Despite of the decision of interest rate hikes, the dovish attitude boosted investor sentiment

Market Summary

Last week, the US, EU and Asian markets all closed higher following signs of various economic indicators, central bank policies, and geopolitical developments.

The US stock market experienced a significant milestone as the Dow Jones Industrial Average achieved its 13th consecutive daily gain, the longest winning streak since 1987. Investor sentiment received a boost from positive economic readings, particularly on inflation.

European stocks edged higher. Despite the announcements of interest rate increases by the Federal Reserve and the European Central Bank, investor sentiment was boosted by the dovish tone struck by policymakers.

In Japan, the stock markets rose, with the Bank of Japan surprising investors by tweaking its monetary policy, enhancing flexibility around its yield curve control target. The BoJ also revised up its forecast for consumer price inflation in fiscal 2023.

Chinese equities rallied after Beijing signaled more stimulus to support the economy. The Communist Party's Politburo pledged to boost domestic consumption and support the ailing real estate sector.

Major News

At least 44 people were killed in an explosion at a political rally in Khar, Pakistan. Nobody has claimed responsibility for the blast.

China's factory activity fell for the fourth month in July with the official manufacturing PMI at 49.3, indicating contraction. Chinese officials have described the economic recovery as "tortuous" and promised targeted measures for growth.

Bank of Japan to buy 300bn yen ($2bn) government bonds in special operation, the first since February, as ten-year bond yield hits nine-year high of 0.6%. Last week, the bank eased its yield-control policy, allowing yields to exceed 0.5% cap.

What Caught Our Attention

Tensions between the US and China have sparked concerns of a new cold war, with Taiwan being a potential flashpoint. While overt military preparations might be evident, monitoring economic and financial indicators becomes vital.

Commodity markets, especially energy, food and metals, can offer insights into China's intentions. Unusual patterns in trade data, such as significant supply increases or deviations from historical trends, might indicate a potential conflict. Energy reserves, gas purchases, and food imports like soybeans are critical areas to watch. China's financial measures and efforts to reduce dependence on the dollar and euro also require scrutiny. A comprehensive approach, combining various indicators, is essential for early warning and preventing conflict.

Source: Kredens Capital Management, T. Rowe Price, Bloomberg, Financial Times, Wall Street Journal, The Economist, Nikkei Asia