GLOBAL MARKETS – Asian equities remain sluggish, dollar resumes retreat

Band Wayne Cole

SYDNEY, August 1 (Reuters)Asian stocks were sluggish on Monday as disappointing Chinese economic data fueled doubts over Wall Street’s continued recovery, while the dollar continued its retreat against the yen as speculators were forced out of positions. short suddenly unprofitable.

The official measure of factory activity in China contracted in July as fresh virus outbreaks weighed on demand, and the Caixin PMI also missed the forecast.

South Korean activity weakened for the first time in two years, while Japan grew at the slowest pace in 10 months.

That didn’t bode well for the slew of other PMIs due this week, including the influential US ISM survey, while July’s payrolls report is also expected to show a further slowdown.

Meanwhile, US data released on Friday showed stubbornly high inflation and wage growth, while central banks in the UK, Australia and India are all expected to rise again this week.

“We expect the England strip to step up monetary tightening with a 50 basis point hike at its August meeting. Rising energy prices are likely to be the main driver,” warned Barclays analysts.

“Central banks are focusing on the still-strong inflation momentum and tight labor markets rather than signals of slowing growth. This could upset the markets’ recent view that ‘bad news is good’. new”.

Caution was evident as MSCI’s broadest index of Asia-Pacific stocks outside of Japan .MIAPJ0000PUS down 0.2%.

chinese blue chips .CSI300 were stable, while Japan’s Nikkei .N225 gained 0.4% and South Korea .KS11 0.3%.

S&P 500 Futures Contracts ESC1 and Nasdaq futures NQc1 both fell 0.3%. EUROSTOXX 50 Futures STXEc1 added 0.1%, while FTSE futures FFIc1 decreased by the same amount.

While US corporate earnings mostly beat lower forecasts, BofA analysts warned that only 60% of the consumer discretionary sector had reported and was under the most pressure given the inflation concerns for consumers.

“Our bull market indicator signs also indicate that it is premature to call a bottom: historical market lows have been accompanied by the triggering of more than 80% of these indicators compared to only 30% currently,” BofA said in a statement. note.

“Also, bear markets have always ended after the Federal Reserve cut, which is probably at least six months away – BofA’s house view is for a first cut in 3Q23.”

A NOT-SO-SOFT PIVOT

Bond markets also rallied strongly, with US 10-year yields US10YT=RR fell 35 basis points last month for the biggest drop since the start of the pandemic. Yields were last at 2.660%, a far cry from June’s high of 3.498%.

The yield curve remains strongly inverted, suggesting that bond investors are more pessimistic about the economy than their equity counterparts. WE/

The reversal in yields soothed the dollar, which lost ground for a second week last week to settle at 105.650. =USD on a basket of currencies, from its recent high of 109.290.

The biggest drop came against the yen where speculators had been massively short and found themselves squeezed out by the sudden reversal. The dollar fell 0.6% to 132.43 yen JPY=EBSafter losing 2.1% last week.

The dollar fared better against the euro, which is dealing with a European energy crisis, and barely rose last week. The euro was last at $1.0236 USD=and is eyeing strong resistance around $1.0278.

Jonas Goltermann, senior market economist at Capital Economics, was intrigued by the market’s dovish reading of the Fed’s 75 basis point hike last week.

“Our sense is that the risk response to the Fed is largely due to a combination of wishful thinking and stretched positioning,” he explained.

“In our view, there was little in Chairman Powell’s remarks to suggest that policymakers will abandon aggressive rate hikes as inflation so far remains above target,” he added. “If we’re right that the markets misinterpreted the Fed’s intent, the dollar will likely resume its rally before too long.”

For now, the lower dollar and yields have been a relief for gold which is up at $1,763 an ounce. XUA= after rebounding 2.2% last week. GOL/

Oil prices retreated as the market waited to see if this week’s OPEC+ meeting produced any increase in supply, however minor. WHERE

American crude CLc1 fell $1.15 to $97.47 a barrel, while Brent LCOc1 fell 91 cents to $103.06.

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(Reporting by Wayne Cole; Editing by Simon Cameron-Moore & Shri Navaratnam)

((Wayne.Cole@thomsonreuters.com; 612 9171 7144; Reuters Messaging: wayne.cole.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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