Japanese stocks dropped on Monday due to expectations of further central bank interest rate hikes following the ruling party elections. Iron ore prices rose after major Chinese cities eased home-buying restrictions.

The Nikkei and Topix indexes fell at the open after Shigeru Ishiba won the Liberal Democratic Party leadership contest. Ishiba supports the independence of the Bank of Japan and the country’s need to defeat deflation.

Australian equities also slipped, while Hong Kong futures remained flat. US contracts saw a marginal increase. Iron ore futures in Singapore surged 8% after Shanghai, Guangzhou, and Shenzhen relaxed rules on housing purchases, aligning with the central government’s efforts to support the property sector.

As the global economic outlook improves, markets are heading into the final quarter. This improvement is attributed to China’s stimulus measures and the decision of central banks from Indonesia to Europe and the US to cut interest rates to support growth. According to the latest Bloomberg Markets Live Pulse survey, US stocks are expected to outperform Treasuries for the rest of the year, while emerging markets are preferred over developed ones.

Traders anticipate significant fluctuations in Chinese stocks on Monday as economic activity data is scheduled to be released. The Shanghai Stock Exchange experienced its best week since 2008. After facing challenges with a surge in trading activity on Friday, the exchange conducted stress tests with brokerages over the weekend.

The increased demand follows authorities’ efforts to stimulate growth through commitments to support fiscal spending and stabilize the property sector. Stephen Jen, chief executive at Eurizon SLJ Capital, stated that a “serious rally” in stocks, yuan, and government bonds is possible if investors allocate fewer resources to the nation’s assets.

However, global sentiment may be dampened if tensions in the Middle East escalate. Oil prices edged higher on Monday as traders awaited the response to Israel’s airstrike on Hezbollah chief Hassan Nasrallah in Beirut.

This week, traders will closely monitor China’s official and Caixin manufacturing and services PMIs before markets close for Golden Week. Additionally, Eurozone inflation and manufacturing activity data are expected, followed by the US jobs report on Friday, which will provide insight into the outlook for Federal Reserve rate cuts towards the end of the year.

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