Asian Stocks Edge Higher Amid Wall Street Rebound, But China’s Economic Struggles Weigh on Sentiment
Asian markets reversed early losses to post modest gains on Tuesday, following a strong rally on Wall Street. However, concerns over the still-weak Chinese economy kept investors cautious.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2%, recovering slightly after falling 1.11% in the previous session, which marked a one-month low. Japan’s Nikkei climbed 0.4%, buoyed by gains in the financial and consumer sectors.
Wall Street experienced a significant rebound overnight, with all three major U.S. indexes surging more than 1%, reversing last week’s sharp selloff.
“Risk-off sentiment stabilized overnight as U.S. equities bounced back, driven by dip buying following Friday’s downturn,” economists at ING noted. “With the non-farm payrolls report failing to convince markets of a 50-basis-point rate cut, attention has now shifted to the upcoming U.S. inflation data for a clearer picture on the Federal Reserve’s plans for rate cuts.”
U.S. inflation data for August is expected on Wednesday, with forecasts predicting a further slowdown to 2.6% annually.
“If the inflation data differs significantly from expectations, we could see adjustments in the anticipated rate cuts,” said Jun Bei Liu, portfolio manager at Tribeca Investment Partners. “At present, the market is aggressively pricing in cuts for the remainder of the year, which could lead to more volatility as we’ve seen recently.”
The Federal Reserve is widely expected to ease rates at its meeting next week, with a 29% chance of a 50-basis-point cut currently being priced in by markets. Roughly 110 basis points of cuts are anticipated for the rest of the year.
On Tuesday, U.S. futures were mixed, with S&P 500 futures up 0.02%, while Nasdaq futures dipped 0.07%. In Europe, EUROSTOXX 50 futures gained 0.23%, but FTSE futures slipped 0.16%.
Dollar Strengthens as China Concerns Linger
In currency markets, the U.S. dollar strengthened, rising 0.22% against the yen to 143.47. The euro edged down to $1.1032, while the British pound eased 0.06% to $1.30655.
In Asia, ongoing worries about China’s economic outlook continued to cloud market sentiment. Monday’s data showed a rise in consumer inflation in August, the fastest in six months, but weak domestic demand and worsening producer price deflation signaled a fragile recovery.
Chinese stocks had tumbled to seven-month lows in the previous session, with the yuan under pressure amid renewed calls for additional stimulus from Beijing to bolster its struggling economy. In offshore markets, the yuan dipped 0.04% to 7.1234 per dollar.
“The stimulus needs to be larger, but unfortunately it’s being delivered in small, targeted measures, and the economy isn’t turning around quickly enough,” said Liu of Tribeca.
More clues on China’s economic recovery are expected from trade data due later on Tuesday. Meanwhile, Hong Kong’s Hang Seng Index was last up 0.22%, while the Hang Seng Mainland Properties Index slipped 0.2%, extending its previous 3.5% drop.
Adding to China’s economic challenges, trade tensions escalated after the U.S. House of Representatives passed a bill aimed at restricting business with Chinese biotech firms, including WuXi AppTec and BGI, over national security concerns.
Commodities and Gold
In commodities, oil prices steadied, with Brent crude futures rising 0.42% to $72.14 per barrel, and U.S. crude up 0.36% to $68.96 per barrel.
Spot gold slipped 0.03% to $2,504.34 an ounce, reflecting the cautious sentiment across markets.
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