Asia opens cautiously after China factory data: markets close

VaselineSeptember 1, 2024

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Asia opens cautiously after China factory data: markets close

(Bloomberg) — Asian shares are poised for a cautious start to a historically volatile month for markets as signs mount that China’s efforts to prop up its struggling economy are still not taking hold.

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Stock futures in Australia and Hong Kong indicated losses early on Monday, while those for Japan and China rose. US contracts fell slightly. The S&P 500 closed 1% higher on Friday, ahead of a rebalancing in the MSCI index and as the data supported expectations of a Federal Reserve rate cut.

The dollar and euro were steady early Monday after far-right and far-left populist parties looked poised to win two regional elections in Germany. In commodity markets, oil fell and gold was little changed.

Traders will focus on Monday’s Caixin China manufacturing PMI, after the official gauge of factory activity contracted for a fourth consecutive month in August, the latest sign that the country may struggle to meet its economic growth target this year. year.

“More fiscal easing is needed to help deliver the ‘around 5%’ growth target for the full year,” Goldman Sachs Group Inc. economists wrote. led by Lisheng Wang in a note on Sunday. “Compared to the first half, we expect domestic macro policy to be more supportive in the second half – particularly on the fiscal front – although the extent of easing should still be smaller than previous major easing cycles.”

China’s housing slump deepened last month as New World Development Co., Hong Kong’s most indebted property developer, said it expected to post its first annual loss in two decades.

September is historically a volatile month for global markets. It was one of the worst months for stocks in four years, while the dollar typically outperforms, according to data compiled by Bloomberg. Wall Street’s gauge of fear — the Cboe Volatility Index, or VIX — has risen every September for the past three years, the data show.

This month may be no different, with the crucial US jobs report later this week serving as a guide to how quickly or slowly the Fed will cut interest rates and as the US election campaign gets into full swing. An options trader or traders spent more than $9 million to protect against a rise in the VIX this month.

“September seasonality has a track record, the risk is not uncommon and in election years more dramatic,” said Bob Savage, head of Markets Strategy and Intelligence at BNY in New York. “Next week is the beginning of the end of the year. It has reason to worry, given that economic data from the US and the rest of the world now matters to how yield curves are played and how currency markets are evaluated.”

U.S. stocks rose on Friday as a report showed consumer sentiment improved for the first time in five months as slower inflation and the prospect of Fed cuts helped boost expectations about personal finances. The Fed’s preferred measure of core US inflation – the core price index for personal consumption expenditures – rose at a slight pace.

10-year Treasury yields climbed four basis points to 3.9 percent and the dollar rose as the data eroded support for a jumbo rate cut in September. Traders are pricing in the Fed’s easing cycle starting this month with about a one-in-four chance of a 50-basis-point cut, according to data compiled by Bloomberg. Cash Treasuries are closed globally on Monday for the US Labor Day holiday. Australian bond yields rose in early trade.

Elsewhere this week, data on economic activity in Europe and inflation readings in Asia are available, while the central banks of Chile, Malaysia and Canada are due to meet. The US non-farm payrolls report is due just hours before Fed Governor Christopher Waller’s final remarks before the central bank goes into lockdown.

“Tactically, good news should be good news for risk assets,” and a better-than-expected jobs report will likely lift stocks and the dollar, said Chris Weston, head of research at Pepperstone Group from Melbourne. “A 25 basis point cut is the move the Fed really wants to make, so further evidence that the US economy is headed for a soft landing amid non-urgent rate cuts plays a risk nirvana backdrop .”

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