Asian stock markets rose on Monday following a series of U.S. economic reports that led investors to reduce expectations for a Federal Reserve interest rate hike in September. MSCI's broadest index of Asia-Pacific shares outside Japan increased by 0.5%, while Japan's Nikkei 225 edged up 0.3%. In the United States, Nasdaq futures rose 0.3% and S&P 500 futures firmed 0.1% after reaching record levels last week.
The shift in market sentiment follows an unexpected decline in U.S. retail sales for July—the first drop in nine months—and a larger-than-expected decrease in consumer sentiment. According to the CME Group's FedWatch tool, the probability of a rate hike by the Federal Reserve, the U.S. central bank, fell to 30% from approximately 50% one week prior. These data points have also pressured the U.S. dollar, which slipped toward two-month lows against currencies such as the euro, the Australian dollar, and the New Zealand dollar.
In Asia, Chinese blue-chip stocks rose 0.8% and the Hang Seng index gained 1.6% as investors awaited July activity data. Analysts forecasted a slowdown in industrial output growth to 4.8%, though some market participants anticipated a possible higher result due to strong artificial intelligence-related exports last month. Meanwhile, oil prices remained mixed; Brent crude rose 0.2% to $88.67 a barrel following a 6% increase last week, as a stalemate continued in the Gulf conflict involving Iran and the U.S., and Israeli strikes in southern Lebanon resulted in at least 11 deaths on Saturday.
The mixed movement in oil prices—with Brent crude at $88.67—has a direct impact on daily expenses for drivers and transportation companies. A 5.4% to 6% weekly increase in crude oil prices typically translates to higher costs at the gas pump, a change U.S. President Donald Trump publicly urged Americans to accept as the conflict in the Gulf persists. Shane Oliver, chief economist at AMP, noted that if Middle East oil flows remain 10% to 15% below normal levels, prices could remain elevated as reserves are depleted, potentially keeping gasoline prices high for the foreseeable future.
These market movements also influence international trade and the purchasing power of travelers. As the U.S. dollar hits two-month lows against the euro and 10-week lows against the Australian dollar, U.S. consumers will find imported goods and foreign travel more expensive, while U.S. exporters may find their products more competitive abroad. Investors will look to earnings reports from major retailers like Walmart and Target later this week, as well as August Purchasing Managers' Indices (PMIs)—which measure business activity—to determine if the current economic trajectory will continue or if further cooling will prompt more significant shifts in central bank policy.
What happens next: China is scheduled to release July activity data later on Monday. Major U.S. retailers including Home Depot, Target, and Walmart are expected to report earnings this week, providing insight into consumer spending. Markets will also monitor the August S&P PMIs to gauge business activity levels ahead of the Federal Reserve's next policy meeting in September.