Asian stock markets began the week on a calm note, as a public holiday in Japan minimized some of the recent market fluctuations. Investors are now focusing on upcoming significant economic reports from the U.S. and China, which could provide new insights into the global economic outlook.
The Federal Reserve will closely watch U.S. consumer price data, set for release on Wednesday. Economists are predicting a 0.2% rise in both the overall and core inflation rates, with the annual core rate expected to slow slightly to 3.2%.
Analysts at Barclays noted in a recent report, “A modest increase in inflation could strengthen the Fed’s confidence in the ongoing disinflation trend, potentially leading to a rate cut in September. However, with core inflation still above target, a larger 50-basis-point cut or an unscheduled cut seems unlikely.”
Additionally, July’s retail sales data is anticipated to show a robust 0.8% month-over-month increase, reflecting the resilience of consumer spending, driven by strong income and wealth conditions. Investors will also keep an eye on data related to industrial production, housing starts, and several regional manufacturing and consumer sentiment surveys.
Currently, futures markets suggest a 49% probability of the Fed implementing a 50-basis-point rate cut in September, a drop from the 100% likelihood observed a week ago when Japanese equities experienced a sharp decline.
In early trading on Monday, Nikkei futures were at 35,370, up from a previous close of 35,025. The MSCI index of Asia-Pacific shares, excluding Japan, inched up by 0.2%.
Meanwhile, S&P 500 and Nasdaq futures saw little change during thin trading hours. With around 91% of S&P 500 companies having reported earnings, 78% have exceeded Wall Street expectations.
This week, financial results from major U.S. retailers, including Walmart and Home Depot, will offer a glimpse into the health of U.S. consumer spending.
On Thursday, China is expected to release data on retail sales and industrial production, which may further highlight the country’s economic slowdown, emphasizing the need for additional stimulus measures.
In the currency markets, the U.S. dollar rose 0.2% to 146.92 yen, recovering from last week’s low of 141.68 yen, while the euro remained steady at $1.0915.
Shusuke Yamada, an FX strategist at BofA, believes the recent unwinding of yen carry trades—where investors borrow in yen to invest in higher-yielding assets—has largely subsided, with speculative short positions on the yen down by 60%. Yamada predicts further yen weakness, forecasting the dollar to reach 155.00 yen by year-end.
According to data from the IMM exchange, net short positions in dollar/yen have decreased to 11,354, compared to 184,000 in early July.
In commodity markets, gold held steady at $2,420 an ounce after a slight dip last week.
Oil prices edged higher after rising 3.5% last week amid concerns that escalating tensions in the Middle East could disrupt supply. Brent crude gained 5 cents to $79.71 a barrel, while U.S. crude increased by 13 cents to $76.97 per barrel.
