Global markets showed positive momentum on Tuesday as European stocks followed Asia’s gains, with investors eagerly awaiting U.S. inflation data that could provide critical guidance on the Federal Reserve’s future policy direction.
The Stoxx Europe 600 index climbed approximately 0.3%, reflecting optimism across the continent. Meanwhile, U.S. equity-index futures edged higher after a largely flat session on Wall Street. Asian markets rebounded strongly, recovering losses from last week’s steep declines. In the bond markets, U.S. Treasuries and the dollar remained steady.
In the UK, the British pound strengthened, while the FTSE 100 underperformed compared to Europe’s broader benchmarks. This underperformance came after data revealed an unexpected drop in UK unemployment during the second quarter, complicating the Bank of England’s strategy to ease interest rates.
Market participants are now keenly focused on Wednesday’s U.S. Consumer Price Index (CPI) data, which could play a decisive role in determining whether the Federal Reserve can manage a soft landing for the U.S. economy. The recent uptick in crude oil prices has also shifted attention to the producer price index (PPI) numbers due later on Tuesday, as they are expected to provide insights into potential inflationary pressures in the supply chain.
“One could argue that equity is still in recovery mode after last week’s shakeout and holding out from really putting money to work until we get the key US data this week,” said Chris Weston, head of research at Pepperstone Group Ltd. “Pricing US growth is still the main game in town.”
Japan’s equity markets saw gains following a holiday, bolstered by a weaker yen, which is expected to benefit exporters. The MSCI Asia-Pacific index rose as much as 1%, wiping out losses from last week’s turmoil. The prior week saw global markets plunge, with the VIX U.S. volatility index spiking to above 65, compared to its lifetime average of around 19.5.
Oil Markets and Geopolitical Concerns
Brent crude oil remained near the $82 per barrel mark it reached on Monday, amid increasing concerns that Iran might launch an attack against Israel. The geopolitical tensions have put upward pressure on oil prices, as the market remains sensitive to any potential disruptions in supply.
Fitch Ratings downgraded Israel’s sovereign debt by one notch, maintaining a negative outlook due to the ongoing military conflict, which is putting additional strain on the country’s public finances.
Regulatory Actions in China
In Asia, particularly China, regulators took drastic measures to cool down the bond market. Authorities in Jiangxi province instructed commercial banks to halt the settlement of their government bond purchases, marking one of the most severe interventions yet in response to a market rally that has alarmed Beijing.
The regulatory crackdown is beginning to impact corporate debt markets, with the average yield on one-year corporate yuan bonds with AA ratings — typically seen as junk debt in China’s onshore market — experiencing its largest increase since December 2022. This jump reflects growing concerns over the broader financial stability in the region as policymakers attempt to navigate economic headwinds.
