Global markets respond to cooling US economy signals

Asian equities surge, inflation data varied, and Dollar's fate hangs on upcoming economic indicators

By Ahmed Azzam | @3zzamous | 30 August 2023

Market open
  • Asian markets rally: US slowdown speculations lift Asian stocks, led by technology sector gains.

  • AUD/USD dips: Soft inflation nudges AUD/USD down.

  • Dollar Retreats on Confidence Woes: Dollar's bounce reverses with weak consumer confidence data.

  • Fed rate hike sentiment shifts: Equities up on "bad news is good news" concept, reducing rate hike fears.

Asian equities follow Wall Street higher

Asian equity markets continued their upward trajectory on Wednesday, mirroring gains seen on Wall Street. The prevailing sentiment stems from indications of a potential slowdown in the robust US economic activity, igniting hopes that the Federal Reserve might adopt a more accommodative policy stance. A notable retreat in US Treasury yields further fanned the flames of a rally, particularly in technology and other growth-oriented stocks. This surge in market optimism was prominently evident in Australia, Japan, South Korea, Hong Kong, and mainland China, as shares across these markets advanced in unison.

Australian inflation eases

In Australia, the monthly Consumer Price Index (CPI) gauge displayed a 4.9% year-on-year increase through July 2023. This figure, while a deceleration from the 5.4% rise registered in June, came in below the market's consensus expectation of a 5.2% uptick. This marks the lowest inflation rate observed since February 2022. The moderation in inflationary pressures primarily emanated from a slowdown in housing and food prices. However, it's imperative to note that this figure still significantly overshoots the Reserve Bank of Australia's targeted range of 2-3%.

The aftermath of the subdued inflation data reverberated in the AUD/USD pair, leading to a dip in value. Nonetheless, market sentiment suggests an imminent resumption of the pair's upward trajectory. Encouraging signals emanating from China have bolstered the positive sentiment, creating a foundation of robust underlying support around the 0.64 level for the currency pair.

European inflation figures display mixed trajectory

As the focus shifts to Europe, Germany's inflation landscape appears poised to exhibit a minor retreat in August. Projections indicate a dip from 6.5% in July to 6.3% for the current month. This anticipated decline is primarily attributed to adverse contributions from food and domestic energy prices. Counterbalancing this trend, however, are elevated road fuel costs. Meanwhile, Spain's Consumer Price Index (CPI) is anticipated to make a modest climb, rising from 2.1% to 2.4%. In the United Kingdom, the upcoming figures for July's mortgage approvals signal a potential contraction to 51,000.

Dollar's rebound stalls amidst disappointing consumer confidence

The US dollar's brief attempt at a rebound came to an abrupt halt following underwhelming consumer confidence data. Interestingly, this market movement aligns with what some market participants are coining as the "bad news is good news" phenomenon. The rationale behind this is that the Federal Reserve's likelihood of implementing further interest rate hikes within the year is now diminished. This shift in sentiment provided a tailwind for equities, which advanced as Treasury yields retreated. It's worth highlighting, however, that the greenback has yet to experience a sustained downturn. Market attention is laser-focused on the impending non-farm payroll data due on Friday, alongside Thursday's eagerly awaited PCE inflation figures. Adding to the market's anticipation, today's release of ADP private job data retains the potential to trigger further market reactions.