 re-polled by the newswire expect the central bank of the Republic of China to lower its discount rate to 1.75 percent from 1.88 percent. The re-poll was done last week following the Fed's decision to hold off on raising interest rates, citing worries over the global economy.

The Philippine central bank is also scheduled to meet on Thursday.

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Singapore's consumer prices likely fell for the tenth straight month in August, with the data due on Wednesday. The consumer price index (CPI) is seen easing 0.4 percent last month, according to a poll by Reuters, unchanged from July.

The country also releases industrial production data on Friday, which may continue to suggest the possibility of a technical recession and the need for monetary easing. Industrial output is expected to fall 4.8 percent in August from a year earlier, the Reuters poll said, better than the 6.1 percent drop in the preceding month. However, on a month-on-month basis, output is forecast to have slipped 0.1 percent, down from the 1.0 percent rise in July.

"Singapore's manufacturers have been hurt by China's slowing economy and continued weak external demand. Electronics production remains beset by the global PC slump, while pharmaceuticals production looks to have entered a cyclical downturn, compounding a lack of demand from Europe," Moody's analysts said last week.

Finally, it will be a holiday-shortened trading week for some countries in the region. Markets in Japan will be shuttered from Monday to Wednesday, while Singapore, Malaysia and Indonesia celebrate Hari Raya Haji with public holidays on Thursday.