Asian markets began the week on a calm note, with Japan’s holiday-induced market closure providing a brief respite from recent volatility. Investors, however, are keeping a close eye on key economic indicators from the U.S. and China, which are set to provide insights into global growth trajectories.
The Federal Reserve’s decision on interest rates will likely hinge on U.S. consumer price data due this Wednesday. Economists predict a modest 0.2% increase in both headline and core inflation, with the annual core rate potentially slowing to 3.2%. Analysts from Barclays suggest that these figures might reinforce the Fed’s confidence in a continuing disinflationary trend, potentially opening the door for a rate cut in September. However, with core inflation still above target, the likelihood of a larger 50 basis point cut seems slim.
Adding to the economic landscape are robust retail sales figures, anticipated to show a 0.8% month-over-month increase, indicating that the U.S. consumer remains resilient amid solid income and wealth fundamentals. Additional data on industrial output, housing starts, and regional manufacturing surveys will also be closely monitored this week.
In the futures market, there’s been a notable shift in expectations, with the probability of a 50 basis point rate cut in September dropping to 49%, down from 100% just a week ago. This change comes after a sharp decline in Japanese equities that shook investor confidence.
Early Monday trading saw Nikkei futures at 35,370, slightly above the cash close of 35,025, while MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.2%. Meanwhile, U.S. futures for the S&P 500 and Nasdaq remained relatively flat in light trading. With 91% of S&P 500 companies having reported their earnings, and 78% surpassing expectations, attention now turns to retail giants Walmart and Home Depot, whose earnings will offer fresh insight into the health of U.S. consumers.
China, on the other hand, is set to release its own data on retail sales and industrial production this Thursday. Expectations are muted, with figures likely to underscore the economy’s ongoing underperformance and the growing need for further stimulus measures.
In currency markets, the U.S. dollar rose 0.2% to 146.92 yen, distancing itself from last week’s low of 141.68 yen. The euro remained steady at $1.0915. Shusuke Yamada, FX strategist at Bank of America, noted that the unwinding of yen carry trades—a strategy of borrowing at low interest rates to invest in higher-yielding assets—appears to be nearing completion. He projects further yen weakness, predicting the dollar could reach 155.00 yen by the end of the year.
Commodity markets also saw minimal movement, with gold holding steady at $2,420 per ounce despite a slight dip last week. Oil prices edged higher, building on last week’s 3.5% rally driven by fears of escalating tensions in the Middle East. On Sunday, Israeli Defense Minister Yoav Gallant discussed Iran’s military preparations with U.S. Defense Secretary Lloyd Austin, hinting at a potential large-scale attack on Israel. Brent crude gained 5 cents to reach $79.71 per barrel, while U.S. crude rose 13 cents to $76.97 per barrel.
As the week progresses, investors across Asia and beyond will be closely watching the upcoming data releases for clues on the future direction of global markets, with the hope that the calm start to the week isn’t just the calm before the storm.