Nikkei Drops 1.7% as Chinese Inflation Misses Expectations

Asian markets saw a downturn, with the Nikkei falling 1.7%, extending last week’s losses. Chinese producer prices dropped 1.8%, missing forecasts, while US CPI figures due Wednesday are expected to signal further disinflation. The Federal Reserve is under pressure for potential rate cuts, with the US jobs report sparking uncertainty ahead of their next meeting.

Equities

The FTSE 100 fell 0.7%, marking its sixth consecutive daily drop and losing 2.5% for the week. It performed better than the STOXX 600 and the S&P 500, which declined by 3.6% and over 4%, respectively. The biggest declines came from the personal goods and automobile sectors. Burberry dropped 5.2%, dragging down the personal goods index by 3.7%, reaching its lowest level since 2009. The automobile and parts sector also slipped 3.1%, its largest daily fall in over a month, and industrial metal miners fell 2.7% on the back of lower copper prices.

In the US, the S&P 500 fell 1.7% on Friday, losing 4.3% for the week, its worst since March 2023. Nvidia, one of the year's standout stocks, dropped over 4%, pulling other large tech names down with it. Nvidia's dip comes as some companies question the cost of AI investments. The tech sector overall has seen a pullback, though it remains elevated compared to historical valuations. The Cboe Market Volatility Index, Wall Street’s so-called “fear gauge”, hit its highest level in nearly a month, highlighting investor concerns.

The jobs report data in the US, which showed slower-than-expected growth in the labour market, has raised questions about the Federal Reserve’s next move. Markets are pricing in a 70% chance of a 25 basis point rate cut at the September 17–18 meeting, though some analysts believe a 50 basis point cut could be warranted. This data also added to inflation concerns, which could shape the Fed's decision.

In the UK, house prices rose at their fastest annual pace since late 2022, while a report indicated that an additional £1 trillion in investment is needed over the next decade to stimulate economic growth. Despite this, the FTSE 250, which focuses more on domestic companies, dropped 1.3%, registering its largest weekly fall in six weeks.

Forex & Commodities

The US dollar rose after the August payrolls report, which showed slower-than-expected job growth but suggested a steady slowdown in the labour market. Initially, the dollar dropped but rebounded, trading higher against most major currencies. The euro slipped 0.3% to $1.108, while the Dollar Index, which tracks the currency’s performance against six others, gained 0.2%. Against the yen, the dollar fell 0.7%, continuing its recent decline as the Japanese currency benefited from safe-haven demand and rate hike expectations.

Gold prices edged lower, with spot gold down 0.2% at $2,492.54 per ounce, as traders awaited US inflation data, which could influence expectations of a Federal Reserve interest rate cut. Silver also slipped 0.5% to $27.81 per ounce, while platinum rose 0.9% to $929.65.

In the oil markets, West Texas Intermediate (WTI) crude futures rose nearly $1 to $68.60 per barrel, and Brent crude gained around $1 to $71.98. Oil prices have been under pressure recently due to concerns over waning demand, particularly from China and the US, despite earlier hopes for strong summer demand. The market awaits potential changes in output from OPEC+, with expectations that production could increase in 2025.

Fed policymakers are hinting at rate cuts as the labour market shows signs of cooling, with traders now seeing a 71% chance of a 25 basis point cut at the next Federal Reserve meeting.