Nikkei 225 and KOSPI Index Start Strong As Busy Week Begins

Investors in Asia kicked off the week on a positive note as stock markets across the region recorded gains in anticipation of potential dovish moves by major central banks.

The KOSPI index gained 1.23%, as the Nikkei 225 added 2.13%.

Despite this optimism, some apprehension was observed in the Chinese market due to lower interest rates that have fuelled concerns about the health of the country’s economy. Whilst the Hang Seng index gained 1.28%, the SSE was a bit more muted, with 0.03% gains on the day.

Wall Street and European stock futures also pointed higher, suggesting that traders are betting on the Federal Reserve and the Bank of England taking a less aggressive stance in their upcoming policy decisions. The FTSE 100 has kicked off the week almost 1% in the green. This sentiment was bolstered by futures markets implying a likelihood of a quarter-point reduction in the Federal Reserve's interest rate by September, and even a 12% chance of a more considerable 50 basis points cut.

Moreover, market participants are attuned to the future direction of interest rates. Predictions suggest a 52% probability of the Bank of England reducing rates to 5%, highlighting a divided market. Notably, the Bank of Japan is also gathering attention with expectations of a rate hike, albeit a modest one of 10 basis points to 0.2%, although there is speculation about a potential 15 basis points move.

Economic data also tops the watch list with a slew of significant events on the horizon. The U.S. jobs report for July, manufacturing surveys both within the U.S. and globally, as well as Eurozone GDP and inflation figures are set to provide further insight into the economic landscape and potentially drive future monetary policy decisions.

Investors will also be scrutinising the performance of corporate America with a large swathe of S&P 500 companies poised to release their quarterly earnings reports. This includes tech giants such as Microsoft, Apple, Amazon.com, and Meta Platforms, whose relative size in the index means that significant shifts can take place off the back of any unexpected numbers.

The week ahead promises a wealth of information for market participants to digest. With a combination of earnings reports, economic data releases, and central bank moves on the docket, the financial markets may be poised for significant activity influenced by both corporate performance and macroeconomic indicators.