China clouds global 'Goldilocks' outlook
There will be no Morning Bid Asia on Tuesday Sept 3
By Jamie McGeever
Sept 2 (Reuters) -A look at the day ahead in Asian markets.
Investors in Asia kick off the new trading month on the front foot, optimistic about a U.S. 'soft landing' and dovish Fed outlook, which should help boost risk appetite and the appeal of emerging market assets.
The recent slide in the dollar, falling U.S. bond yields and global equity bounce have resulted in a significant loosening of financial conditions that is fueling a virtuous cycle of increasing bullishness.
Data last week showed U.S. growth beating forecasts and inflation cooling, just as the Fed is about to start its easing cycle later this month. Add in a decent Q2 earnings season, and a 'Goldilocks' scenario is clearly emerging.
As ever though, the danger at times like this is complacency - episodes like the Aug. 5 volatility shock are always lurking, and next time the impact may not be so fleeting. And there's also China.
China's 'official' purchasing managers index data on Saturday gave the first insight into how the world's second largest economy performed in August, and it made for sobering reading - factory activity is flagging, deflationary pressures are intensifying, and the need for stimulus is growing.
Manufacturing activity sank to a six-month low, contracting for a fourth straight month as factory gate prices tumbled and owners struggled for orders. Services activity picked up pace, but growth in the sector is barely visible.
In fact, the composite PMI slipped to 50.1, the lowest since December 2022 when China's economy re-opened, signaling almost no growth at all.
China's 'unofficial' manufacturing PMI will be released on Monday. The Caixin PMI index is expected to rise to 50.0 from 49.8, essentially moving to 'no growth' from 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 its strongest level against the U.S. dollar in 15 months amid growing corporate demand for the currency and as U.S. rate cuts come into view.
Overall liquidity and market activity will be lighter than usual with U.S. markets closed on Monday for Labor Day, but the backdrop generally remains constructive.
According to Goldman Sachs's indices, emerging market financial conditions are the loosest in over a year, U.S. conditions are the loosest in more than two years, and global conditions the loosest in nearly two-and-a-halfyears.
The 10-year U.S. Treasury yield fell 20 basis points in August, the fourth consecutive month it has declined.
The S&P 500 rose for a fourth straight month back to within touching distance of July's record high, the MSCI World index did hit a new high, while the MSCI Asia ex-Japan index rose for a sixth month from the last seven.
Here are key developments that could provide more direction to Asian markets on Monday:
- China, Japan & others' manufacturing PMIs (August)
- Indonesia inflation (August)
- Australia company profits (Q2)
Global financial conditions loosest since April 2022 - Goldman https://tmsnrt.rs/3yZd4QQ
China 'official' PMIs https://tmsnrt.rs/4dC6te9
Reporting by Jamie McGeever; editing by Diane Craft
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.