Markets shake off volatility, but will it last? By Reuters

By Saqib Iqbal Ahmed

(Reuters) – A look at the day ahead in Asian markets.

Markets have recovered nicely from recent volatility and it is becoming increasingly clear that the recent turmoil was likely due to the unwinding of large leveraged positions such as yen-backed carry trades rather than deeper concerns on global growth.

Now, everyone’s eyes are on Wednesday’s US inflation report, which could test the market’s new calm.

July’s CPI numbers may not show a significant improvement from the previous month, but as long as there is no big surprise, investors can still hope that the Fed will start easing in September.

Futures markets currently show a 54% chance of a 50 basis point cut by the Fed, with a 46% chance of a 25 basis point cut, and traders are pricing in a full percentage point of easing by at the end of the year.

Keeping those expectations intact could be key to not spooking investors’ risk appetite, just as Japanese stocks bounced back from last week’s violent selloff. rose more than 3% after a Monday holiday.

Ahead of the CPI report, the mood on Wall Street was upbeat, with both continuing to rebound from recent declines. U.S. Treasury yields fell as data showed U.S. producer prices rose less than expected in July, supporting the case for the Fed to cut rates in coming months.

Meanwhile, oil futures also fell on Tuesday as the market perceived a reduced risk of wider conflict in the Middle East.

Investors will also be keeping an eye on New Zealand’s central bank, which may cut interest rates on Wednesday, a year ahead of its previous indications. Slowing inflation, rising unemployment and sluggish economic growth have led investors to bet on this easing move.

Data on wholesale prices in India will also be in focus as investors are keen to see if inflation eased in July after rising in recent months. Notably, retail inflation in India fell in July to the lowest level in nearly five years, according to government data released on Monday.

Here are the key developments that could provide more direction to the markets on Wednesday:

– Reserve Bank of New Zealand meeting

– Indian Wholesale Price Index (July)

– US Consumer Price Index (July)