Asian equities surged, and after the holiday, Japanese equity indices saw a rise as a declining yen appeared to be helping exporters. In South Korea, shares also increased. Following a steep decline the previous week, MSCI’s Asia-Pacific stock index closed at its highest point since August 5. As traders eye crucial US economic figures later this week, the S&P 500 closed flat. Concern over geopolitical dangers caused Treasury bonds to rise, but then they stabilized.
Excessive Rate Of Inflation
Since the US believes that an Iranian strike against Israel is becoming more possible, oil has stayed close to the $80 mark that it reached on Monday. Fitch Ratings downgraded Israel’s national debt by one notch, but maintained a negative perspective on the rating due to the ongoing armed conflict’s burden on the nation’s coffers. This week, volatility might return, according to UBS Global Wealth Management’s Solita Marcelli. “There could be more reason to worry that the US is headed for a recession if inflation is really low. An excessive rate of inflation may fuel concerns that the Fed Reserve won’t be able to lower interest rates soon enough to save the economy. Additionally, geopolitical risks are still high.”
Following the turbulence of the previous week, markets will be watching Wednesday’s consumer price index to determine whether the Fed will be more or less able to focus on the labor market and appropriately front-load rate reduction to ensure a “soft landing,” as per Krishna Guha at Evercore. Guha cautioned, “But if CPI is on the hotter side, do not panic.” “This is a labor-data-first Fed that is more focused on the future and less reliant on data points than it was an inflation-data-first Fed. We believe that the Fed will continue to be forward-leaning on cuts if the next labor data remains soft.”
An Interest Rate Cut
In other Asian news, authorities in Jiangxi province, China, instructed commercial banks not to settle their government bond purchases. This was one of the most drastic steps taken to date to quell a market upswing that has worried Beijing. According to persons with knowledge of the situation, at least 4 Chinese brokerages began new steps last week to reduce trading of domestic debt. For the first time in almost five years, India’s inflation decreased below the central bank’s target. However, authorities are still waiting for a persistent drop in prices, so this is not expected to lead to an interest rate cut too soon.
Scott Rubner of Goldman Sachs Group Inc. says that investors will have a small window of opportunity to purchase the decline in US stocks at this month’s end as firms raise share buybacks and selling pressure from systematic funds lessens. Although HSBC strategists advise investors to purchase equities on weakness because the fundamentals are still favorable for risk assets, more short-term declines cannot be ruled out in the event that activity data surprises badly.
