Risk-On Rally Holds Firm Despite Softer US Jobs, Asian Fund Flows Remain Uneven

Global equities rallied despite weaker US jobs data, while foreign investors remained cautious across Asia, highlighting diverging economic momentum and persistent market risks.

Market Snapshot

Global equity markets maintained a strong risk-on tone last week, with 17 of the 20 major benchmark indices monitored by MBSB Research ending higher. The Nasdaq led gains with a 5.19% increase, followed by the S&P 500 at 3.58% and Australia’s ASX 200 at 3.20%. The Dow Jones, Indonesia’s JCI and Germany’s DAX 40 also posted gains of between 2.69% and 2.96%.

The rally came despite signs of weakening in the US labour market. US nonfarm payrolls declined by 23,000 in July, sharply missing expectations for an 80,000 increase, while employment figures for May and June were revised down by a combined 103,000.

Although the unemployment rate eased to 4.1% from 4.2%, the improvement was largely due to a decline in labour-force participation, which fell to 61.4%, its lowest level since early 2021.

Rather than triggering broad risk aversion, the weaker labour data appeared to reinforce expectations that the US Federal Reserve could adopt a more accommodative policy stance. This helped support equity valuations, particularly growth and technology stocks, with the Nasdaq emerging as the week’s strongest-performing major index.

However, the US economy was not uniformly weak. The S&P Global Composite PMI rose to 54.5 in July from 51.9 in June, marking the strongest expansion since October 2025. Services activity strengthened, manufacturing continued to expand and new business growth reached its fastest pace in 19 months. Employment also returned to growth.

The stronger business activity came with a warning, however. Input costs climbed to their highest level since November 2022, while output-price inflation reached a one-year high. This combination of resilient activity and renewed price pressures could complicate the Fed’s policy outlook, particularly if inflation proves more persistent than expected.

The US trade deficit also narrowed to USD73.3 billion in June from USD77.6 billion in May, supported by a faster decline in imports than exports. For the first half of 2026, the cumulative deficit fell substantially to USD371.2 billion from USD560.5 billion a year earlier, suggesting that earlier tariff-related front-loading of imports has begun to normalise.

Regional Economic Developments

Outside the US, economic conditions remained mixed. Eurozone producer-price inflation moderated to 4.6% year-on-year in June from 5.9%, helped by lower energy prices.

The UK economy returned to expansion, with its Composite PMI rising to 52.2 in July from 49.3, although employment remained under pressure. Japan continued to record solid private-sector growth, with its Composite PMI at 52.7 for July, extending its expansion streak to 16 months.

Manufacturing output recorded its strongest increase since early 2014, while employment rose for a 34th consecutive month.China, meanwhile, experienced a moderation in private-sector activity.

The RatingDog General Composite PMI fell to 50.8 from 53.6, its weakest reading since July 2025. Nevertheless, China’s external sector remained resilient, with exports surging 23.9% year-on-year and the trade surplus widening to USD112.5 billion.

Strong AI-related technology demand and tariff-related front-loading continued to support exports.Malaysia’s manufacturing sector remained marginally expansionary, with the PMI unchanged at 50.7.

New orders reached an eight-month high, supported by improving export demand from Europe and the US. However, manufacturers continued to reduce employment, while business confidence weakened amid geopolitical uncertainty.

Foreign Fund Flows

Foreign investor flows remained a key concern for Asian markets. Across eight monitored Asian markets, investors recorded net outflows of USD3.64 billion, extending the regional net-selling streak to seven consecutive weeks.

India attracted the strongest inflows at USD1.36 billion, extending its winning streak to three weeks. Taiwan also recorded USD311.6 million in inflows, ending six consecutive weeks of foreign selling, while Vietnam attracted USD85.6 million after 20 straight weeks of outflows.

Indonesia continued to benefit from foreign interest, recording USD39.2 million in net inflows for a second consecutive week. Stronger exports, which rose 8.8% year-on-year in June to USD25.5 billion, provided a positive backdrop.

In contrast, South Korea suffered USD5.04 billion in net foreign outflows, while Thailand, the Philippines and Malaysia also experienced selling pressure. The divergence suggests that investors remain selective despite the broader global risk-on rally.

Commodities and Outlook

Currency and commodity movements provided an additional mixed signal. The US dollar edged 0.1% higher against the Ringgit to RM4.0912, while Brent crude fell sharply by 7.3% to USD83.55 per barrel.

Crude palm oil, meanwhile, gained 0.7% to RM4,677 per tonne.Overall, markets are currently balancing two opposing forces: expectations of easier US monetary policy following softer employment data and concerns that resilient economic activity could keep inflation elevated.

For Asian markets, improving domestic economic indicators may provide support, but sustained foreign outflows indicate that investors remain cautious.

The near-term outlook therefore remains constructive but selective, with monetary-policy expectations, US inflation, corporate earnings and foreign fund flows likely to determine whether the current risk-on rally can broaden further.

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