Asian stock markets saw modest gains on Monday, buoyed by a public holiday in Japan that alleviated some recent market volatility. With Japanese markets closed, investors turned their attention to upcoming economic data from the U.S. and China, seeking insights into global economic health and growth prospects.
U.S. Economic Data:
The Federal Reserve’s upcoming policy decisions will be significantly influenced by U.S. consumer price data set to be released on Wednesday. Economists are anticipating a 0.2% increase in both the headline and core Consumer Price Index (CPI), with the annual core CPI expected to tick down to 3.2%. This data will be crucial for assessing the Fed’s stance on inflation and potential interest rate adjustments. Barclays analysts note that if the data confirms ongoing disinflation, it could strengthen the Fed’s resolve to cut rates in September. However, a core inflation rate still above the Fed’s target might argue against a more substantial 50 basis point cut or an emergency rate reduction.
In addition to CPI data, investors will be looking at July retail sales figures, which are projected to show a robust 0.8% month-over-month increase. This anticipated growth suggests that consumer spending remains resilient, supported by solid income and wealth fundamentals. Other important data releases will include industrial output and housing starts, along with various surveys on regional manufacturing and consumer sentiment. These indicators will provide a comprehensive view of the economic landscape and consumer behavior.
Currently, the futures market implies a 49% chance of a 50 basis point rate cut by the Fed in September. This is a decrease from the 100% probability forecasted a week ago when Japanese equities faced a significant drop. Nikkei futures, trading at 35,535, have recovered somewhat but have not yet returned to the levels seen before the recent market turmoil.
Asian and European Markets:
In Asian markets, the MSCI Index of Asia-Pacific shares outside Japan gained 0.6%, driven by a 1.6% bounce in Taiwanese stocks. Chinese blue-chip stocks also experienced a slight increase of 0.1%. European markets followed suit, with EUROSTOXX 50 futures rising 0.5% and FTSE futures up 0.4%. U.S. futures for the S&P 500 and Nasdaq were marginally higher in light trading conditions. To date, approximately 91% of S&P 500 companies have reported their earnings, with 78% of them exceeding Wall Street expectations. This week’s earnings reports from major retailers such as Walmart and Home Depot are expected to provide additional insights into the health of U.S. consumers.
China’s Economic Outlook:
China will release data on retail sales and industrial production on Thursday, which is expected to highlight ongoing economic challenges. Analysts predict that these figures will underscore the need for further stimulus measures as the economy continues to underperform relative to expectations. Retail sales and industrial production data will be closely watched for indications of economic momentum or further weakness.
Currency Markets:
In currency markets, the dollar edged up by 0.2% to 146.92 yen, recovering from a low of 141.68 yen observed last week. The euro remained stable at $1.0915. Bank of America FX strategist Shusuke Yamada notes that the rush to unwind yen carry trades—where investors borrow in yen at low rates to invest in higher-yielding assets—seems to have largely run its course. Speculative short positions in the yen have decreased by 60%. Yamada anticipates that structural factors such as corporate foreign direct investment outflows and retail investment in international equities will continue to drive yen weakness, with the dollar potentially reaching 155 yen by year-end. Data from the IMM exchange shows that net short positions in the dollar/yen pair have significantly reduced to 11,354, compared to 184,000 in early July.
Commodities Market:
In the commodities sector, gold prices held steady at $2,424 per ounce after a slight dip the previous week. Oil prices also inched up, buoyed by a 3.5% rebound last week amid concerns over potential supply disruptions from the Middle East. Brent crude oil gained 20 cents to $79.86 per barrel, while U.S. crude rose 34 cents to $77.18 per barrel. Geopolitical tensions have heightened, with Israeli Defense Minister Yoav Gallant warning of a possible large-scale Iranian military attack on Israel. The Pentagon responded by publicly announcing the deployment of a nuclear-powered guided missile submarine to the Middle East, a rare move that underscores the heightened security concerns in the region.
Overall, market participants are closely monitoring these economic indicators and geopolitical developments as they navigate an uncertain global financial landscape. The interplay between economic data, central bank policies, and geopolitical events will continue to shape market dynamics and investor sentiment in the coming weeks.