European stock futures are indicating a positive start to the week, rising by 0.4% ahead of key central bank decisions. Meanwhile, Japanese equities took a step back, pulling down the regional index as investors continue to watch the global economic landscape. This cautious stance comes after the S&P 500 inched up by 0.1% and the Nasdaq 100 dipped by 0.5%, highlighting a shift away from the tech giants that have largely fueled the current bull market.
The U.S. dollar is holding steady after a four-day losing streak, as traders increasingly expect the Federal Reserve to implement a half-point rate cut on Wednesday. However, the debate over the scale of the reduction persists, especially as recent U.S. economic indicators have shown signs of weakening while inflation remains stubbornly high. Later today, retail sales data for August will provide further insight into the Fed’s potential direction.
“August’s U.S. retail sales report is crucial,” noted Michael Brown, strategist at Pepperstone Group Ltd. “A weaker print could push participants to fully commit to the idea of a substantial 50 basis point cut by the Fed tomorrow. Conversely, a stronger-than-expected result may not necessarily reverse the dovish sentiment entirely.”
In Hong Kong, Midea Group Co., a leading Chinese appliance manufacturer, saw its shares surge up to 9.5% on their debut. This strong performance has rekindled hopes for Hong Kong’s stock market, which has been struggling in recent years. The successful listing follows robust demand, becoming the city’s largest public stock offering in three years. Several other high-profile companies, including ride-hailing giant Didi Global Inc., are now lining up for potential listings in Hong Kong.
Concerns over China’s economic health continue to loom large. The latest data points suggest an economic slowdown, which could pressure Chinese authorities to introduce more aggressive fiscal and monetary stimulus to meet their growth targets. The situation is further complicated by the potential imposition of U.S. tariffs on Chinese products, including medical goods. In response, shares of Malaysian glove-makers, such as Top Glove Corp, rallied on expectations that U.S. tariffs could redirect demand.
Trading across China, Taiwan, and South Korea is closed today due to public holidays, leading to a quieter session in Asian markets. The Japanese yen remains steady after climbing past 140 per dollar for the first time since July 2023. This rise is partly attributed to speculation that the gap between U.S. and Japanese interest rates will narrow, potentially weighing on Japanese equities, especially those in the export sector.
The upcoming Bank of Japan (BOJ) meeting is now front and center for market sentiment. “If Governor Ueda hints at a possible rate hike in October, we could see renewed selling pressure on USD/JPY and the Nikkei,” said Tony Sycamore, analyst at IG Australia Pty Ltd. Despite previous hikes this year, the BOJ is widely expected to keep its benchmark rate at 0.25% following its two-day policy meeting, according to a survey of 53 economists by Bloomberg.
There is a divergence in strategies among leveraged funds regarding the yen. While some funds are cashing in on profits ahead of the central bank meetings, others are increasing their long-yen positions, betting on a significant rate cut by the Fed. Notably, JPMorgan Chase & Co. has revised its yen forecasts upward, expecting normalization in both U.S. and Japanese interest rates, which could put additional pressure on the dollar.
In the commodities market, gold remains close to record highs as investors speculate that a weaker U.S. dollar and falling Treasury yields post-Fed decision will boost the precious metal. Other metals are also on the rise, with silver edging toward $31 an ounce, extending its gains for a seventh consecutive day, the longest winning streak since 2019. Oil prices saw a slight uptick as well.
👉Explore AI-powered Automated Trading Today! Register for a free trial now!
✅Read about the automated trading software on Investing.com
