Morning Bid: Markets shift to holiday mood

A look at the day ahead in European and global markets from Wayne Cole

It’s been a blessedly quiet start to the week in Asia with Japan taking a much-needed holiday for Mountain Day, after the Nikkei tumbled down a mountain of its own last week and sent global markets reeling.

If Tokyo were open, futures suggest the Nikkei would be trading 400 or so points higher but still not back to where it was before last Monday’s record plunge.

Most other Asian stock markets are firmer, led by a 2% jump in Taiwan, while Wall Street futures are flat.

The dollar was dithering around 147.00 yen, with the unravelling of the yen carry trade seemingly over for now. IMM data out last week showed net short USDJPY positions now at 11,354, down from 184,000 in early July.

Treasury futures are also little changed while Fed fund futures imply a 49% chance of a half-point rate cut in September, after touching 100% at one point a week ago.

Fed officials have effectively pushed back on chatter of an inter-meeting cut, with Fed Governor Michelle Bowman noting on the weekend that inflation was still uncomfortably above target. She did soften her typically hawkish tone enough to concede that rates will need to fall gradually if inflation continues to slow.

Markets will know more about that when U.S consumer price data is released on Wednesday, with forecasts tipping annual core inflation to fall a tick to 3.2%, the lowest since April 2021. An even lower number would have pundits again warning the Fed was behind the curve on cutting.

Note: July retail sales on Thursday could surprise on the high side given the median forecast is +0.3% but the range is 0.0% to +0.9%. Results from Walmart and Home Depot this week will offer more colour on the state of demand. Weekly jobless claims could also move markets more than usual given the unexpectedly sharp fall reported last week.

In geopolitics, the Middle East remains a tinder box with Israeli Defense Minister Yoav Gallant telling U.S. Defense Secretary Lloyd Austin that Iran was getting ready for a large-scale attack on Israel.

The Pentagon made the rare decision to publicly report that Austin had ordered the deployment of a nuclear-powered guided missile submarine to the Middle East. The Pentagon added that Austin had also ordered the Abraham Lincoln strike group to accelerate its deployment to the region.

Key developments that could influence markets on Monday:

– German Economy Minister Robert Habeck, RWE Chief Executive Markus Krebber speak

(By Wayne Cole; Editing by Edmund Klamann)