Asian stock markets recovered from last week’s losses, driven by a rebound in Japanese equities. US and European futures also showed modest gains as investors awaited crucial inflation data. Despite recent volatility and geopolitical tensions, markets are cautiously optimistic.
Asian stocks experienced a notable recovery, recouping losses from the previous week’s significant sell-off. This rebound was largely propelled by a strong performance in Japanese equities, which gained traction following a holiday break. The advance was supported by a weaker yen, which is benefiting exporters. The MSCI Asia-Pacific Index climbed by as much as 1%, erasing last week’s sharp declines, which saw global indexes plummet and the VIX volatility index spike above 65—well above its historical average of approximately 19.5.
Billy Leung, an investment strategist at Global X Management in Sydney, noted, “The market’s reaction to last week’s VIX spike indicates a reassessment of investment strategies rather than just responses to US economic data or yen carry unwinding.” He cautioned, however, that short-term movements in Asia should be interpreted with caution due to signs of foreign capital outflows and low market liquidity.
Crude oil prices remained steady around the $80 mark, influenced by rising concerns over a potential Iranian attack on Israel. Additionally, Fitch Ratings downgraded Israel’s sovereign debt by one notch, maintaining a negative outlook due to ongoing military conflicts impacting the country’s public finances. US Treasury yields held steady from Monday’s gains.
On August 5, the MSCI Asia’s stock benchmark plummeted by 6.1%, marking its worst performance since 2008. This downturn was driven by fears of a deteriorating US economy, a prolonged selloff in Japanese equities, and a shift away from technology stocks. Since late July, Japan’s Nikkei 225 and Topix indexes have fallen more than 7%, entering a bear market territory as losses surpassed 20%.
The Bank of Japan’s recent interest rate hike and planned reduction in bond purchases initially strengthened the yen. However, the central bank’s commitment to avoiding further market volatility led to a global unwinding of carry trades funded by the currency.
Looking ahead, markets are keenly anticipating the release of US consumer price index data on Wednesday. Krishna Guha of Evercore stated, “The data will be pivotal in determining whether the Federal Reserve will have the flexibility to focus on the labor market and expedite rate cuts for a soft landing.”
Linda Lam, head of equity advisory for North Asia at Union Bancaire Privee, suggested that, “The initial phase of yen carry trade unwinding is likely complete. Investor attention is now shifting to US inflation and retail sales data to assess the likelihood of a soft economic landing. Risk sentiment appears to be stabilizing, with Asian markets expected to hold their current range unless significant shocks occur.”
In other Asian markets, stocks in Hong Kong and mainland China showed mixed performance. Chinese shares fluctuated amidst persistent bearish sentiment and declining share transactions, which have reached their lowest level in over four years. MSCI Inc. is removing Chinese stocks from its indexes, potentially leading to further declines in China’s representation in emerging market benchmarks.
Britney Lam, head of equities-long/short at Magellan Investments Holding Ltd., highlighted the importance of upcoming reports from Chinese internet giants, stating, “These reports will be crucial in assessing whether consumption weaknesses in China are affecting profit margins and returns. A tactical rally in China is possible, supported by recent positive policy measures. Key macro indicators to watch are liquidity measures, including money supply and loan growth.”
In China, regulators have instructed banks in Jiangxi province to halt their government bond purchases, a move designed to cool a market rally that has alarmed Beijing. Additionally, several Chinese brokerages have implemented measures to reduce domestic debt trading, impacting corporate debt markets. The yield on one-year AA-rated corporate yuan bonds saw its largest increase since December 2022.
In the corporate sector, shares of baby-products retailer Brainbees Solutions Ltd. surged on their Mumbai debut, contributing to India’s growing market for new share offerings.
Key Economic Events This Week:
1.Germany ZEW Survey Expectations (Tuesday)
2.US Producer Price Index (PPI) (Tuesday)
3.Fed’s Raphael Bostic Speech (Tuesday)
4.Eurozone GDP and Industrial Production (Wednesday)
5.US Consumer Price Index (CPI) (Wednesday)
6.China Home Prices, Retail Sales, and Industrial Production (Thursday)
7.US Initial Jobless Claims, Retail Sales, and Industrial Production (Thursday)
8.Fed’s Alberto Musalem and Patrick Harker Speeches (Thursday)
9.US Housing Starts and University of Michigan Consumer Sentiment (Friday)
10.Fed’s Austan Goolsbee Speech (Friday)
Market Movements:
1.S&P 500 futures up 0.2%
2.Nasdaq 100 futures up 0.3%
3.MSCI Asia Pacific Index up 1%
4.MSCI Emerging Markets Index up 0.1%
5.Japan’s Topix up 2.6%
6.Australia’s S&P/ASX 200 up 0.2%
7.Hong Kong’s Hang Seng little changed
8.Shanghai Composite down 0.1%
Currency and Commodity Updates:
1.Bloomberg Dollar Spot Index little changed
2.Euro steady at $1.0938
3.Japanese yen down 0.4% to 147.76 per dollar
4.Offshore yuan stable at 7.1790 per dollar
5.British pound steady at $1.2777
6.Bitcoin up 0.8% to $59,313.44
7.Ether down 0.8% to $2,659.06
8.Spot gold down 0.4% to $2,462.46 an ounce
9.West Texas Intermediate crude down 0.7% to $79.53 a barrel
Related topic:
Trading Futures Vs Stocks: What Is The Difference?