Global markets start new week mixed as cooling US labor market boosts risk appetite

Global markets kicked off the new week with a mixed outlook as the US labor market cooled, with weaker-than-expected nonfarm payrolls last week, somewhat easing hawkish monetary policy concerns.

The rising likelihood of the Fed adopting a more dovish stance and not raising rates to the previously anticipated extent supported risk appetite.

US nonfarm payrolls dropped 23,000 in July, defying market expectations of an 85,000 increase, while private-sector employment climbed 44,000 at the same time, below estimates.

The likelihood of the Fed maintaining rates in September rose to 53%, while the probability of a rate hike was priced at 71% for October and 83% for December, according to money market estimates.

Analysts say that the drop in employment, especially in services, could be attributed to the conclusion of the FIFA World Cup in July.

All eyes turned to the US inflation data to be released this week — a potential slowdown in inflation could further ease hawkish expectations over Fed monetary policy, while markets could become increasingly volatile both before and after the data release.

Markets began the new week with low military tensions, but asset prices are still influenced by the lack of a lasting peace deal in the Middle East.

Washington is currently on the lookout for economic pressure from the conflict to take effect, with new military operations against Iran on hold.

US President Donald Trump defied his previous statements and said the White House adopted a strategy to manage relations amid ongoing negotiations with Iran, noting that the talks are in the preliminary stage with Tehran, while Washington monitors the country’s high inflation and lack of funds.

Trump noted that Iran is financially in an unfavorable position at this point and that it can no longer fund military personnel, while the US blockade has further worsened Tehran’s economic crisis.

Ship traffic in the Strait of Hormuz somewhat recovered last week, but it still remains significantly below pre-war levels, fueling oil supply concerns and keeping prices high.

Meanwhile, the US 10-year Treasury yield reached 4.66% after a modest rise on Monday, and the US Dollar Index opened up 0.2% at 99.7.

Gold started the week in negative territory despite last week’s bullish trend, trading down 0.1% at $4,336 per ounce.

October-delivery Brent crude climbed 0.4% to $83.9 a barrel at the same time.

European markets also followed a mixed trend despite trading positively last week, while all eyes turned to German inflation data to be announced Wednesday, the UK’s growth and industrial production data on Thursday, and the eurozone’s growth figures on Friday.

At the same time, Ukrainian President Volodymyr Zelenskyy said Kyiv will receive missiles used in the Patriot air defense system from the US every month.

Meanwhile, risk appetite from the American and European stock markets spilled over to Asia this week, with a positive trend coming to the fore at Monday’s close.

The semiconductor sector somewhat recovered and influenced regional markets, while the lack of developments toward peace in the Middle East dampened risk appetite.

China’s inflation reached 0.5% on an annual basis in July, below estimates, signaling that deflationary pressures could resurface.

China’s producer prices climbed 3.5% during the same period, short of expectations.

Analysts say the Chinese economy could be heading back onto a deflationary path after technically emerging from it, amid geopolitical risks in the Middle East fueling a rise in oil prices.

Japan’s current account balance posted a $584.5 million deficit in June, marking the first time in about a year and a half that its current account balance came in the red, contrary to expectations.

Near Monday’s close, Japan’s Nikkei 225 climbed 2%, South Korea’s Kospi rose 0.8%, Hong Kong's Hang Seng increased 0.6%, and China's Shanghai Composite was up 0.1%.