Asian shares rallied on Monday as China announced new measures to support its struggling markets. However, investors remained cautious ahead of key U.S. economic data that could impact interest rates. China’s decision to halve the stamp duty on stock trading and implement measures to support housing was seen as a positive move. Additionally, the approval of 37 retail funds by China’s securities regulator further boosted Market sentiment. This support was necessary as China’s industrial profits continued to decline, falling 6.7% in July. Despite these challenges, Chinese blue chips experienced a 1.5% increase in value. The focus now shifts to the official PMI for August, which is expected to show continued weakness in economic activity.

The broader Asia-Pacific shares outside Japan also saw gains, climbing 1.0% and breaking a three-week losing streak. Japan’s Nikkei rose 1.6%, supported by the weakness of the yen. Risk sentiment improved, with EUROSTOXX 50 futures rising 0.7% and S&P 500 futures and Nasdaq futures edging up 0.1%. The market reacted positively to Federal Reserve Chair Jerome Powell’s slightly hawkish outlook, interpreting it as a sign that the Fed may not raise rates at the upcoming September meeting. Analysts at Goldman Sachs expect further policy tightening to be unnecessary, making the July rate hike the last of the cycle. Futures imply an 80% chance of a steady outcome at the September meeting, but a 58% probability of a hike by year-end.

The flow of U.S. data will be crucial in determining future market trends. Manufacturing surveys last week indicated a slowdown, both domestically and internationally. This week’s ISM survey on manufacturing, along with reports on payrolls, core inflation, and consumer spending, will provide further insights. Median forecasts predict a rise of 170,000 in payrolls for August, with a steady jobless rate of 3.5%. However, JPMorgan analysts caution that job gains could be affected by the ongoing entertainment industry strike in Hollywood, predicting an increase of just 125,000. Additionally, EU inflation figures will play a role in the European Central Bank’s decision on whether to hike rates next month. The market is divided on the possibility of another rate increase, with ECB President Christine Lagarde emphasizing the need for restrictive policy. Western central banks, including the Bank of England, also expressed the possibility of high rates persisting for some time. However, Bank of Japan Governor Kazuo Ueda diverged from this stance, advocating for loose policy.

The yen remained under pressure, with the dollar firm at 146.40. The euro also faced challenges against the dollar, standing at $1.0808 after six consecutive weeks of decline. Higher Treasury Yields supported the dollar, with U.S. two-year notes reaching their highest level since early July. These factors, along with a strong dollar, have been a hindrance for gold, which traded at $1,915 an ounce. Oil prices received some support from a sharp rise in U.S. diesel prices, although concerns about Chinese demand persisted. Brent crude edged up to $84.49 a barrel, while U.S. crude rose to $79.89 per barrel.

In summary, Asian shares rallied due to China’s measures to support its markets, but caution remained ahead of key U.S. economic data. The focus is on the official PMI for August and upcoming reports on payrolls, inflation, and consumer spending. The market reacted positively to Jerome Powell’s outlook, and the possibility of further rate hikes remains uncertain. The yen faced pressure, while the dollar gained support from higher Treasury yields. Gold and oil prices were influenced by these factors as well.