Last week, the international market experienced an extremely turbulent week, with global financial markets undergoing significant fluctuations driven by the unwinding of yen carry trades. The Nikkei index fell sharply by 12.4% on Monday, while the S&P 500 index also briefly dropped over 4%. Bitcoin plummeted by 18%, reaching a low of $49,000, and major European indices collectively declined as well.
As a series of positive news emerged, market sentiment gradually improved. Concerns regarding a U.S. economic recession eased, the Bank of Japan signaled a shift toward a dovish stance, and the pressure from yen carry trade unwinding diminished. These factors collectively propelled a market rebound. By Friday’s close, the three major U.S. stock indices nearly erased their losses for the week. The yen halted its three-day rise, and Bitcoin rebounded to above $62,000 before experiencing volatility. In the commodities market, both WTI and Brent crude oil saw a cumulative increase of over 4% for the week, while gold prices remained under pressure, declining more than 0.6% over the week. In Europe, although the three major stock indices showed some recovery, they still exhibited an overall downward trend, with the UK FTSE 100 index, Germany’s DAX 30 index, and France’s CAC 40 index recording weekly declines of 0.31%, 3.72%, and 4.01%, respectively.
Looking ahead to this week, several key economic data releases, including the U.S. July CPI and Japan’s Q2 GDP, will be made public. These data will serve as a barometer for U.S. interest rate cut expectations and the further direction of Japanese carry trades, potentially triggering new market fluctuations.
U.S. July CPI Data Coming Up
First, the U.S. will release its July PPI data on August 13, followed by the CPI data on August 14. This will be the second-to-last CPI report published before the Federal Reserve’s next interest rate decision in September, making it crucial for monetary policy decisions.
The market generally anticipates a moderate increase in the July CPI data, with core inflation likely remaining around 0.2%. This level is expected not to significantly impact the Fed’s interest rate cut expectations. However, the market remains highly sensitive to the data, and any unexpected results could trigger sharp reactions. According to market expectations, Fed Chairman Powell previously indicated that a rate cut could occur as early 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 U.S. inflation data, Japan’s Q2 GDP data, to be released on August 15, is also a focal point for the market this week. The Bank of Japan implemented a second rate hike at the end of July, leading to a stronger yen and triggering significant unwinding of yen carry trades, which has been a major reason for recent market volatility. Market expectations suggest that Japan’s Q2 GDP growth rate could reach 2.4%, a stark contrast to the 2.0% year-on-year decline in real GDP in the first quarter.
The Bank of Japan’s monetary policy remains a key area of focus for the market. Should this week’s GDP data exceed expectations, it may further influence the BOJ’s policy direction and trigger a ripple effect in global markets. The BOJ’s Deputy Governor previously stated that if the economic outlook improves as expected, there may be adjustments to the current accommodative policy, but he cautioned against hastily raising rates amid market instability. This means that Japan’s GDP data will significantly impact the BOJ’s interest rate decisions and will also have profound effects on global financial markets.
Overall, this week’s market will continue to be driven by a series of economic data releases, with U.S. CPI and Japan’s GDP data becoming key factors influencing market direction. Investors need to closely monitor this data to respond to potential market volatility. Especially in August, many investors and traders choose to take vacations, leading to a reduced number of market participants and decreased liquidity, making the market more susceptible to external influences and further exacerbating volatility. Therefore, investors need to remain highly vigilant this week to navigate any potential market fluctuations.
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