A preview of the upcoming day in Asian markets.
Markets have made a strong recovery from recent volatility, with growing indications that the turbulence was largely due to the unwinding of major leveraged positions, such as yen-funded carry trades, rather than deeper concerns about global economic growth.
All eyes are now on Wednesday’s U.S. inflation report, which has the potential to challenge the market’s newfound stability.
The July Consumer Price Index (CPI) figures may not show significant improvement from the previous month. However, as long as there are no major surprises, investors could still maintain hope that the Federal Reserve will begin easing interest rates in September.
Current futures market data indicates a 54% probability of a 50 basis point rate cut by the Fed, with a 46% chance of a 25 basis point cut. Additionally, traders are pricing in a full percentage point of easing by the end of the year.
Maintaining these expectations is crucial for sustaining investor confidence, especially as Japanese stocks have rebounded sharply after last week’s significant selloff. Japan’s Nikkei index climbed more than 3% following a holiday on Monday.
Leading up to the CPI report, the mood on Wall Street has been positive, with the S&P 500 and Nasdaq Composite both continuing to recover from recent declines. U.S. Treasury yields have also dipped as data showed U.S. producer prices rose less than anticipated in July, reinforcing the case for potential Fed rate cuts in the coming months.
On the commodities front, Brent and U.S. crude oil futures declined on Tuesday as the market perceived a reduced risk of an escalating conflict in the Middle East.
Investors are also closely monitoring New Zealand’s central bank, which may cut interest rates on Wednesday, a full year ahead of its prior guidance. Slowing inflation, rising unemployment, and weak economic growth have led many to anticipate this potential easing.
In addition, India’s wholesale price data will be under scrutiny, as investors are keen to see if inflation eased in July after climbing in recent months. Notably, India’s retail inflation fell to its lowest level in nearly five years in July, according to government data released on Monday.
Key events that could influence market direction on Wednesday include:
- The Reserve Bank of New Zealand meeting
- India’s Wholesale Price Index (July)
- U.S. Consumer Price Index (July)
