Asian shares attempted to end the month of July on a firm note, with positive gains in various markets. However, rising Japanese bond yields posed a risk to investor sentiment. Chinese factory activity slightly exceeded forecasts, while the services sector disappointed, leading to speculations that Beijing may take action in the future. On Monday, China’s State Council announced measures to stimulate consumption in the automobile, real estate, and services sectors. However, these measures fell short of the substantial fiscal spending markets had anticipated.
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Blue Chips Unfazed
Despite the mixed economic indicators in China, blue-chip stocks in the CSI300 index remained largely unaffected and gained 0.6% for the day. For the month of July, the index reported a 4.5% increase.MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.5% on Monday, reaching a five-month high. The index had gained 5.2% throughout July.
Hope for Global Core Inflation Decline
Positive US data from Friday, indicating an easing in wage costs and core inflation, boosted hopes that the Federal Reserve might pause its tightening policies. JPMorgan‘s head of economic research, Bruce Kasman, expressed confidence that global core inflation, excluding China, would decrease significantly, leading to potential policy pauses in developed markets and easing measures in emerging markets. Several key economic indicators, including the US ISM surveys on manufacturing and services and the July payrolls report, are due this week, along with European inflation data.
Expectations for Central Bank Actions
The Bank of England was anticipated to raise interest rates by at least a quarter point, while the Reserve Bank of Australia’s future monetary policy remained uncertain.
Earnings Updates Impact on Markets
Nearly 30% of the S&P 500 companies were set to release their earnings reports this week. Thus far, earnings had been satisfactory, contributing to the index’s 10% rally since the beginning of June. While S&P 500 futures dipped slightly on Monday, the index had risen 2.9% for July. Nasdaq futures also experienced a slight dip of 0.2%. EUROSTOXX 50 and FTSE futures decreased by 0.4%.
Upcoming Earnings Reports
Earnings updates from major companies such as Apple Inc, Amazon.com, Western Digital Corp, Caterpillar Inc, Starbucks Corp, and Advanced Micro Devices were expected later in the week.
Japan’s Nikkei Index Rebounds
Japan’s Nikkei index rose 1.2% on Monday, reaching the 33,000 level and approaching its recent three-decade peak. Investors continued to analyze the implications of the Bank of Japan’s surprising decision on Friday to lift the lid on bond yields, signaling a shift away from ultra-easy monetary policies.
Impact on Global Bond Markets
Analysts at BofA estimated that the BOJ’s bond buying had injected $1.3 trillion into global liquidity over the past 18 months, supporting low global interest rates. However, the recent rise in Japanese government bond yields, which reached 0.6% on Monday, with a cap of 1.0%, could have implications for other bond markets. The upward pressure on Japanese yields also affected US Treasury yields, with the 10-year yield rising to 3.99%.
Yen’s Response and Carry Trades
Initially, the yen rallied after the BOJ’s move, but it soon reversed course as investors showed a willingness to engage in carry trades using higher-yielding currencies. This allowed the dollar to rise to 141.87 yen on Monday, a significant rebound from Friday’s brief low of 138.05. The euro also recovered from its pullback, standing at 156.18 yen, while stabilizing against the dollar at $1.1010.
Commodities and Oil Prices
Gold prices remained relatively steady at $1,955 per ounce, recording a 1.8% increase for the month. After five consecutive weeks of gains due to OPEC+ production cuts tightening supply, oil prices took a slight breather. Goldman Sachs revised its global oil demand forecast upwards while maintaining its 12-month Brent price projection of $93 per barrel. Brent crude was down 59 cents at $84.40 per barrel, and US crude eased 31 cents to $80.27.
