Global shares edged higher and the dollar slipped towards two-month lows on Monday after a run of soft U.S. economic data, including an unexpected drop in retail sales, saw markets significantly reduce bets for an imminent interest rate hike from the Federal Reserve.

Market Context

The shift in sentiment was evident across global equity markets. European stocks advanced with the STOXX 600 benchmark of 600 big European companies rising 0.21%, while earlier gains carried through to Asia-Pacific markets where MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.5%. Japan's Nikkei edged 0.3% higher, Chinese blue-chips gained 0.8%, and the Hang Seng index added 1.6% ahead of China's July activity data release later in the day.

Analysis

The dollar's retreat reflects a recalibration of Federal Reserve policy expectations following a string of weaker-than-expected U.S. economic releases. U.S. retail sales posted their first decline in nine months during July, and consumer sentiment soured by more than anticipated, adding to already soft inflation readings. These data points have prompted traders to dramatically reprice the likelihood of Fed action at upcoming meetings.

South Korean markets remained closed for a public holiday with subdued reaction in the won after U.S. President Donald Trump instructed the Pentagon to substantially reduce joint military exercises with South Korea. The geopolitical signal contributed little to currency market volatility as attention remained fixed on Federal Reserve policy trajectory.

Key Numbers

- Fed rate hike priced at 30% for next month, down from approximately 50% a week earlier (CME FedWatch Tool)

- STOXX 600 European stocks: +0.21%

- MSCI Asia-Pacific shares outside Japan: +0.5%

- Japan's Nikkei: +0.3%

- Chinese blue-chips: +0.8%

- Hang Seng index: +1.6%

- U.S. crude oil: $81.91 per barrel, down 0.7%

- Brent crude: down 0.05%, having gained 6% last week

What to Watch

China's July industrial output and activity data due later Monday will be closely scrutinized for signs of economic momentum as markets gauge global growth prospects. U.S. stock futures indicate a cautiously positive open with Nasdaq futures up 0.5% and S&P futures adding 0.2%, suggesting Wall Street may extend the risk-on tone if Fed rate expectations continue to moderate. Oil markets remain volatile amid Middle East tensions, with Brent holding near $71-100 range as traders assess supply disruption risks.