Wall Street’s lurch into the red late on Friday sets a negative tone for the open in Asia on Monday, a stark reminder that investors are still far more inclined to sell into pockets of strength in riskier assets right now than push them higher.
August purchasing managers index (PMI) reports on Monday from Australia, Japan, China and India could deepen or alleviate the general sense of gloom, but the U.S. close last week suggests any relief might be fleeting.
U.S. markets are closed for the Labor Day holiday so liquidity will be lighter than normal, while European markets will digest the news that Russia scrapped a Saturday deadline to resume flows via a major gas supply route to Germany.
The impact of Europe’s energy crisis on global financial markets cannot be ignored.
It wasn’t meant to be like this after Friday’s non-farm payrolls report painted a “Goldilocks” scenario of the U.S. jobs market for the Fed – slowing but still solid job growth, and cooling inflationary pressures from slowing earnings growth.
But stocks failed to hold onto the early gains, despite the pullback in bond yields, implied interest rates, and the dollar.
(GRAPHIC-U.S.-Japan 2-year yield spread: https://fingfx.thomsonreuters.com/gfx/mkt/gkvlgnwqdpb/USJP.png)
The dollar will bear close monitoring, having hit a 24-year high on Friday against the yen above 140.00 yen. Japan’s Finance Minister Shunichi Suzuki said G7 financial leaders did not discuss FX on Friday, but insisted that sharp moves in exchange rates are undesirable.
Meanwhile, U.S.-China tensions continue to taint regional sentiment. The State Department on Friday announced a potential $1.1 billion sale of military equipment to Taiwan, a measure that the Chinese Embassy in Washington said “severely jeopardizes China-U.S. relations and peace and stability across the Taiwan Strait.”
All in all, a challenging environment for Asian markets on Monday.
Key developments that should provide more direction to markets on Monday:
Australia services, composite PMIs (Aug, final)
Japan services, composite PMIs (Aug, final)
China Caixin services PMI (Aug)
India services PMI (Aug)
South Korea FX reserves (Aug)
Source: Economy - investing.com
