Equities and commodities experienced a decline following the release of economic data that indicated slower than expected growth in China. The Chinese economy grew by 0.8% in the second quarter, surpassing the forecast of 0.5%, but the annual pace of growth slowed to 6.3%, well below the anticipated 7.3%. This news prompted a shift in investor sentiment, as they began to bet that the United States Federal Reserve would end its cycle of interest rate hikes sooner than expected.

Last week, the US dollar saw a significant decline against major currencies as traders adjusted their expectations for a rate hike in September. The dollar fell by 0.1% against a basket of currencies on Monday, marking its largest weekly drop this year. The market now believes that a rate hike in September is less likely, with some even starting to price in rate cuts for the first half of next year.

In the absence of significant economic data this week, investors are left to speculate about whether last week’s market movements will continue or reverse. Michael Brown, a strategist at TraderX, expressed caution, stating that assuming the Federal Reserve is done raising rates after one cooler inflation number may be too aggressive.

Global equities edged down 0.1% on Monday, with European shares being particularly affected by weakness in China-sensitive sectors such as mining. U.S. stock index futures were mostly steady, awaiting a week filled with corporate earnings reports, including those from Tesla, Bank of America, Morgan Stanley, Goldman Sachs, and Netflix.

Data on U.S. retail sales is expected to show a modest increase of 0.3% excluding automobiles, aligning with the market’s favored theme of a soft landing. Economists predict a contraction toward the end of the year, but this projection is still seen as non-recessionary disinflation. The Federal Reserve officials are likely to view the latest inflation developments positively but declaring victory at this stage might be seen as reckless.

While the markets currently foresee a 96% chance of a rate hike this month, the probability of a further rise by November is only around 25%. The yield on two-year U.S. Treasury notes, which is particularly sensitive to changes in rate expectations, fell by 2 basis points to 4.728%, just above one-month lows.

The dollar weakened against the yen by 0.3% to 138.34, continuing its 2.4% decline from last week. The euro, after a surge of 2.4% last week, rose by 0.2% to $1.1247. Sterling saw a slight increase of 0.1% to $1.3105 ahead of the release of UK inflation figures, which are expected to influence the chances of further interest rate hikes.

After the release of China’s GDP data, crude oil prices dropped significantly as concerns over energy demand from the world’s largest importer emerged. Additionally, an increase in oil production in Libya following a temporary outage added to the bearish sentiment. Brent crude futures fell by 1.6% to $78.60 a barrel. Copper, another commodity sensitive to Chinese data, also experienced a decline of 2.1% to $8,490 a tonne.

As investors continue to assess the implications of the slower Chinese economic growth and the possibility of an earlier end to U.S. rate hikes, market sentiment remains uncertain. This week’s corporate earnings reports and economic data from various countries will likely play a significant role in shaping investor expectations and market trends.