China’s economic data came out weak driving the price of oil down. Asian shares were slow moving and U.S. equity futures dropped as Federal Reserve officials sign that interest rates need to be hiked further to curb rising inflation. The US dollar remains on a falling trajectory especially against the yen as investors had to get out of short positions that suddenly turned unprofitable.
China’s Declining Economic Data
Government reports released on Sunday revealed that China’s manufacturing activity shrank in July while new home prices and sales also declined. This drop highlights the effects of China’s recent lockdowns and mobility restrictions to fight Covid-19 cases flare ups.
Oil Prices Decline
Oil prices fell on Monday, as shrinking manufacturing figures from China and Japan for July and fears for a recession amid soaring inflation and increasing interest rates had investors worry about a drop in demand. At the same time, they are preparing for the OPEC+ meeting for the September output slated to take place on Wednesday.
Yields Reversed, U.S. Dollar Loses Steam
The U.S. dollar recorded declines for one more week last week as the Treasury yield reversal has led the currency to lose ground. The U.S. yield curve remains steeply inverted which suggests more pessimism on investors’ side than what their equity trading does. The greatest loss was recorded against the yen. The U.S. currency held its ground better against the euro as the European energy crisis has had its toll on the Euro area currency.
The Fed & Fear of a Recession
The risk of a recession has caused a cool off in investors’ expectations as to how sharply the Fed will need to increase rates to fight back soaring inflation. This caused a rebound in stocks and bonds for July. At the same time, Fed officials continue to re-state the U.S. central bank’s commitment to reaching its 2% inflation goal while pointing out that the Fed will continue to hike interest rates.
What to watch out for this Week:
Throughout the week:
Earning reports continue with Airbnb, BP, HSBC, & Alibaba among reporting companies
Euro Area PMIs
US construction spending
US ISM manufacturing
Reserve Bank of Australia rate decision
US JOLTS job openings
Chicago Fed President’s speech
St. Louis Fed President’s speech
OPEC+ output meeting
US factory orders
US durable goods
US ISM services
BOE rate decision
US initial jobless claims
Cleveland Fed President’s speech
US Private Nonfarm Payrolls (NFP)