Image: Reuters Berita 24 English - Asian stocks were all over the place on Monday, after China's central bank cut key lending rates and ...
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| Image: Reuters |
Berita 24 English - Asian stocks were all over the place on Monday, after China's central bank cut key lending rates and a lot of economic data didn't meet expectations. This showed that the world's second largest economy needs more stimulus to keep it going.
Both retail sales and industrial output rose less than expected in July, which added to bad news about new bank loans.
The cut in rates softened the blow a little, and Chinese blue chips went up by 0.1%, while the yuan and bond yields went down.
MSCI's broadest index of Asia-Pacific stocks outside of Japan was flat this week after jumping 0.9% the week before.
Even though Japan's economy grew by 2.2% on an annualized basis in the second quarter, which was a little less than expected, the Nikkei rose by 1.0%.
Investors are still waiting to see if Wall Street can keep going up. This week, hawkish comments from the Federal Reserve could test the idea that U.S. inflation has reached its peak.
Tapas Strickland, who is in charge of economics at NAB, said, "The FOMC Minutes on Wednesday should back up the hawkish tone of recent Fed speakers that rates and inflation are nowhere near done."
The markets still think there is about a 50% chance that the Fed will raise interest rates by 75 basis points in September and that rates will go up to between 3.50 and 3.75 percent by the end of the year.
Hopes for a soft landing for the economy will also be tested by U.S. retail sales data for July, which are expected to show a sharp drop in spending.
There is also a chance that big retailers like Walmart and Target will warn about a drop in sales when they report their earnings.
With a group of U.S. lawmakers in Taiwan for two days, there are still a lot of geopolitical risks.
Futures on the EUROSTOXX 50 went up 0.5%, and futures on the FTSE went up 0.4%. After going up last week, S&P 500 futures and Nasdaq futures were both down about 0.2%.
People think that the worst of inflation is over, at least in the United States, because the S&P index is almost 17% higher than it was in mid-June and is only 11% away from its all-time high.
PEAK INFLATION
Analysts at BofA said, "The leading indicators we see support moderation, with supply pressures going down, demand going down, money supply going down, prices going down, and expectations going down."
"Key parts of the overall rate of inflation, like food and energy, are also at a turning point. Wall Street and Main Street now both think that inflation will slow down."
With the yield curve still deeply inverted, the bond market still seems to doubt that the Fed can make a soft landing. At 3.26 percent, the yields on two-year notes are 42 basis points higher than those on 10-year notes.
These yields have kept the U.S. dollar strong, but it fell 0.8% against a group of currencies last week as people became more comfortable with taking risks.
The euro was still at $1.0249, even though it had gone up 0.8% in the past week. However, it didn't want to go past resistance around $1.0368. After losing 1% against the yen last week, the dollar stayed at 133.33. [USD/]
Jonas Goltermann, a senior economist at Capital Economics, said, "We still think the dollar rally will start up again soon."
"The Fed won't change course until it hears a lot more good news about inflation. The minutes from the last meeting of the Federal Open Market Committee (FOMC) and the Jackson Hole conference may show that the Fed is not "pivoting.""
The dollar's drop was a bit of a relief for gold, which rose to $1,797 an ounce after gaining 1% last week. [GOL/]
Oil prices went down because China's bad data added to worries about the demand for fuel around the world. Traders were also careful in case talks between Iran and Europe about a possible nuclear deal moved forward. [O/R]
Brent fell 45 cents to $97.70 per barrel, while U.S. crude fell 48 cents to $91.61 per barrel.
