Asian indexes closed mixed on Monday after Wall Street notched weekly gains amid easing Treasury yields. European markets edged higher in early trading as crude oil held above $77 per barrel.
US futures drifted lower ahead of key inflation and retail sales reports this week. The dollar eased while gold and copper climbed.
Last week, the S&P 500 and Nasdaq posted 1.3% and 2.4% gains respectively as tech giants rallied on lower yields. Investors are now focused on upcoming economic data for clues on the policy outlook.
All 11 S&P sectors rose Friday, led by a 2.6% tech jump. For the week, the Dow added 0.7% while growth stocks outperformed. Markets are pricing in a 50 basis point December rate hike.
Asia Pacific Indexes Mixed
In Asia on Monday, Japan’s Nikkei 225 slipped 0.01% to 32,585.11 as losses in communications, transportation and power offset gains elsewhere.
Australia’s S&P/ASX 200 declined 0.4% to 6,948.80, weighed down by gold miners, energy and real estate stocks. Surging coronavirus cases and China growth concerns remained drags.
China’s Shanghai Composite edged up 0.25% to 3,046.53 despite weak industrial output and retail sales data. The Shenzhen Component dipped 0.2% to 3,579.41.
Hong Kong’s Hang Seng jumped 1.59% to 17,463, rebounding from last week’s losses. Tech shares led the upside as Alibaba surged over 10%.
US Inflation Data Looms
This week, the US October CPI inflation report on Tuesday will draw close attention from global investors. Consumer price growth is expected to cool to 7.9% from 8.2% in September.
The producer price index follows on Wednesday. Stronger signs of peaking inflation could boost hopes for a slower Fed tightening path next year.
US stock index futures drifted lower Monday morning ahead of the inflation data. Dow futures eased 0.04% while S&P 500 futures lost 0.2%. Nasdaq 100 futures declined 0.27%.
On Friday, the S&P 500 rose 1.56% while the Dow added 1.15%. The tech-heavy Nasdaq jumped 2.05%, lifted by giants like Apple, Amazon and Nvidia.
Europe Rises Early; Oil Holds Above $77
In Europe, the regional Stoxx 600 index climbed 0.65% in early trading, lifted by tech and financial stocks.
Germany’s DAX rose 0.28% while France’s CAC 40 added 0.46%. The UK’s FTSE 100 traded 0.58% higher.
In commodities, WTI crude oil futures edged up 0.21% to $77.33 per barrel. Brent crude ticked up 0.17% to $81.57.
Natural gas futures surged 5.51% to $3.200 on colder weather forecasts boosting heating demand. Gas prices remain historically elevated.
Gold futures rose 0.22% to $1,941.95 as Treasury yields eased. Copper prices advanced 1% to $3.6223 on China stimulus hopes.
Dollar Dips; Yen Gains
In currencies, the US dollar index lost 0.07% to 105.78 as the euro and sterling gained. The weaker dollar helped lift commodities priced in the currency.
The Japanese yen strengthened 0.16% against the dollar to 151.74. Japan’s soft inflation figures Friday reinforced the Bank of Japan’s dovish stance.
The Australian dollar slipped 0.36% versus the dollar to 1.5687. The yuan traded near recent highs on optimism over China’s reopening.
Asia Economies Face Headwinds
Asian economies are navigating shifting headwinds as recession risks loom abroad and China struggles to revive growth.
Japan saw consumer prices rise 3.7% in October, the fastest in 40 years but still below the Bank of Japan’s 2% target. The weak yen has driven imported inflation higher.
The BOJ remains committed to ultra-easy policy even as other central banks tighten aggressively. This divergence has pummeled the yen, driving up costs of imports.
Meanwhile, China’s factory output growth slowed in October from September while retail sales contracted as strict COVID curbs continue weighing on activity.
The government has announced measures to support the property sector but the economy faces persistent drags. The IMF cut China’s 2022 GDP growth forecast to just 3.2%.
Australia’s economy is also losing steam as rising interest rates hit consumer spending. The Reserve Bank of Australia has lifted its benchmark to a nine-year high of 2.85% to fight inflation.
South Korea’s inflation hit a 14-year high in October, maintaining pressure on the Bank of Korea to keep raising rates aggressively.
Emerging markets face increasingly challenging conditions next year as global growth slows. Central banks must strike a balance between fighting inflation and avoiding recessions.
US Retail Sales Also Eyed
Beyond inflation, US retail sales figures for October due out Wednesday will provide clues on consumer strength. Economists expect a slight rebound in spending after September’s unexpected drop.
With higher borrowing costs eroding purchasing power, analysts foresee modest holiday sales gains. Affluent consumers may drive steady demand for luxury goods.
Major US retailers like Walmart and Target report quarterly earnings this week as well. Their results and forecasts will reveal much about consumer behavior.
Despite recent stock gains, plenty of uncertainty remains regarding inflation trends, consumer resilience, Fed policy and global growth. Markets are hoping for a “soft landing” as the economy cools.
But risks remain tilted to the downside. The World Bank cut its 2023 global GDP growth forecast to just 1.7%, pointing to continued tightening and slowing trade among headwinds.
With the US midterm elections complete, attention will now focus on economic data guiding the Fed and other central banks. While showing some calm recently, investors need confirmation of easing price pressures to sustain optimism.
Until clear cooling in inflation materializes, markets will remain on edge regarding interest rate trajectories. Any renewed acceleration in consumer prices would quickly dampen hopes for a slower pace of rate hikes.
This week’s CPI and retail sales reports will offer important signals on where prices and spending stand. For global markets seeking more dovish policy shifts, the inflation data may prove critical.CopyRetry