On Monday, Asian stocks rallied to new highs as Wall Street set new highs and China eased policy, relieving some of the recent concerns about global growth, albeit there are plenty of potential problems ahead this week.
In the United States, inflation statistics could cause concern ahead of Federal Reserve Chair Jerome Powell’s speech on Wednesday and Thursday, when markets would be particularly sensitive to any mention of early tapering.
JP Morgan, Goldman Sachs, Citigroup, and Wells Fargo are among the first to announce earnings.
China delivers data on economic growth, trade, retail sales, and industrial output this week, prompting fears that they would fall short of expectations given the abrupt softening of policies last week.
“Expectations around China’s prospects have deteriorated over the past month as a result of some disappointing partial data compounded with the optics of coming off peak growth from the epidemic recovery,” Westpac analysts wrote in a note.
“However, yearly growth is likely to remain over 8.0 percent, and the quarterly growth pulse should return to trend until the second half of 2022.”
For now, investors were happy that last week’s burst of bearishness had swung around in New York, sending Wall Street higher and tempering the bull run in bonds.
On Monday, MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.7%, after shedding 2.3% last week.
Japan’s Nikkei bounced 2.2%, and away from a two-month trough touched on Friday, while South Korea added 0.9%. Chinese blue chips rose 1.1%.
Nasdaq futures and S&P 500 futures were a fraction easier following their recovery on Friday. EUROSTOXX 50 futures held steady, while FTSE futures dipped 0.2%.
Yields on U.S. 10-year notes held at 1.35%, having been as low as 1.25% on Friday following eight straight sessions of price gains.
“The rally in U.S. rates in July has been remarkable,” noted analysts at NatWest Markets. “No one driver perfectly explains the move … but fears about global growth and the Covid Delta variant had raised new doubts on inflation.”
That bout of risk aversion had also supported the safe haven U.S. dollar, until it ran into some profit taking on Friday. It was last at 92.190 on a basket of currencies, after touching a three-month top of 92.844 last week.
The safe haven yen also lost some ground to 110.16 per dollar , while the euro firmed to $1.1869 from last week’s low at $1.1780.
European Central Bank President Christine Lagarde caught markets by surprise on Monday, saying the bank will change its guidance on policy at its next meeting and show it is serious about reviving inflation.
When interest rates are near zero, the ECB’s new strategy permits it to tolerate inflation greater than its target of 2%.
Last week, the broad risk-off atmosphere helped gold rise, and it was trading around $1,800 per ounce, up from its June low of $1,749.
On Monday, oil prices remained stable after a turbulent week ended with a rise as US stocks tightened. After OPEC talks on supply curbs broke down, dealers are still unsure about the prospects for supplies.
Brent crude was down 18 cents to $75.37 a barrel, while US crude was down 16 cents to $74.40.