Hope for Soft US Inflation Lifts Asian Stocks
Equity markets across the Asian continent exhibited resilience on Monday, largely benefiting from Japan’s holiday-induced absence, which diminished a source of recent turbulence. Investors keenly anticipate pivotal economic data from the United States and China, with a focus on the global economic trajectory.
The Federal Reserve’s attention is sharply focused on Wednesday’s U.S. consumer price index, where forecasts suggest a 0.2% uptick in both the headline and core measures, with the annual core inflation rate expected to decelerate slightly to 3.2%.
“Such a result would likely fortify the Fed’s belief in the ongoing disinflationary trend, potentially paving the way for a rate reduction in September. However, a core rate that remains above target could argue against a more substantial 50-basis-point cut or an unscheduled intra-meeting adjustment,” noted analysts from Barclays in a research note.
Additionally, a robust 0.8% month-on-month surge in headline retail sales is anticipated, reflecting sustained consumer strength—the driving force behind the economy—bolstered by solid income and wealth fundamentals.
Beyond retail sales, the economic docket includes data on industrial production, housing starts, and various regional manufacturing and consumer sentiment surveys.
Currently, futures markets indicate a 49% probability of a 50-basis-point rate cut by the Fed in September, a sharp decline from the 100% likelihood seen just a week ago when Japanese equities experienced a sharp downturn.
Nikkei futures were trading at 35,570, compared to a cash close of 35,025, though they have yet to fully recover from last week’s dramatic sell-off.
The MSCI’s broadest index of Asia-Pacific shares outside Japan rose by 0.3%, with Taiwan leading the way with a 1.5% rebound. Chinese blue-chip stocks remained stable. EUROSTOXX 50 futures climbed 0.5%, while FTSE futures increased by 0.4%. S&P 500 and Nasdaq futures each added 0.1% in thin trading. Thus far, about 91% of the S&P 500 companies have reported earnings, with 78% surpassing analysts’ expectations.
This week, earnings reports from Walmart (NYSE) and Home Depot (NYSE) will offer additional insights into the health of U.S. consumer spending.
On Thursday, China will release figures for retail sales and industrial production, expected to indicate continued economic underperformance, underscoring the necessity for further stimulus measures.
In the foreign exchange arena, the dollar appreciated by 0.3% to 147.08 yen, distancing itself from last week’s low of 141.68, while the euro held steady at $1.0919.
BofA FX strategist Shusuke Yamada opined that the recent rush to unwind yen carry trades—borrowing at low rates to invest in higher-yielding assets—has largely run its course, with speculative yen short positions having decreased by 60%.
“Over the long term, structural outflows from corporate foreign direct investment and retail ownership of international equities are likely to drive yen depreciation,” Yamada added, predicting the dollar could reach 155 yen by year-end.
Data from the IMM exchange revealed that net short positions in dollar/yen had decreased to 11,354 from 184,000 in early July.
In the commodities market, gold remained steady at $2,424 per ounce, after a slight dip last week.
Oil prices edged higher, building on last week’s 3.5% surge amid escalating concerns about a broader Middle East conflict potentially disrupting supplies.
Israeli Defense Minister Yoav Gallant’s Sunday conversation with U.S. Defense Secretary Lloyd Austin highlighted Iran’s military activities, suggesting preparations for a large-scale attack on Israel. In a rare move, the Pentagon publicly disclosed Austin’s order to deploy a nuclear-powered guided missile submarine to the Middle East.
Brent crude rose by 22 cents to $79.88 per barrel, while U.S. crude climbed 38 cents to $77.22 per barrel.
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