Amidst the start of this trading week, investors approached the market early Monday with a circumspect attitude, expecting an influx of key economic data and central bank announcements. The lack of notable statistics in the early week and a limited macroeconomic schedule have collectively fostered a hesitant risk outlook, constraining swift market actions.
The S&P500 Futures have been swinging around 4,565-60, struggling to extend last week’s U-turn from the highest level since March 2022. Concurrently, US 10-year and two-year Treasury bond yields have edged higher to approximately 3.85% and 4.85%, respectively, after posting weekly gains.
In such a cautious market climate, the US Dollar Index (DXY) remains on the defensive, hovering around 101.00, following a bounce back from its lowest level since April 2022. Meanwhile, Crude Oil and Gold prices have come under pressure, with Crude Oil trading around $1,961 and Gold at $71.65.
Looking back at the previous week, US equity benchmarks reached new yearly highs, and Treasury bond yields rebounded as the US Retail Sales Control Group for June showed improvement, complemented by positive headlines from technology and energy giants. However, the upbeat prints of the University of Michigan’s Consumer Sentiment Index and consumer inflation expectations for July led to a hawkish bias regarding the Fed, tempering overall sentiment. The US Consumer Price Index (CPI) and Producer Price Index (PPI) for June, along with the below-expectations Nonfarm Payrolls (NFP), hinted at the Federal Reserve’s potential policy pivot after July, supporting market sentiment.
Beyond domestic factors, escalating US-China tensions due to the presence of Chinese military planes near the Taiwanese border add geopolitical complexity to the mix. Nevertheless, signs of improved political ties between Washington and Beijing through diplomatic visits may offer hope for better Sino-US trade relations.
Early Monday releases of Australia and Japan’s PMI, along with New Zealand’s trade numbers, have not provided a definitive direction to market sentiment, posting mixed outcomes.
Looking ahead, market participants will keep a close eye on the preliminary PMIs for July from the UK, Eurozone, and the US. However, the main focus will be on the monetary policy announcements from the US Federal Reserve (Fed), Bank of Japan (BoJ), and the European Central Bank (ECB). Additionally, the first readings of the US second-quarter (Q2) 2023 Gross Domestic Product (GDP) and quarterly earnings releases from major global equity giants such as Apple, Meta, and Alphabet are expected to play a pivotal role in shaping market sentiment.
In the prevailing climate of these uncertainties, investors would rather exercise caution as they navigate through the landscape of key data releases and central bank decisions that hold the potential to shape the trajectory of financial markets in the forthcoming days.
