Update Equities: Markets calm down
This week global markets were recovering from the turmoil of the last two weeks. The Japanese market recovered most, but Japan had also been hit most by the unwinding of carry trades. The US and European markets also recovered steadily.
The recovery and decrease in volatility were also visible in the VIX, the measure of volatility that is used often in financial markets. This index was at its highest on 5 August but has steadily declined since then. Market volatility is once again in the normal range.
With the US inflation data that was released this week being in line or lower than had been expected, it has fuelled expectations that the US Federal Reserve will cut rates in September. The market now expects at least a 25 basis point cut.
A faster growing Japanese economy and stabilization of the Chinese economy also contributed to a more optimistic market view this week. Chinese retail sales were better than expected and home prices are declining more slowly than previously.
But there are also some worries
China Baowu Steel Group, the world’s top steel producer, warned of a steep slowdown for the industry, comparing it to a “harsh winter” that will be “longer, colder and more difficult to endure than we expected.” China is the largest producer of steel. While this warning is the result of an ongoing property downturn, industrial demand also remains low. The warning raises the prospect the China will “dump” steel in global markets to compensate for lower domestic demand. Iron ore futures in Singapore are now at their lowest level since May 2023.
In July, Chinese sales of new energy vehicles were higher than the sales of gasoline cars. New energy vehicles are either hybrid vehicles or electric vehicles. The surge in sales was mostly due to new plug-in hybrid models introduced by BYD, Li Auto and Aito. Sales grew by 37% year-on-year, while conventional vehicles sales decreased by 20%.