Asia Eyes Cautious Open After China Factory Data: Markets Wrap

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(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. 

Equity futures in Australia and Hong Kong point to early losses on Monday, while those for Japan and China rose. US contracts were little changed after 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. 

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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 edged lower 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’s economy may struggle to meet this year’s growth target. China’s residential slump also deepened last month. 

“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.” 

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. 

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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 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.

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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.”

Some of the main moves in markets: 

Currencies

• The euro was little changed at $1.1049 as of 7:20 a.m. Tokyo time
• The Japanese yen was little changed at 146.28 per dollar
• The offshore yuan was little changed at 7.0892 per 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 fell 2.2% to $2,449.89

Bonds

• The yield on 10-year Treasuries advanced four basis points to 3.90% on Friday

Commodities

• 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 assistance of Bloomberg Automation.

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