On the final trading week of August, European shares are poised to open higher as traders evaluate the possibility of increased interest rates from the U.S. Federal Reserve and look forward to upcoming economic data later in the week.
At the open, Germany’s DAX 30 is expected to rise by 90 points, France’s CAC 40 by 52 points, and the Italian FTSE MIB by 201 points. However, markets in the U.K. are closed due to a public holiday.
Market participants continue to analyze the discourse that took place during the Kansas City Federal Reserve’s annual retreat in Jackson Hole, Wyoming last week. During this gathering, central bankers discussed monetary policy and approaches to counter the persistence of high inflation in major economies.
The keynote speech of the event was delivered by Fed Chair Jerome Powell. He acknowledged that while inflation had slightly decreased, it still remains at unacceptable levels. To address this issue, Powell emphasized the Fed’s readiness to further raise interest rates.
Despite allowing for some flexibility, Powell stressed the need for sustained efforts to combat inflation. He stated, “Although inflation has moved down from its peak—a welcome development—it remains too high. We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”
As inflation gradually decreases but remains above the target level in many major economies, attention is increasingly shifting towards how central bankers will respond to the deteriorating growth outlook.
Moving on to Asia-Pacific, stocks have started the week on a positive note, with mainland Chinese and Hong Kong stocks leading gains in the region. This upward movement comes despite concerns over various structural issues in China’s economy, including debt, demographics, and the strained relationship with the West.
Specifically within the Chinese market, shares of China Evergrande Group, the world’s most indebted property developer, experienced a significant decline of 87% as trade resumed after a 17-month hiatus.
In Europe, corporate developments have been relatively quiet as the region concludes a busy earnings season. However, reports indicate that Credit Suisse, now a subsidiary of UBS following a government-facilitated takeover, has reported a loss of 3.5 billion Swiss francs ($4 billion), according to insiders at the bank.
Looking ahead, the U.S. Labor Department is expected to release nonfarm payrolls later in the week, providing insights into the pace of job and wage growth. These figures will be crucial in guiding the Fed’s monetary policy decisions.
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