Global shares moved higher on Monday as investors became less worried about an immediate US interest-rate hike. The move came after a series of weaker-than-expected US economic reports, including an unexpected fall in retail sales. The softer data pushed markets to reduce bets on a Federal Reserve rate hike next month.
Markets now see a much lower chance of a Fed rate hike in September. The probability of a hike next month has fallen to about 30%, down from around 50% a week earlier, according to the CME Group’s FedWatch tool. European stocks opened higher. The STOXX 600, which tracks 600 major European companies, rose 0.21% on Monday.
Asian markets also gained. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5%, while Japan’s Nikkei index gained 0.3%. Chinese stocks were among the stronger performers in Asia. Chinese blue-chip stocks rose 0.8%, while Hong Kong’s Hang Seng index climbed 1.6%, according to a Reuters report.
Investors were waiting for China’s July economic data, which was due later on Monday. The data was expected to show that industrial growth slowed. Forecasts showed industrial output growth could fall to 4.8% from 5.3% in the previous month.
However, investors were also hoping the data could be better than expected. China’s exports had grown strongly in the previous month, helped by strong global demand for AI-related products, according to the report.
South Korean markets were closed on Monday for a public holiday. The Korean war showed only a limited reaction after US President Donald Trump told the Pentagon to substantially reduce joint military exercises with South Korea.
Fed rate-hike fears fade
US stock futures pointed to a positive opening for Wall Street. Nasdaq futures were up 0.5%, while S&P 500 futures gained 0.2% before the US market opened. The recent rise in stocks has been helped by lower expectations of a September Fed rate hike. Investors are now seeing more signs that the US economy may be losing some momentum, according to Reuters.
US retail sales fell in July, marking their first decline in nine months. The weak retail-sales number added to concerns about the strength of American consumer spending, according to Reuters. Consumer sentiment also became weaker than expected. The weaker mood among consumers came alongside softer inflation data, giving investors more reasons to believe that the Fed may not raise rates soon.
Investors will closely watch major US retailers this week. Earnings from Home Depot, Target and Walmart are expected to give investors more information about how strong American consumers remain. US business activity will also be a major focus. Investors are waiting for the August S&P Purchasing Managers’ Indexes, or PMIs, to see whether the improvement in US business activity seen around the middle of the year can continue.
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US bond yields slip
US Treasury yields moved lower on Monday. The decline came after Treasury yields had a mixed performance last week. The two-year Treasury yield fell 2 basis points to 4.154%. It had already dropped 3 basis points last week and reached a seven-week low of 4.0977%, as noted by Reuters.
The 10-year Treasury yield also fell 2 basis points to 4.680%. This came after the 10-year yield had risen 4 basis points last week. Lower Treasury yields reflect the changing view on Fed policy. When investors expect fewer or later interest-rate hikes, bond yields can come under pressure as markets adjust their expectations.
Dollar falls as US data weakens
The weaker US economic data also put pressure on the dollar. The currency moved close to a two-month low as investors reduced their expectations for a near-term Fed rate hike. The euro climbed to a two-month high against the dollar. It reached $1.1588. The Australian and New Zealand dollars also strengthened. The Australian dollar reached a 10-week high of $0.7105, while the New Zealand dollar hit a 10-week high of $0.5910.
Oil markets watch Iran conflict
Oil prices were mixed on Monday after a strong rise last week. The market remained focused on the conflict involving Iran and the possible impact on oil supplies from the Middle East. Brent crude fell 0.05% to 0710 GMT after rising 6% last week. US crude fell 0.7% to $81.91 a barrel, after gaining 5.4% last week, according to Reuters.
Tensions between Iran and the US remained a major risk for oil prices. Iran on Saturday called on the US to accept defeat, while Trump told Americans to accept higher gasoline prices as the conflict continues. The situation in the Middle East also remained uncertain because of violence in southern Lebanon. At least 11 people were killed in Israeli strikes in southern Lebanon on Saturday, according to Lebanon’s health ministry.
The strikes were among the deadliest in the weeks since Lebanon agreed to a US-mediated peace framework with Israel. The development added another layer of uncertainty for markets already watching the wider Middle East conflict.
Oil could remain highly sensitive to any change in the conflict. The main concern for investors is that continued fighting could disrupt oil supplies from the Middle East. Shane Oliver, chief economist at AMP, said oil prices could remain between $70 and $100 a barrel in the base case. He said Iran could prevent prices from falling too far, while the US could try to calm the situation if prices rise above $100.
Oliver also warned that oil prices could rise further if there is no lasting peace deal. He said oil flows from the Middle East remain 10%-15% below normal levels, and prices could face more pressure as oil reserves decline.
Gold rises
Gold prices also moved higher on Monday. Gold rose 0.5% to $4,397 an ounce. Gold had already gained last week. The metal rose 0.8% last week, as investors continued to watch interest-rate expectations, the dollar and geopolitical risks, according to Reuters.
Overall, markets are being pulled in different directions. Softer US economic data is reducing expectations for a near-term Fed rate hike and helping stocks, while the Iran conflict and oil-supply risks are keeping investors cautious. The key question for markets now is whether the weaker US data will continue. Investors will closely watch US retail and consumer-related results, August PMI data and upcoming economic reports for clues about what the Federal Reserve may do next.
