SINGAPORE/LONDON, July 30 – Oil prices hit seven-week lows on Tuesday as a softening demand outlook weighed on commodities, while bond, currency, and stock markets traded cautiously ahead of central bank meetings in the U.S. and Japan and a slew of major corporate earnings reports.
Oil and Commodities:
Brent crude futures touched $79.70 as traders focused on worries over Chinese demand rather than tensions in the Middle East or Venezuela, leading to selling pressure. Copper and iron ore prices fell, and zinc and aluminium slipped to multi-month lows. China’s Politburo meeting in July offered no new detailed efforts to boost the economy, providing little support for commodities.
Economic Outlook:
“The consensus is that the U.S. economy is going to be softer this quarter and maybe next quarter as well, and you can’t really rely on the euro area to offer any compensation for that. China has its own problems and doesn’t look like it’s going to snap into gear,” said Chris Scicluna, economist at Daiwa Capital.
Market Performance:
The S&P 500 has steadied after a two-week downturn, and futures were flat late in the Asia session. The MSCI All-World index, heading for a third straight monthly gain in July, was flat. In Europe, London’s FTSE 100 was the worst-performing index in the region as basic resources stocks slid, and top spirits maker Diageo hit a 4-1/2 year low following a profit miss.
Euro Zone Data:
Preliminary euro zone data is expected to show economic growth in the single currency bloc expanded at an annual rate of 0.5% in the second quarter of this year. German 10-year Bund yields were steady around 2.355%.
Interest Rates:
Interest rates remain a focal point. Japanese government bond yields edged lower with the 10-year JGB yield down 3 basis points at 0.995%. Ten-year U.S. Treasury yields were steady at 4.182%. Chris Weston, head of research at Pepperstone in Melbourne, remarked, “This is a day for position management and to review broad exposures.”
Central Bank Meetings:
Markets are pricing almost no chance of a U.S. rate cut this week but have fully priced a 25-basis-point reduction in the Fed Funds rate for September, expecting policymakers to sound dovish. In Japan, a broader range of outcomes is on the table, with markets pricing a nearly 60% chance of a 10-basis-point rate hike and expecting to hear about how the Bank of Japan plans to edge its way out of an enormous bond-buying programme.
Currency Movements:
The dollar and yen drifted but stayed in compact ranges after recent breakout moves. The euro was last at $1.08235, while the yen, which has rebounded sharply from a 38-year low of 161.96 per dollar hit early in July, came under pressure, leaving the dollar/yen pair up 0.45% at 154.72 per dollar. Nathan Swami, head of currency trading at Citi in Singapore, noted, “It is too early to tell if the factors driving yen weakness have changed permanently. For now, this seems more like a short-term correction to the USD/JPY higher trend, but we feel there is downside risk that needs to be priced into a trade.”
Upcoming Earnings and Data:
Later in the day, Microsoft and chipmaker AMD will report earnings after the bell in New York. Preliminary CPI data is due in Germany and Spain. Australian inflation data will also be released on Wednesday, and the Bank of England is priced for a roughly even chance of a rate cut at its policy meeting on Thursday.
Key Takeaways:
Oil and Commodities: Brent crude touched $79.70, other commodities also fell due to demand concerns.
Economic Outlook: Cautious market sentiment with a focus on central bank decisions and economic data.
Market Performance: S&P 500 steady, European indices mixed with FTSE 100 lagging.
Interest Rates: No immediate U.S. rate cut expected, potential for dovish Fed stance.
Currency Movements: Dollar and yen movements remain cautious with potential for volatility.
Upcoming Events: Key corporate earnings and economic data releases to influence market direction.
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