Key Takeaways
- Japan's preliminary Q2 GDP significantly surpassed expectations, with annualized growth reaching 1.0% and quarterly growth at 0.3%, indicating a robust economic rebound.
- Japanese equities rallied, with the Nikkei 225 index rising 0.6% to 42,906.73 and Mitsubishi UFJ Financial Group (MUFG) shares jumping 5%, fueled by positive economic data and strong foreign investment flows.
- Gold prices are facing a weekly decline as stronger-than-expected US wholesale inflation data tempered expectations for a September Federal Reserve rate cut, pushing bond yields and the dollar higher.
- Foreign investors were significant net buyers of Japanese stocks and bonds in the week ending August 8, signaling increased confidence in the Japanese market.
- Global oil prices held steady as markets awaited a crucial meeting between US President Trump and Russian President Putin, with geopolitical uncertainties and supply glut fears influencing sentiment.
Japan's economy demonstrated unexpected strength in the second quarter, with preliminary GDP figures significantly outperforming analyst estimates. The Gross Domestic Product (GDP) on a seasonally adjusted quarter-on-quarter basis grew by 0.3%, exceeding the 0.1% forecast and the previous quarter's 0.0% growth. Annualized GDP growth also saw a substantial increase, reaching 1.0% against an estimated 0.4% and a prior contraction of 0.2%. Private consumption, a key component of Japan's economy, rose by 0.2% quarter-on-quarter, topping the 0.1% estimate. The GDP Deflator year-on-year came in at 3.0%, slightly below the 3.2% forecast.
This positive economic news spurred activity in Japanese markets. The Nikkei 225 index rose by 0.6%, closing at 42,906.73. Futures for the Nikkei also saw an early rise of 0.4%. Shares of Mitsubishi UFJ Financial Group (MUFG) experienced a notable surge, jumping 5%. This strong performance in Japanese equities was supported by significant capital inflows, with foreign investors buying ¥489.3 billion in Japanese stocks and ¥733.2 billion in Japanese bonds in the week ending August 8. Conversely, Japanese investors were net buyers of foreign bonds, acquiring ¥254.9 billion, but net sellers of foreign stocks, offloading ¥225.5 billion. Benchmark 10-year Japanese Government Bond (JGB) futures were down 0.1 point in early trade.
Globally, markets are grappling with evolving inflation data and geopolitical developments. Gold prices are set for a weekly decline, influenced by stronger-than-expected US wholesale inflation data. This inflation data has led to a reduction in expectations for a September Federal Reserve rate cut, consequently pushing US yields and the dollar higher. Asian markets generally faced a muted open as the US inflation figures dampened Wall Street's rally.
In the energy sector, oil prices remained steady as market participants awaited the highly anticipated meeting between US President Donald Trump and Russian President Vladimir Putin. West Texas Intermediate (WTI) crude was trading near $64 a barrel, while Brent crude hovered above $66. Concerns over a potential supply glut and ongoing Ukrainian strikes on Russian energy sites contributed to a cautious sentiment in the oil market. President Trump indicated a 25% chance of failure for the upcoming Alaska meeting with Putin.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.