Last week, the international market experienced an extremely turbulent week. Driven by the unwinding of the yen carry trade, the global financial market experienced drastic fluctuations. The Nikkei index fell sharply by 12.4% on Monday, the S&P 500 index also fell by more than 4% at one point, and Bitcoin plummeted by 18% to a minimum of $49,000. Major European indices also fell collectively.
With the release of a series of positive news, market sentiment has gradually recovered. Concerns about the US recession have eased, the Bank of Japan has turned dovish, and the pressure to close the yen carry trade has also eased. These factors have jointly driven the market rebound. At the close of Friday, the declines of the three major US stock indexes this week were almost completely wiped out. The yen stopped rising after three consecutive days, and Bitcoin also rebounded to above $62,000 before fluctuating. In the bulk market, the cumulative increase of US and Brent crude oil in the week exceeded 4%, and the gold price was still under pressure, with a weekly decline of more than 0.6%. In Europe, although the three major stock indexes have rebounded, they are still showing a downward trend overall. The UK FTSE 100 Index, the German DAX 30 Index and the French CAC 40 Index fell by 0.31%, 3.72% and 4.01% respectively in the week.
Looking ahead to this week, several key economic data such as the US July CPI and Japan's second quarter GDP will be released one after another. These data will be the vane of US interest rate cut expectations and the further direction of Japan's carry trade, which may trigger new market fluctuations.
US July CPI data is coming
First, the United States will release the PPI data for July on August 13, and then release the CPI data for July on August 14. This is the second-to-last CPI report released before the Fed’s next (September) interest rate decision, and is crucial to the Fed’s monetary policy decisions.
The market generally expects that the CPI data for July will rise moderately, and the core inflation rate may remain at around 0.2%, which is not expected to have a significant impact on the Fed's expectations of a rate cut. However, the current market is still very sensitive to data, and any unexpected results may trigger a sharp reaction in the market. According to market expectations, Fed Chairman Powell has previously stated that interest rates may be cut as early as September, which means that this week's CPI data will become an important reference for the Fed's decision-making.
Japan to release second quarter GDP data
In addition to the US inflation data, Japan's second quarter GDP data released on August 15 was also one of the focuses of market attention this week. The Bank of Japan implemented its second interest rate hike at the end of July this year, which led to the strengthening of the yen and triggered a large liquidation of yen carry trades, which became the main reason for the recent market volatility. According to market expectations, Japan's GDP growth rate in the second quarter may reach 2.4%, which is in sharp contrast to the 2.0% year-on-year decline in real GDP in the first quarter.
The monetary policy of the Bank of Japan remains the focus of market attention. If the GDP data released this week is stronger than expected, it may further affect the policy orientation of the Bank of Japan and trigger a chain reaction in the global market. The deputy governor of the Bank of Japan previously stated that if the economic outlook improves as expected, the current loose policy may be adjusted, but interest rates will not be raised easily in the case of market instability. This means that Japan's GDP data will not only greatly affect the interest rate decision of the Bank of Japan, but will also have a profound impact on the global financial market.
In general, the market this week will continue to be driven by a series of economic data, and the US CPI and Japan's GDP data will become key factors affecting the market trend. Investors need to pay close attention to these data to cope with possible market fluctuations. Especially in August, many investors and traders will choose to take a vacation during this period, the number of market participants will decrease, liquidity will decrease, and it will be more susceptible to external factors, further exacerbating volatility. Therefore, investors need to remain highly vigilant this week and be ready to respond to possible market fluctuations at any time.
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