Global equity markets remained cautious on Monday as investors struggled to extend recent gains, with speculation growing over the size of an expected U.S. interest rate cut this week. Concerns about the slowing Chinese economy further weighed on sentiment.
The Japanese yen strengthened, trading below 140 to the dollar for the first time since mid-2023, ahead of the Federal Reserve’s decision on Wednesday and the Bank of Japan’s policy meeting two days later. Meanwhile, gold prices hit a new record.
Last month’s U.S. inflation data, showing the slowest pace since February 2021, fueled speculation that the Fed might implement a larger-than-expected 50-basis-point rate cut. However, some analysts cautioned that a bigger cut could signal heightened concerns about the U.S. economy, particularly after reports of softening in the labor market.
While the Fed has been non-committal, there have been indications that officials may consider a larger cut. Former New York Fed chief Bill Dudley remarked, “There’s a strong case for 50.”
Michael Krautzberger of AllianzGI noted that central bankers, including the Fed, are shifting focus toward economic growth rather than inflation, adding that larger rate cuts later this year cannot be ruled out, especially if the labor market weakens further and inflation approaches target levels.
On Wall Street, the Dow and S&P 500 edged closer to record highs last Friday. However, Asian markets showed mixed results on Monday, with Hong Kong, Sydney, and Mumbai posting gains, while Singapore, Wellington, London, Paris, and Frankfurt saw declines. Trading in Tokyo, Shanghai, Jakarta, and Seoul was muted due to holidays.
In currency markets, the yen briefly touched 139.58 per dollar, its strongest since July, while gold surged to a record $2,589.70 per ounce.
Investors are closely monitoring China after weak economic data, including credit, retail sales, industrial production, and housing prices, raised concerns about the world’s second-largest economy. The figures have fueled worries that recent policy measures have yet to boost growth.
Ray Attrill of National Australia Bank commented, “The data adds to concerns that announced policy measures have not yet had a measurable impact on lifting growth in the third quarter after a weak second quarter.”
In response, China’s central bank outlined plans to support the economy, prioritizing price stability and a modest rebound in prices while addressing financing demand for consumption.
Following the Fed’s decision, attention will turn to the Bank of Japan’s policy announcement on Friday. Most analysts expect the BoJ to hold rates steady after a surprise hike in July rattled global markets. IG analyst Tony Sycamore noted, “A consecutive hike would likely be seen as too aggressive, especially given recent market turbulence.”
Nonetheless, stronger inflation and wage growth in Japan over the past month have given the BoJ more confidence in sustaining inflation above its two percent target, potentially paving the way for further tightening.
**Key Figures (as of 0810 GMT)**:
– Hong Kong Hang Seng: UP 0.3% at 17,422.12 (close)
– London FTSE 100: FLAT at 8,271.09
– Dollar/Yen: DOWN at 139.79 from 140.76 yen
– Euro/Dollar: UP at $1.1117 from $1.1079
– Pound/Dollar: UP at $1.3174 from $1.3125
– Brent Crude: UP 0.8% at $72.18 per barrel
– New York Dow: UP 0.7% at 41,393.78 (close)
