European equities are expected to mirror the gains seen in their Asian counterparts, fueled by optimism that an upcoming U.S. consumer price report may prompt the Federal Reserve to ease monetary policy in September.
Futures for the Euro Stoxx 50 climbed 0.3%, while U.S. equity futures showed little movement. The MSCI Asia Pacific Index rose for the fourth consecutive session, recovering from last week’s downturn. This rally followed a less-than-expected increase in the U.S. producer price index, which contributed to a 1.7% surge in the S&P 500.
The reduction in U.S. price pressures has strengthened market confidence that the Federal Reserve may soon cut borrowing costs, potentially refocusing efforts on labor market support. Analysts forecast a modest 0.2% rise in both the consumer price index and the core measure excluding food and energy for Wednesday’s data release, which would represent the smallest three-month increase in the core index since early 2021.
“Global markets appear to be signaling a recovery after last week’s recession concerns,” noted Jun Rong Yeap, a strategist at IG Asia Pte. “Progress in U.S. producer prices, potentially indicating further easing in consumer prices, has provided additional momentum for the risk rally.”
In the UK, the pound declined against the dollar following inflation data that fell short of expectations. The Consumer Prices Index increased by 2.2% in July, up from 2% in the previous months but below the anticipated 2.3%. The Bank of England had forecast a 2.4% rise.
New Zealand’s 10-year benchmark bond yields fell sharply after the central bank unexpectedly cut rates by 25 basis points, initiating an easing cycle earlier than previously anticipated. The New Zealand dollar dropped over 1%, while local stocks advanced.
U.S. Treasuries remained stable after a broad rise across the curve in the previous session, with market positioning data indicating continued bullish sentiment. A Bloomberg index of the dollar steadied near a four-month low.
The revival of risk appetite and a weaker dollar benefited Asian currencies. The Indonesian rupiah gained up to 1%, and the Singapore dollar approached its highest level of the year.
In Japan, the Nikkei index experienced fluctuations as investors processed news that Prime Minister Fumio Kishida will not seek a second term as leader of the Liberal Democratic Party in September. The yen stabilized after briefly strengthening towards the 146-per-dollar level.
Chinese stocks declined following reports of a contraction in bank loans to the real economy for the first time in 19 years. A gauge of Chinese tech stocks in Hong Kong fell more than 1% ahead of earnings reports from Tencent Holdings Ltd. and its share buyback plans.
“The upcoming reports from Chinese internet giants will be crucial to assess whether consumption weakness in China impacts margins and returns on investment, and if specific segments like gaming might show stronger performance,” said Britney Lam, head of equities-long/short at Magellan Investments Holding Ltd. “While valuations are appealing, earnings momentum is critical.”
In U.S. markets, the S&P 500 recorded its largest four-day gain of the year, and the Nasdaq 100 rose by 2.5%. The VIX, a key measure of market volatility, dropped to around 18. Swap traders are pricing in an approximately 40-basis-point Fed rate cut in September and a total reduction of over 105 basis points for 2024.
Corporate highlights include UBS Group AG reporting a higher-than-expected profit for the second quarter, supporting CEO Sergio Ermotti’s plans to return capital to shareholders and finalize the Credit Suisse integration.
In commodities, oil prices increased in Asian trading, recovering from Tuesday’s losses, driven by a significant drop in U.S. crude stockpiles and ongoing Middle Eastern tensions. Gold prices remained steady.
Upcoming Key Events:
1.Eurozone GDP, Industrial Production: Wednesday
2.U.S. Consumer Price Index: Wednesday
3.China Home Prices, Retail Sales, Industrial Production: Thursday
4.U.S. Initial Jobless Claims, Retail Sales, Industrial Production: Thursday
5.Fed Officials Alberto Musalem and Patrick Harker Speak: Thursday
6.U.S. Housing Starts, University of Michigan Consumer Sentiment: Friday
7.Fed’s Austan Goolsbee Speaks: Friday
Market Movements:
Stocks:
1.S&P 500 futures: Little changed as of 7:19 a.m. London time
2.Nasdaq 100 futures: Little changed
3.Dow Jones Industrial Average futures: Little changed
4.MSCI Asia Pacific Index: +0.6%
5.MSCI Emerging Markets Index: +0.3%
Currencies:
1.Bloomberg Dollar Spot Index: Little changed
2.Euro: $1.0990
3.Japanese Yen: -0.1% to 147.00 per dollar
4.Offshore Yuan: Little changed at 7.1499 per dollar
5.British Pound: -0.2% to $1.2833
Cryptocurrencies:
1.Bitcoin: +0.3% to $60,752.46
2.Ether: +1.2% to $2,732.59
Bonds:
1.10-Year Treasuries Yield: Little changed at 3.85%
2.Germany’s 10-Year Yield: -4 basis points to 2.19%
3.Britain’s 10-Year Yield: -3 basis points to 3.89%
Commodities:
1.Brent Crude: +0.6% to $81.14 per barrel
2.Spot Gold: Little changed
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