Monday’s equity session in Asia has thrown up some sharp divergence, and a few surprises, with U.S. index futures, sidelined for the Labor Day holiday.
Regional markets are flat to slightly lower as Market Purchasing Manager Index (PMI) readings for South Korea, Thailand, Philippines, Taiwan and India all came in lower than expected this morning. We are starting to see concrete evidence now that the economic slowdown, exacerbated by the U.S. China trade dispute, is making its presence felt beyond China, Singapore and Australasia.
Japan Capital Spending shrunk to 1.90% YOY for Q2, which sees the Nikkei lower by 0.50% as we head into the European session.
Australia’s ASX 200 fell by nearly 1.0% as CommBank PMI, and ANZ Job Advertisements both came in well under market consensus. It continues the run of weak data from the lucky country, but the RBA is likely to hold its nerve at tomorrows meeting and leave rates unchanged with a dovish bias. With rates at record lows, the RBA will want to keep its powder dry for as long as possible and see how the U.S. and China trade dispute plays out.
China was a bright spot with the Caixin unofficial Manufacturing PMI recovering to 50.4, surprising the market which was expecting a drop further into contractionary territory. The high print drove China stocks higher, with the CSI 300 rising 2.30% and the Shanghai Composite rising 2.16%. The rally, while pleasing, should be treated cautiously. Much of the rise was the result of government stimulus programmes and not a recovery in China’s international manufacturing outlook. More stimulus is likely to be required as U.S. tariffs start to bite in Q4.
Hong Kong did not receive a feel-good spillover from the mainland, however. The Hang Seng has fallen 0.80% to 25520 today after the continuing protests and escalation of violence from both sides over the weekend. Hong Kong’s airport was again severely disrupted, and the Hang Seng found no friends in the face of another general strike today.
Fears are growing daily of direct intervention by Beijing, although this remains an unlikely reaction at this point. More urgently, concerns are mounting that the ongoing protests and strikes are starting to have a detrimental effect on the real economy. Tourist arrivals are plunging, for example, and money-spinning trade-shows have been cancelled.
Asia’s mixed session will likely weigh on Europe initially, especially as the China PMI was driven by government stimulus. German Markit PMI at 1555 SGT and European Market PMI shortly after at 1600 SGT will be closely watched. After the poor showing by Asia’s PMI’s today, low reads from Germany and the Eurozone could have investors reaching for the sell button.