Asian shares saw a rebound on Monday, fueled by optimism that upcoming central bank meetings in the United States and United Kingdom could lead to accommodative monetary policies. Japan, on the other hand, anticipates a potential increase in borrowing costs, signaling a move towards normalization.
Oil prices also saw slight gains amidst concerns over escalating tensions in the Middle East following a rocket strike in the Israeli-occupied Golan Heights, attributed to Hezbollah by Israel and the US.
The week ahead is packed with key economic indicators, including the US jobs report for July, manufacturing surveys from the US and globally, and Eurozone GDP and inflation data. The US Treasury’s quarterly bond issuance plan and China’s politburo meeting, expected to reveal further stimulus measures, are also anticipated.
Market sentiment shifted following a benign June inflation report, with expectations mounting for the Federal Reserve to lay the groundwork for a rate cut at its upcoming meeting on Wednesday. Futures markets are pricing in a quarter-point easing, with a possibility of further cuts by the end of the year.
According to analysts at Goldman Sachs, “The FOMC is set to hold steady but is likely to revise its statement to hint that a cut at the following meeting in September has become more likely.”
In addition to the Fed, the Bank of Japan will convene on Wednesday with markets indicating a high probability of a slight rate hike. Meanwhile, uncertainty surrounds the Bank of England’s meeting on Thursday, with futures suggesting a moderate chance of a rate cut.
The Nikkei index in Japan, affected by prospects of increased borrowing costs, rebounded by 2.2% early Monday following losses of 6% last week. MSCI’s broadest index of Asia-Pacific shares outside Japan also rose by 0.4%.
In other markets, European and US futures showed gains, reflecting positive sentiment carried over from Asia. Expectations are particularly high for corporate earnings reports this week, with major tech companies like Microsoft, Apple, Amazon.com, and Meta Platforms set to announce.
Chris Weston, head of research at Pepperstone, highlighted potential market volatility, stating, “Company earnings don’t come much bigger than Microsoft, where the options market implies a move (higher or lower) of 4.7% – the after-market session on Tuesday could get lively.”
Currency markets saw the Japanese yen slightly weakening against the dollar, while the euro remained stable. Gold prices edged higher amid expectations of a dovish stance from the Federal Reserve, while oil prices fluctuated amidst mixed signals on Chinese demand.
The developments across global markets underscore a week packed with economic data and central bank decisions that could influence investor sentiment and market direction moving forward.
