Morning Bid: Rates dice, AI arms race and G20 snub
Global markets are ending a bumpy August with some improvement, but uncertainty around inflation, interest rates, China's economic struggles, and geopolitics still loom.
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Posted 8/31/2023, 10:04:00 AM
reuters.com
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Global stock markets and Wall Street futures are rising as traders await signals on interest rate plans from the Federal Reserve conference, with investors hoping that the Fed officials will signal an end to interest rate hikes despite concerns about inflation not being fully under control yet.
Global stock markets are expected to undergo a correction in the coming months, although analysts predict marginal gains overall until the end of 2023, with a majority believing that a correction in their local equity market is likely or very likely by year-end.
China's economic challenges, including deflationary pressures and a slowdown in various sectors such as real estate, are likely to have a global impact and may continue to depress inflation in both China and other markets, with discounting expected to increase in the coming quarters.
Global investors are skeptical of China's ability to stabilize its financial markets, with many predicting that economic pressures will cause the offshore exchange rate of the yuan to reach record lows.
World markets remain buoyant despite the increasing possibility of another U.S. interest rate hike and the focus on U.S. employment, with China's stock markets extending their rally and bond markets stabilizing.
Global markets show mixed performance, with Japan, China, Hong Kong, India, and Australia experiencing modest gains, while the US markets closed higher fueled by optimism over a possible pause in interest-rate hikes, as oil prices extend gains and gold prices remain near three-week highs.
Global interest rate hikes, challenges in China, a stronger dollar, and political instability in Africa have impacted emerging market assets, causing stock and currency declines and property market concerns in China, while Turkey's markets have seen a boost in response to interest rate hikes, and African debt markets have experienced a significant pullback.
The global economy is expected to slow down due to persistently high inflation, higher interest rates, China's slowing growth, and financial system stresses, according to Moody's Investors Service, although there may be pockets of resilience in markets like India and Indonesia.
Despite a decline in August, the US market is still in good shape, with a correction in stocks being viewed as a normal breather rather than the start of a bear market, while various trends and indicators suggest a continuation of the bullish trend.
Global stocks rise as a Chinese rebound, prompted by eased mortgage rules, boosts the country's struggling property sector. Goldman Sachs predicts more stimulus to come.
Central banks across major developed and emerging economies took a breather in August with lower interest rate hikes amid diverging growth outlooks and inflation risks, while some countries like Brazil and China cut rates, and others including Turkey and Russia raised rates to combat currency weakness and high inflation.
Disappointing economic data in Asia-Pacific markets, overinvestment in China, and Chinese electric vehicle companies expanding in Europe are among the key factors impacting global markets, while the price of bitcoin remains volatile with conflicting predictions about its future.
Market jitters persist despite economists downplaying the chances of a recession, as global stocks and US futures remain in the red and inflation fears continue to linger.
Financial markets are preparing for a rebound in U.S. inflation in August, driven by higher energy prices, which could disrupt expectations of easy inflation control by the Federal Reserve.
Mortgage rates have slightly decreased from their peak in late August, but future trends will depend on the economy and inflation rates, with potential decreases if inflation slows and the Federal Reserve stops increasing its benchmark rate.
Global markets ended higher as energy stocks climbed supported by Saudi Arabia and Russia's decision to extend supply cuts, while Wall Street's key indexes saw weekly declines due to investor concerns over interest rates and anticipation of upcoming U.S. inflation data. In Asian markets, Japan's Nikkei 225 ended down, Australia's S&P/ASX 200 was up, and Chinese shares rose following improved data on consumer price inflation. The Eurozone's economic growth outlook has been downgraded by the European Commission, and crude oil prices fell.
China's economic data for August shows a mixed picture, with retail sales and production on the rise, property investment declining, and the urban jobless rate ticking downward, leading experts to believe that while there may be modest improvements in growth, a strong recovery is still unlikely.
Central banks around the world may have reached the peak of interest rate hikes in their effort to control inflation, as data suggests that major economies have turned a corner on price rises and core inflation is declining in the US, UK, and EU. However, central banks remain cautious and warn that rates may need to remain high for a longer duration, and that oil price rallies could lead to another spike in inflation. Overall, economists believe that the global monetary policy tightening cycle is nearing its end, with many central banks expected to cut interest rates in the coming year.
World markets attempt to stabilize following a week of central bank decisions, as the dollar hits 6-month highs due to the hawkish stance of the Federal Reserve, while the Bank of Japan remains dovish and business readouts offer some soothing economic news.