Japan’s Q2 GDP increased by 0.3% from the previous quarter and 1.0% annualized, beating expectations. This marks five consecutive quarters of growth, driven by rising consumer spending and capital investment. The strong data led to a stronger yen and a rise in the Nikkei. In China, July data revealed ongoing declines in new home prices both monthly and yearly, though the annual decreases were slightly smaller. Industrial output grew by 5.7% year-over-year, falling short of the 5.9% forecast. Retail sales increased by 3.7% year-over-year, below the expected 4.6%. Fixed asset investment rose by 1.6% from January to July, missing the 2.7% prediction.

Currency Movements

Aside from the yen’s strength driven by Japan’s figures, major currency changes were limited. The GBP, CHF, EUR, and CAD all saw slight gains against the USD. Stocks in the Asia-Pacific region had mixed results: Australia’s S&P/ASX 200 rose by 0.45%, Hong Kong’s Hang Seng dropped by 1.25%, Shanghai Composite increased by 0.26%, and Japan’s Nikkei 225 climbed by 1.01%. Reports mentioned that China stopped car trade subsidies in some areas, and foreign companies were warned against hoarding rare earths. Economic activity faces challenges amid external uncertainties. The notable economic weakness from China, with both retail sales and industrial output below forecasts, is our main focus. This continues a long-term trend, as China’s official manufacturing PMI has stayed below 50 for much of the past year, indicating contraction. This ongoing weakness suggests we should consider put options on the Hang Seng index or shorting the Australian dollar, which often reflects Chinese industrial demand. Conversely, Japan’s economy shows unexpected strength, with Q2 GDP growth exceeding expectations and marking five straight quarters of expansion. It’s worth noting that the Bank of Japan ended its negative interest rate policy in spring 2024, a significant change that supports the economy. With this momentum and the strengthening yen, we could explore buying call options on the Nikkei 225 index.

US Market Event

The upcoming speech by Fed Chair Powell on August 22 is a critical event for the US market, especially after the recent rise in producer prices heightened inflation concerns. This recalls the aggressive rate hikes from 2023 that aimed to control inflation, which peaked above 9% in 2022. We expect higher volatility, making it a good time to look at straddles on the S&P 500 for potential sharp moves. We are also monitoring major investors, as Soros Fund Management significantly increased its Nvidia holdings, betting on the ongoing AI-driven market rally. This trend has influenced markets for over a year, and such a large institutional investment hints at further upside. Following this lead, we could consider buying call options on key semiconductor and tech stocks. The slowdown in China’s industrial output will likely impact commodities, putting ongoing downward pressure on industrial metals like copper. Meanwhile, the oil market is focused on the upcoming meeting between Trump and Putin. Any new developments from that meeting could create sudden volatility in crude prices, making it wise to consider options that profit from sharp price movements. Create your live VT Markets account and start trading now.

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