Global stock markets are on track for a fourth consecutive month of gains, buoyed by optimistic expectations of a smooth US economic transition and potential reductions in interest rates.
Asian Markets Lead the Way
In Asia, Chinese stocks led the rally, driven by strong earnings reports and a significant rise in the yuan, reaching levels not seen in over a year. Markets in Australia, Hong Kong, and Japan also saw increases. US futures were up as well, in anticipation of the Federal Reserve’s preferred inflation measure, set to be released later today.
Bond and Currency Movements
In Japan, the yield on 10-year government bonds inched up following data that indicated heightened price pressures in Tokyo for August. This data supports arguments for further adjustments in monetary policy. The yen is expected to recover from a two-day decline, while US Treasury bonds are poised for their longest monthly winning streak in three years.
Federal Reserve Rate Cut Speculation
Market sentiment continues to be influenced by expectations of a Federal Reserve rate cut. Recent data suggests the Fed has managed to control inflation without causing a recession. US economic output grew more than initially reported in the second quarter, with an upward revision in consumer spending offsetting weaker activity in other sectors.
Thomas Taw, BlackRock’s head of APAC investment strategy, commented, “The US economy appears to be shifting from very strong to strong. The data might weaken further, but it must be balanced against how inflation will perform in the US.”
Currency and Commodity Updates
The Bloomberg Dollar Spot Index remained relatively stable, though it is set to end the week with gains for the first time in five weeks.
In China, authorities are considering a significant move to allow homeowners to refinance up to $5.4 trillion in mortgages. This initiative aims to lower borrowing costs for families and boost consumption.
Focus on Upcoming Data
Aside from today’s core PCE inflation data, next week’s US employment figures will be closely watched. Nonfarm payrolls data, scheduled for release on September 6, will be key in determining if the Fed will proceed with a rate cut in September. Fed Chair Jerome Powell’s recent Jackson Hole speech hinted at potential easing.
Interest rate cuts in the US are expected to impact markets across Asia, with analysts predicting possible rate reductions in Indonesia and India.
Barclays Plc analysts, including Gabriel Casillas, noted, “The dovish messages from Jackson Hole continue to resonate. Attention will now shift to the US employment report to see if a soft landing remains achievable.”
Company and Commodity Highlights
Shares of WuXi AppTec and WuXi Biologics are under scrutiny as House Republican leaders prepare to vote on measures targeting Chinese companies next month. On the earnings front, the Bank of China reported declines in net income and commissions for the first half of the year.
In commodities, gold prices remained near record highs, and oil prices stabilized after rising on Thursday due to positive US economic data and worsening supply issues in Libya. Iron ore prices also increased, rallying by about 10% over ten days to surpass $100 per ton.
