Asia Eyes Cautious Open After China Factory Data: Markets Wrap

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(Bloomberg) — Asian stocks are set for a cautious start to a historically volatile month for markets as evidence grows that China’s efforts to prop up its ailing economy have yet to bear fruit.

Stock futures in Australia and Hong Kong pointed to early losses on Monday, while futures in Japan and China rose. U.S. futures were little changed after the S&P 500 closed up 1% on Friday ahead of the MSCI rebalancing and as data supported expectations of an imminent interest rate cut by the Federal Reserve.

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The dollar and the euro were steady early Monday after populist parties from the far right and left appeared set to win regional elections in Germany. In commodities markets, oil prices fell and gold was little changed.

Traders will be focusing on China’s Caixin manufacturing purchasing managers’ index due on Monday after the official gauge of factory activity contracted for a fourth straight month in August, the latest sign that the country’s economy may struggle to meet its growth target this year. China’s housing slump also deepened last month.

“More fiscal easing is needed to help secure the annual growth target of around 5%,” Goldman Sachs Group Inc. economists led by Lisheng Wang wrote in a note on 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 scale of easing should remain smaller than in previous major easing cycles.”

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

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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 Federal Reserve will cut interest rates, and with the US election campaign in full swing. Options traders have spent more than $9 million to hedge against the volatility index spike this month.

“September has a volatile history where risk aversion is not uncommon and in election years it is even more dramatic,” said Bob Savage, head of market strategy and insights at Bank of New York in New York. “Next week is the beginning of the year-end. It holds the potential for trouble as economic data from the US and the rest of the world now matter for how the interest rate curve plays out and for how the FX markets are valued.”

U.S. stocks rose on Friday after a report showed consumer sentiment improved for the first time in five months as slowing inflation and expectations of a Federal Reserve rate cut helped lift expectations about personal finances. The Fed’s core inflation gauge — the core personal consumption expenditures price index — rose at a moderate pace.

The yield on the 10-year Treasury note rose four basis points to 3.9%, and the dollar rose as the data eroded support for a September rate cut. Traders are pricing in a one-in-four chance of a 50 basis point rate cut by the Federal Reserve this month, according to data compiled by Bloomberg. U.S. bond markets are closed Monday for the Labor Day holiday.

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Elsewhere this week, economic activity data from Europe and inflation readings from Asia are due, while central banks in Chile, Malaysia and Canada are due to meet. The US non-farm payrolls report is due just hours before Federal Reserve Governor Christopher Waller delivers his final remarks before the central bank enters a blackout period.

“Tactically, good news should be good news for risk assets,” said Chris Weston, head of research at Pepperstone Group in Melbourne, with a better-than-expected jobs report likely to lift stocks and the dollar. “A 25bp rate cut is the move the Fed really wants to make, so more evidence that the US economy is heading for a soft landing, amidst non-urgent rate cuts, plays into the risk-off mood,” he added.

Some key movements in the markets:

Currencies

• The euro was little changed at $1.1049 as of 7:20 a.m. in Tokyo.
• The Japanese yen was little changed at 146.28 yen to the dollar.
• The offshore yuan was little changed at 7.0892 against the dollar.
• The Australian dollar was little changed at $0.6766.

Stocks

• S&P 500 futures were little changed.
• Hang Seng futures fell 0.9% on Friday.
• Nikkei 225 futures rose 0.9%.
• S&P/ASX 200 futures fell 0.2%

Cryptocurrencies

• Bitcoin fell 1.1% to $57,711.75
• Ether price fell 2.2% to $2,449.89

Bonds

• The yield on the 10-year U.S. Treasury note rose four basis points to 3.90% on Friday.

Goods

• Spot gold was little changed at $2,504 an ounce.
• West Texas Intermediate crude fell 0.4% to $73.23 a barrel.

This story was produced with the help of Bloomberg Automation.

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