Asset markets in Asia will once again be driven by important economic figures, market- and growth-friendly policy changes, and diplomatic cues from China as the week gets under way.
The most influential global policymakers in the world, Jerome Powell, Christine Lagarde, and Kazuo Ueda, gave remarks in Jackson Hole on Friday. Asian markets will have their first opportunity to respond to those statements on Monday, albeit trading will be slower than usual because the UK markets are closed for a holiday.
This week’s purchasing managers index readings for a number of Asian nations, including China, will provide a preliminary look at how activity performed in August. Additionally included are information on Indonesian and Vietnamese inflation as well as Indian GDP data.
The Chinese PMIs for services and manufacturing later in the week are likely to have the biggest market impact of all of these. Investors and officials will be looking desperately for indications that the economy is improving, but the outlook is for the economy to remain poor for another month.
Statistics released over the weekend revealed that China’s industrial companies’ profits fell 6.7% in July compared to the same month last year, extending the year’s downturn to a seventh month. Year-to-date earnings also declined 15.5%.
Chinese officials this weekend cut the stamp fee on stock trading in half as part of their most recent attempt to reverse the situation. The reduction in tax on stock trades, which will take effect on Monday, is being made “in order to reinvigorate the capital market and boost investor confidence”.
According to the China Securities Regulatory Commission, stock exchanges have also lowered their restrictions for margin financing.
This occurs as U.S. Commerce Secretary Gina Raimondo began a four-day visit to Beijing on Sunday with the goal of strengthening commercial ties between the two biggest economies in the world. The two superpowers’ ties are at their lowest point ever.
Asian stocks are off to a marginally stronger start to the week than in recent weeks. The MSCI Asia ex-Japan index ended a three-week losing skid, but the increase of only 0.2% was the weakest since November, making the turnaround all the more disappointing after a combined 10% down over the preceding three weeks.
The financial conditions are tightening significantly, largely as a result of the steady increase in U.S. Treasury yields. These are substantial and obvious headwinds for the Asian market.
The global, developing market, and Chinese financial conditions last week reached their tightest levels of the year, according to Goldman Sachs’ financial conditions indices.
From a basic point of view, higher U.S. yields and a stronger currency may be acceptable, but the dollar has increased for six weeks running and the two-year U.S. yield has increased 13 of the previous 16 weeks.