Asian stock markets are attempting to end the month on a positive note, with major economic releases, central bank meetings, and earnings updates from Amazon and Apple on the horizon. However, rising Japanese bond yields pose a potential risk.
China’s factory activity slightly exceeded expectations, while services disappointed. This reinforces the belief that Beijing will need to take action at some point.
China’s State Council has issued measures to restore and expand consumption in certain sectors, but these measures fall short of the massive fiscal spending that markets have been anticipating.
Despite these developments, blue chips in China remain unaffected and have gained 0.6% in July.
The broader Asia-Pacific shares outside Japan have climbed 0.5% and reached a five-month high, with a 5.2% gain so far in July.
Positive U.S. data showing an easing in wage costs and core inflation has initially boosted market sentiment, as it suggests that the Federal Reserve may be done tightening.
Economists believe that this data supports the idea that global core inflation will decrease, leading to a pause in developed market central policies and easing in emerging markets.
This week, important figures will be released, including U.S. ISM surveys, the July payrolls report, and European inflation data.
The Bank of England is expected to raise rates, while opinions are divided on whether the Reserve Bank of Australia will hike or maintain its current stance.
Nearly 30% of the S&P 500 companies will report their earnings this week, and so far, the results have been strong, contributing to a 10% rally since June.
S&P 500 futures dipped slightly on Monday, but the index is still up 2.9% for July. Nasdaq futures also experienced a slight decline. EUROSTOXX 50 futures and FTSE futures both eased 0.4%.
Apple and Amazon will report their earnings on Thursday, along with other well-known companies such as Western Digital Corp, Caterpillar Inc, Starbucks Corp, and Advanced Micro Devices.
Japan’s Nikkei rose 1.2% and approached its recent three-decade peak.
Investors are still analyzing the implications of the Bank of Japan’s decision to lift the lid on bond yields, which deviates from its ultra-easy policies.
Analysts estimate that the BOJ’s bond buying has added $1.3 trillion to global liquidity in the past 18 months, so any sustained increase in Japanese government bond yields could impact other bond markets.
Japanese 10-year yields rose to 0.6% on Monday, nearing the new cap of 1.0%. This also put upward pressure on Treasury yields, with the 10-year rising to 3.99%.
Although the yen initially strengthened after the BOJ’s move, it quickly reversed course as investors continued to engage in carry trades.
The yen remains under pressure, with the dollar reaching 141.87 yen on Monday.
Commodities saw mixed movements, with gold slightly lower at $1,955 an ounce but still up 1.8% for the month. Oil prices took a breather after five consecutive weeks of gains due to production cuts by OPEC+.
Goldman Sachs has revised up its global oil demand forecast for the year while maintaining its 12-month Brent price projection of $93 per barrel.
Brent crude was down 59 cents at $84.40 a barrel, while U.S. crude eased 31 cents to $80.27.
Reporting by Wayne Cole; Editing by Jamie Freed and Himani Sarkar
