China clouds global outlook on ‘gold nuggets’.

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets.

Investors in Asia are starting the new trading month on top, optimistic about a “soft landing” in the US and a favorable outlook from the Fed, which should help boost risk appetite and the attractiveness of emerging market assets.

The recent slide in the dollar, falling US bond yields and the rebound in global equities have resulted in a significant weakening of financial conditions, fueling a virtuous cycle of bullish growth.

Data last week showed US growth beating forecasts and inflation falling, just as the Fed is poised to begin its easing cycle later this month. Throw in a decent winning season in T2 and a “Golden Block” scenario is clearly emerging.

As always, the danger at times like this is complacency – episodes like the August 5th volatility shock are always lurking, and next time the impact may not be so fleeting. And there is also China.

China’s “official” PMI data on Saturday provided the first insight into how the world’s second-largest economy played out in August and made for eye-catching reading – factory activity is slowing, deflationary pressures are intensifying and the need for stimulus is growing.

Manufacturing activity fell to a six-month low, contracting for a fourth straight month, as factory-gate prices fell and owners scrambled for orders. Service activity has grown at pace, but the growth of the sector is barely visible.

In fact, the composite PMI fell to 50.1, the lowest since December 2022, when China’s economy reopened, signaling almost no growth.

China’s “unofficial” manufacturing PMI will be released on Monday. The Caixin PMI is expected to rise to 50.0 from 49.8, essentially shifting to “no growth” from a slight contraction. Manufacturing PMIs from across Asia, including Japan, India, Australia and South Korea, will also be released.

Traders will also be keeping a close eye on the yuan, which is at its strongest level against the US dollar in 15 months amid increased corporate demand for the currency and as US interest rate cuts loom.

Overall liquidity and market activity will be lighter than usual with US markets closed on Labor Day Monday, but the backdrop remains broadly constructive.

According to Goldman Sachs indices, financial conditions in emerging markets are the weakest in over a year, conditions in the US are the weakest in more than two years and global conditions are the weakest in almost two and a half years.

The yield on the 10-year U.S. Treasury fell 20 basis points in August, its fourth straight month of declines.

The story continues

The S&P 500 rose for a fourth straight month to within striking distance of July’s record high, the MSCI World index hit a new high, while the MSCI Asia ex-Japan index rose for a sixth month over the last seven.

Here are the key developments that could provide more direction for Asian markets on Monday:

– China, Japan and others manufacturing PMIs (August)

– Inflation in Indonesia (August)

– Australian company profits (Q2)

(Reporting by Jamie McGeever; Editing by Diane Craft)