Consumer Downturn Shifts Market Sentiment Ahead of Key Earnings

The US consumer's resilience may have finally been tested, and Friday's retail sales figures show a nine-month decline. This shift in sentiment puts Walmart and Home Depot's earnings under scrutiny this week, as well as the AI spending boom.

Monday's Asian markets saw the dollar slip broadly, with traders adapting to an unfamiliar outlook. Rate hikes are anticipated in Europe and Japan next month, which has altered the market's US outlook, favoring a Fed hold. The Aussie and kiwi reached two-month highs, while sterling and the euro approached multi-month peaks.

The yen rose as investors increasingly bet on Japan's interest rate hike pace quickening. Bank of America analysts predict four hikes between September and July next year, taking the policy rate to 2%. Markets shrugged off a Japanese economic growth miss and drove up government bond yields, with the benchmark 10-year sovereign yield reaching an almost 30-year high of 2.925%.