Asia open: But a prelude to the CPI showdown

Monday’s markets sported an air of serenity, a stark contrast to last week’s dramatic plunge, during which equities tanked, and volatility gauges spiked. However, looming geopolitical tensions and a parade of impending economic reports threaten to whip up the calm waters yet again.

On Wall Street, the S&P 500 barely twitched, closing the day nearly flat as gains in Nvidia and other tech titans helped offset declines elsewhere. The index has clawed back some ground, now 5.7% shy of its July peak, after reeling from a more precipitous 8.5% drop from its summit a week prior. Globally, the MSCI’s index of worldwide stocks echoed this lull, showing little movement.

The relative quietude was also reflected in the Cboe Volatility Index, which slinked down to its lowest since the month kicked off at 20.71, a notable calm after last week's frenetic leap to over 38 points—its loftiest closure since the ghoulish markets of October 2020. Part of Monday's calm could be chalked up to a holiday in Japan, often the epicentre of recent global market whirlwinds, leaving its Nikkei index and yen in a rare pause.

Investors are now setting their sights on Wednesday’s U.S. consumer price index update, which is anticipated to shed light on inflation trends. There’s a palpable unease that an alarmingly low CPI read might amplify recession worries, a concern stoked by last week’s dismal jobs report, which sparked debates over the Federal Reserve's timing on interest rate adjustments.

Indeed, the Fed seems to be navigating a delicate dance, criticized by some for potentially missing the beat on preemptive rate cuts during its July rendezvous. Despite championing the prudent strategy of “insurance cuts” to buffer against inflation retreats, the Fed appeared to balk at the idea, spooked perhaps by a series of unexpectedly robust inflation prints earlier in the year. This reluctance has ignited fears that the Fed might have forfeited a crucial opportunity to cushion the economic descent, leaving market watchers wary of the central bank’s seemingly reactive—rather than proactive—posture.

Tuesday promises a sneak peek at the U.S. producer prices report, a prelude to the more pivotal CPI showdown.

Meanwhile, the bond markets in China felt a tremor as government bonds took a nosedive. This followed a tumultuous week in which the central bank threw its weight to stanch the bleed in long-term yields amidst broader economic malaise. The day saw 10-year treasury futures recording their bleakest performance in 17 months, with yields nudging upwards, spotlighting global finances' brittle and intertwined nature.