Asia Eyes Cautious Open After China Factory Data: Markets Wrap

(Bloomberg) -- Asian stocks are set for a cautious start into a historically volatile month for markets as signs mount that China’s efforts to support its ailing economy are yet to take hold.

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Equity futures in Australia and Hong Kong point to early losses on Monday, while those for Japan and China rose. US contracts were slightly down. The S&P 500 closed 1% higher on Friday ahead of an MSCI index rebalancing and as data supported expectations of looming Federal Reserve rate cuts..

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

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

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

China’s residential slump also deepened last month, while New World Development Co., Hong Kong’s most indebted major property developer, said it expects to post its first annual loss in two decades.

September is historically a volatile month for global markets. It’s been one of the worst months for stocks in the past four years, while the dollar typically outperforms, according to data compiled by Bloomberg. Wall Street’s fear gauge - the Cboe Volatility Index, or VIX - has risen each September 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 quick, or slow, the Fed will cut rates, and as the US election campaign gets into full swing. An options trader or traders spent upwards of $9 million to protect against a surge in the VIX this month.

“September seasonality has a checkered record with risk off not uncommon and in election years more dramatic,” said Bob Savage, head of markets strategy and insights at BNY in New York. “The next week is the start of the end of the year. It has the makings for trouble given the economic data from the US and rest of the world now matters to how rate curves are played out and FX markets valued.”

US stocks rose Friday as a report showed consumer sentiment improved for the first time in five months as slower inflation and prospects for Fed cuts helped lift expectations about personal finances. The Fed’s preferred measure of underlying US inflation — the core personal consumption expenditures price index — rose at a mild pace.

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

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

“Tactically, good news should be good news for risky assets” and a better-than-expected jobs report will likely lift stocks and the dollar, said Chris Weston, head of research at Pepperstone Group in 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 into a nirvana backdrop for risk.”

Key events this week:

China Caixin manufacturing PMI, Monday
Indonesia CPI, Monday
India HSBC manufacturing PMI, Monday
Eurozone HCOB manufacturing PMI, Monday
UK S&P Global manufacturing PMI, Monday
US markets closed for Labor Day holiday, Monday
South Korea CPI, Tuesday
Switzerland GDP, CPI, Tuesday
South Africa GDP, Tuesday
US construction spending, ISM Manufacturing index, Tuesday
Mexico unemployment, Tuesday
Brazil GDP, Tuesday
Chile rate decision, Tuesday
Australia GDP, Wednesday
China Caixin services PMI, Wednesday
Bloomberg CEO Forum in Jakarta, Wednesday
Eurozone HCOB services PMI, PPI, Wednesday
Poland rate decision, Wednesday
Fed’s Beige Book, Wednesday
Canada rate decision, Wednesday
South Korea GDP, Thursday
Malaysia rate decision, Thursday
Philippines CPI, Thursday
Taiwan CPI, Thursday
Thailand CPI, Thursday
Eurozone retail sales, Thursday
Germany factory orders, Thursday
US initial jobless claims, ADP employment, ISM services index, Thursday
Eurozone GDP, Friday
US nonfarm payrolls, Friday
Canada unemployment, Friday
Chile CPI, Friday
Colombia CPI, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures fell 0.1% as of 8:15 a.m. Tokyo time
Hang Seng futures fell 0.9%
S&P/ASX 200 futures fell 0.2%
Nikkei 225 futures rose 0.9%

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.1047
The Japanese yen fell 0.2% to 146.49 per dollar
The offshore yuan was little changed at 7.0906 per dollar
The Australian dollar rose 0.1% to $0.6772

Cryptocurrencies

Bitcoin fell 1.7% to $57,419.5
Ether fell 3.5% to $2,414.4

Bonds

Australia’s 10-year yield advanced four basis points to 4.00%

Commodities

West Texas Intermediate crude fell 0.5% to $73.21 a barrel
Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

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