The week has begun with a calm atmosphere in Asia, as Japan observes Mountain Day, providing a respite after last week’s dramatic decline in the Nikkei index, which had ripple effects across global markets.
Should Tokyo’s market have been open, futures suggest the Nikkei might have gained approximately 400 points. However, it remains below its pre-record plunge levels from the previous Monday.
Elsewhere in Asia, stock markets are showing some resilience, with Taiwan leading the way with a 2% increase. Meanwhile, futures for Wall Street are steady, indicating a period of stability.
The U.S. dollar is hovering around the 147.00 yen mark, with recent data indicating a stabilization of the yen carry trade. According to IMM data, net short positions on USDJPY have decreased significantly to 11,354, down from 184,000 earlier in July.
Treasury futures are stable, and Fed fund futures are currently pricing in a 49% probability of a half-point rate cut in September, down from a 100% expectation a week ago. Fed officials, including Governor Michelle Bowman, have dampened speculation of an immediate rate cut. Bowman acknowledged persistent inflation concerns but suggested a gradual reduction in rates might be necessary if inflation trends continue to improve.
The release of U.S. consumer price data on Wednesday will be pivotal, with predictions indicating a slight dip in annual core inflation to 3.2%, the lowest since April 2021. A lower figure could reignite discussions about the Fed’s approach to rate cuts.
Additional key data to watch this week includes July retail sales, with expectations ranging from a 0.0% to 0.9% increase, and results from major retailers Walmart and Home Depot, which will provide insights into consumer demand. Weekly jobless claims could also impact markets, following an unexpected drop reported last week.
In geopolitical news, tensions in the Middle East are escalating. Israeli Defense Minister Yoav Gallant has informed U.S. Defense Secretary Lloyd Austin of potential large-scale Iranian plans against Israel. In response, the Pentagon has announced the rare deployment of a nuclear-powered guided missile submarine to the region, alongside the accelerated deployment of the Abraham Lincoln strike group.