Both the S&P 500 and Nasdaq fell for the second straight week as jumping bond yields continued to weigh on sentiment, while Dow finished slightly higher, thanks to the outperformance in energy stocks. Despite another light CPI data, Fed officials may remain restricted view on the interest rates as headline CPI is still above the target level of 2%. At the same time, economic concerns mount towards the recent jumping oil and gas prices, as this could keep the inflation trajectory in check. The US retail sales and FOMC meeting minutes will be major economic guage this week. And the quarterly earnings from big retailers, including Home Depot and Walmart, can be the bellwether of the US consumer sentiment.
China’s sluggish domestic demand is a major issue in the global markets as the country’s weak spending power drags on commodity prices, particularly in industrial metals and dairy products, impacting the APAC economies, such as Australia and New Zealand. China will release a slew of influential economic data, including industrial production, retail sales, and fixed asset investment, gauging the country’s economic recovery.
Energy stocks led to a weekly gain on the ASX 200, and earnings season continues to roll on, with the rest of the big four, including ANZ and NAB, updating their quarterly results following CBA’s full-year earnings report this week. Australian banks faced macro challenges and intense competition. Narrowed profit margin could be the common trend of these flagship lenders. On the economic front, the Q2 wage growth and employment data will also be on investors’ radar.
In addition, the Reserve Bank of New Zealand will decide on the cash rate his week, providing clues for the country’s economic health.
What are we watching?
- Bond yields climb: The US 10-year bond yield rose for the fourth straight week, approaching a 10-month high, while the yield on the short-dated bond climbed at a smaller pace, deepening the yield curve. This may suggest an improved economic outlook but tend to press on equity markets.
- Gas and oil prices jump: Both gas and oil prices rose rapidly as supply concerns overshadowed recession fears. Sanctions on Russia, OPEC+’s output cuts remained bullish factors for energy markets. Sector rotation also supported energy stocks to outperform globally.
- Megacap tech stocks retreat: The US tech giants, such as Apple, Microsoft, and Tesla’s shares, all sharpy retreated following disappointing quarterly earnings reports, dragging on Nasdaq. The correction in the tech sector may continue for the rest of August amid position rebalancing.
- Gold under pressure: Gold prices slid for the second straight week due to a strengthened USD and rising bond yields. The precious metal approaches imminent potential support of about 1,900.