Asian markets should open the week on an upbeat note following the strong end to last week across global stocks, but with a heightened sense of caution ahead of Tuesday’s U.S. inflation data.
The consumer price inflation report for August will be critical to the Fed’s interest rate decision later this month and, therefore, the tone and direction for world markets.
Recent soundings from Fed officials suggest rates will continue to rise steeply. Bond and rates markets are taking this to heart – the two-year Treasury yield on Friday rose to a 15-year high of 3.575% and implied U.S. interest rates nudged 4%.
Equities, however, have shown some resilience. The MSCI world index rose 1.7% on Friday, its best day in a month, and closed the week up 2.6%, its first weekly rise in four. The Nasdaq jumped 4% last week.
Temporary relief from the rising interest rate storm?
The Asian economic data calendar on Monday is light – Indian inflation is the only major release – but investors will have Chinese industrial output, retail sales, unemployment, FDI and unemployment figures to digest over the coming week.
None of these will capture the recent lockdowns, but could still be useful measure of how fragile China’s economy was even before they came into effect.
“While the Chinese economy has bottomed after the policy-induced contraction in 2Q22, Covid restrictions and an imploding housing market have sapped momentum,” Morgan Stanley (NYSE:MS) analysts wrote on Sunday. They are forecasting GDP growth this year of just 2.8%.
Investors will also be on FX intervention alert from Beijing or Tokyo if the yuan and yen continue sliding to new lows. Japanese authorities, in particular, have warned that they are ready to defend support the yen, which slumped to a 24-year low against the dollar last week.
Key developments that should provide more direction to markets on Monday:
India inflation (August)
India industrial output (July)
UK growth, manufacturing, trade, industrial, services output (July)
Source: Economy - investing.com
