July 22 2024: Asian stocks faced fresh declines on Monday, receiving little boost from an unexpected rate cut by China’s central bank, while U.S. futures firmed following President Joe Biden’s decision to withdraw from the election race.
The People’s Bank of China lowered short-term rates by 10 basis points, reducing long-term borrowing costs and bond yields. This move follows Beijing’s release of a policy document outlining its economic ambitions. However, investors appeared underwhelmed, with Chinese blue chips dropping 0.9%, and the yuan also weakening.
“Fundamental factors suggest China needs a lower rate environment, especially given the current disinflationary trend,” said Gary Ng, Asia-Pacific senior economist at Natixis in Hong Kong. “The urgency from authorities to stimulate the economy highlights its current weakness.”
MSCI’s broadest index of Asia-Pacific shares outside Japan fell another 0.7%, having lost 3% the previous week. Japan’s Nikkei dropped 1.2%, South Korea’s benchmark index fell 1.3%, and Taiwan’s market declined 2.3% amid concerns over U.S. restrictions on chip sales.
Investors reacted positively to news of President Biden’s exit from the election race and his endorsement of Vice President Kamala Harris. Online betting markets showed a drop in predicted victory for Donald Trump and a rise for Harris.
Markets took the news in stride, with S&P 500 futures up 0.1% and Nasdaq futures rising 0.2%. Futures for 10-year Treasuries rose slightly, while 10-year bond yields dipped by 2 basis points to 4.22%. EUROSTOXX 50 and FTSE futures also firmed.
“Trump’s polling rise has markets anticipating more trade barriers and potential inflation,” ANZ analysts said. “Harris appears to be performing better against Trump in some polls, which could benefit Democrats.”
Focus on Corporate Earnings
This week, major corporate earnings reports include Tesla, Google-parent Alphabet, General Electric, General Motors, Ford, and Lockheed Martin. The tech sector is expected to see a 17% rise in year-over-year earnings, and the communication services sector a 22% increase, outpacing the S&P 500’s estimated 11% rise.
Europe’s biggest banks are also reporting this week, with focus on gains from higher interest rates and any impact from recent political developments.
Economic data releases will culminate with the Federal Reserve’s favored inflation measure on Friday. The core personal consumption expenditures index is expected to show a 0.1% rise in June, lowering the annual rate to 2.5%. Markets are heavily betting on a September rate cut, with a 97% chance priced in.
Advance GDP figures are forecasted to show annualized growth picking up to 1.9% in the second quarter, with the Atlanta Fed GDPNow indicator suggesting a possible 2.7% growth, indicating some upside risk.
The Bank of Canada meets on Wednesday and is expected to cut rates by a quarter point to 4.5%.
Currency and Commodity Markets
In currency markets, the dollar slightly retreated from last week’s safe-haven gains, with the euro edging up 0.1% to $1.0886. The dollar was a fraction softer against the yen at 157.27.
Gold held steady at $2,406 an ounce, short of last week’s record high of $2,483.60. Oil prices inched higher, with Brent gaining 44 cents to $83.07 a barrel, and U.S. crude rising 41 cents to $80.54 per barrel, amid ongoing conflicts in Gaza.
