Global markets in recovery mode ahead of US inflation data this week

Stocks in Asia and GCC are marginally higher as investors await the release of consumer data that will indicate the health of the world's largest economy

Japanese stocks were among the most volatile last week after a sharp fall and equally spectacular recovery. Bloomberg

Global equity markets remain in recovery mode after recent bouts of extreme volatility as investors await the release of US inflation data this week that would underpin the health of the world's largest economy.

Markets in Asia continued to rise on Monday, carrying momentum forward from the last week.

MSCI's broadest index of Asia-Pacific shares rose 0.47 per cent at 11:02am UAE time, with stocks in Hong Kong gaining and China remaining broadly unchanged. India's main stocks measure gained 0.2 per cent.

Investors are seeking clues to the direction the US Federal Reserve will take on rate cuts when it meets in September. The US consumer data release on Wednesday will help the Fed determine the course of action and will also dictate the stock market.

“Markets will be looking for this week’s release of the July inflation print for the US for any more signals on what the Fed will do when it meets in mid-September,” Edward Bell, head of market economics at Emirates NBD, said.

Stocks in the US, Asia and Europe have taken a breather after investors experienced a white-knuckle ride after disappointing job market data triggered fears of a recession in the US.

Asian markets took cues from a sharp decline in US stocks and suffered their heaviest single-day losses since 2008, with Japanese stocks plunging more than 12.4 per cent to their steepest sell-off since the 1987 Black Monday crash.

With the S&P 500 index, the Dow and the Nasdaq suffering their biggest losses in two years during the week beginning August 5, Wall Street's fear gauge, the CBOE Volatility Index, rose to its highest level since March 2020.

The gauge has now come off its early days of Covid-19 pandemic highs.

“Markets have endured substantial volatility in the last few weeks … since then conditions have eased somewhat,” Mr Bell said.

The US consumer price index on Wednesday is expected to post a rise of 0.2 per cent from June for both the headline figure and the so-called core gauge that excludes food and energy according to a Bloomberg report.

However, the modest moves may not be enough to derail the Fed from a widely anticipated interest-rate cut next month, the report added.

Over the weekend, media cited Fed Governor Michelle Bowman as saying that there are still upside risks for inflation, signalling she may not be ready to nod to a rate cut at the Fed’s September meeting.

Money markets have fully priced a rate cut in September and about 100 basis points of easing for the year, according to swaps data compiled by Bloomberg.

“An upside surprise on inflation – currently expected at 0.2 per cent month-on-month – may temper some of the market pricing for a 50-basis point cut from the Fed next month,” Mr Bell at Emirates NBD added.

Stocks in Abu Dhabi and Dubai remained muted on Monday, with Dubai Financial Market’s DFM General Index gaining 0.1 per cent during early trade.

Abu Dhabi Securities Market’s main measure also rose 0.2 per cent.

Stock futures of London’s FTSE 100 were trading 0.4 per cent higher with CAC-40 in Paris up 0.35 per cent and those of Germany’s DAX were 0.25 per cent higher.

Futures of the Dow Jones Industrial Average in the US were also up 0.13 per cent, while the Nasdaq and S&P 500 futures were up 0.5 and 0.47 per cent.

“The skies are not fully clear yet, but there are several reasons that suggest to us that some relatively calmer seas are ahead of us,” Bloomberg cited analysts at Nomura Holdings as saying in a note.