Last week, the international market experienced an extremely turbulent week, with global financial markets undergoing intense fluctuations driven by the unwinding of yen carry trades. The Nikkei index plummeted by 12.4% on Monday, the S&P 500 index also saw a decline of over 4% at one point, and Bitcoin dropped a staggering 18%, falling to a low of $49,000, while major European indices collectively declined as well.
As a series of positive news emerged, market sentiment gradually improved. Concerns over a U.S. economic recession eased, the Bank of Japan signaled a dovish shift, and the pressure from yen carry trade unwinding also lessened, all contributing to a market rebound. By Friday’s close, the three major U.S. stock indices had nearly erased their losses for the week, the yen halted its three-day rise, and Bitcoin rebounded above $62,000 before experiencing fluctuations. In the commodities market, both WTI and Brent crude oil saw a cumulative increase of over 4% during the week, while gold prices remained under pressure, declining more than 0.6% for the week. In Europe, although the three major stock indices saw some recovery, the overall trend remained downward, with the FTSE 100, DAX 30, and CAC 40 indices falling by 0.31%, 3.72%, and 4.01% respectively over the week.
Looking ahead to this week, key economic data such as the U.S. July CPI and Japan’s Q2 GDP will be released sequentially. This data will serve as a barometer for U.S. interest rate cut expectations and the further trajectory of yen carry trades, potentially triggering new market volatility.
U.S. July CPI data on the horizon
First, the U.S. will release the July PPI data on August 13, followed by the July CPI data on August 14. This will be the second-to-last CPI report published before the Federal Reserve’s next (September) interest rate decision, making it crucial for the Fed’s monetary policy decisions.
The market generally expects a moderate increase in July’s CPI data, with core inflation likely remaining around 0.2%. This level is anticipated not to significantly impact the Fed’s rate cut expectations. However, market sensitivity to the data remains high, and any unexpected results could trigger a sharp market reaction. According to market expectations, Fed Chairman Powell previously indicated the possibility of a rate cut as soon as September, meaning that this week’s CPI data will be an important reference for the Fed’s decision-making.
Japan to release Q2 GDP data
In addition to the U.S. inflation data, the Japanese Q2 GDP data to be released on August 15 is also a focal point for the market this week. The Bank of Japan implemented its second interest rate hike at the end of July, which strengthened the yen and triggered substantial unwinding of yen carry trades, a primary cause of recent market volatility. Market expectations suggest that Japan’s Q2 GDP growth rate could reach 2.4%, contrasting sharply with the 2.0% year-on-year decline in actual GDP for the first quarter.
The Bank of Japan’s monetary policy remains a focal point for the market. If the GDP data released this week exceeds expectations, it could further influence the Bank of Japan’s policy direction and trigger a chain reaction in global markets. The Deputy Governor of the Bank of Japan previously stated that if the economic outlook improves as expected, the current accommodative policy may be adjusted, but in the face of market instability, interest rates will not be easily raised. This means that Japan’s GDP data will not only have a significant impact on the Bank of Japan’s interest rate decisions but also exert a profound influence on global financial markets.
Overall, this week’s market will continue to be driven by a series of economic data, with the U.S. CPI and Japan’s GDP data being key factors influencing market direction. Investors need to closely monitor this data to respond to potential market volatility. In particular, many investors and traders tend to take vacations in August, reducing the number of market participants and liquidity, making the market more susceptible to external factors, further exacerbating volatility. Therefore, investors need to remain highly vigilant this week to respond to possible market fluctuations.
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