Economy

SYDNEY (Reuters) – Asian stocks were taking a breather on Monday after global equities enjoyed their best week in nine months on expectations the U.S. economy would dodge a recession and cooling inflation would kick off a cycle of interest rate cuts.The prospect of lower borrowing costs saw gold clear $2,500 an ounce for the first time and the dollar dip against the euro, though both the safe haven yen and Swiss franc receded as risk appetites recovered.Federal Reserve members Mary Daly and Austan Goolsbee were out over the weekend to flag the possibility of easing in September, while minutes of the last policy meeting due this week should underline the dovish outlook.Fed chair Jerome Powell speaks in Jackson Hole on Friday and investors assume he will acknowledge the case for a cut.”Although it may be too early to declare victory – and central bankers will certainly be prudent to avoid this in their official rhetoric – the inflation scare that had dominated the policy debate since prices started to soar during the pandemic has now largely vanished,” said Barclays economist Christian Keller.”Inflation may not be quite at the 2% target yet, but it is close and going in the right direction.”Futures are fully priced for a quarter-point move, and imply a 25% chance of 50 basis points with much depending on what the next payrolls report shows.Analysts at Goldman Sachs cautioned that annual benchmark revisions to the jobs series are due on Wednesday which could see a large downward revision of between 600,000 and one million positions, though this would likely overstate the weakness of the labour market.For now, the expectation of a softer than soft landing for the U.S. economy has S&P 500 futures up 0.2% and Nasdaq futures ahead by 0.3%, on top of last week’s gains.[.N]MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.2%, having rallied 2.8% last week.Japan’s Nikkei slipped 0.4%, but that followed a near 9% bounce last week.The Fed is hardly alone in contemplating looser policy, with Sweden’s central bank expected to cut rates this week, and possibly by an outsized 50 basis points.In currency markets, the euro was steady at $1.1025, just below last week’s top of $1.1047. The dollar stood at 147.79, having been as high as 149.40 last week. [USD/]”The overall Fed message this week is likely to reassure market participants looking for confirmation that policy rate cuts are now imminent,” said Jonas Goltermann, deputy chief markets economist at Capital Economics.”As such, the greenback may well remain under pressure in the near term, although given the extent to which Fed easing is already discounted, we doubt there is that much further dollar weakness in store.”A softer dollar combined with lower bond yields to help gold hold at $2,506 an ounce, and near an all-time peak of $2,509.69. [GOL/]Oil prices dipped again as concerns about Chinese demand continued to weigh on sentiment. [O/R]Brent fell 29 cents to $79.39 a barrel, while U.S. crude lost 27 cents to $76.38 per barrel. More

BEIJING (Reuters) -Another round of bad Chinese economic figures is raising pressure on Beijing to loosen the fiscal spigot further and even dole out shopping vouchers to get growth back towards this year’s target of roughly 5%.After a dismal second quarter, the world’s second-largest economy lost momentum further in July: new home prices fell at the fastest pace in nine years, industrial output slowed, export and investment growth dipped and unemployment rose.Other data beat forecasts, but not for positive reasons. Rising inflation was attributed to bad weather rather than stronger domestic demand, a jump in imports reflected frontloaded chip purchases before expected U.S. technology curbs, and a pickup in retail sales was flattered by low comparisons in 2023.In all, the data paints a worrying picture for policymakers, who look increasingly likely to ramp up stimulus unless they accept slower growth and the prospect of a downward spiral in consumer and business confidence.”The current economic performance remains behind target, necessitating immediate and significant policy intervention,” said Carlos Casanova, Asia senior economist at UBP. This might require the government to widen the budget deficit to 4% of gross domestic product (GDP) from the planned 3%, he said.One policy adviser, speaking on condition of anonymity, said Beijing may decide in October to bring forward part of next year’s bond issuance quota if growth did not show signs of bottoming out in the summer.”Otherwise, the economy will look ugly, and 5% would be out of the question,” the adviser said, without detailing where that stimulus would go.China made similar moves last October, when it raised the deficit to 3.8% of GDP from 3.0% and separately frontloaded part of the 2024 local government debt quotas to invest in flood-prevention and other infrastructure.What might change from last year is how the extra money would be spent.The usual playbook of infrastructure spending is bringing dwindling returns after decades of investment in bridges, roads and rail. Meanwhile, China’s preferred driver of growth, advanced manufacturing, is fanning trade tensions and concerns over industrial overcapacity and factory gate deflation.”The Chinese economy, given its size, cannot run on manufacturing and exports alone,” Societe Generale (OTC:SCGLY) analysts wrote in a note on the latest data.”To hit the 5% growth target – if that’s still the target – policymakers need to step up support for domestic demand.”VOUCHER TALK RESURFACESAs consumers tighten their wallets, Chinese e-commerce giants have had to resort to heavy discounting and promotions to attract shoppers, squeezing margins across the retail sector. Alibaba (NYSE:BABA) Group Holding missed market expectations for revenue on Thursday, as the company’s domestic e-commerce sales came under pressure from cautious spending.A top-level policy meeting in July pledged an incremental tilt towards consumer stimulus, in what analysts saw as an official admission the previous toolkit wasn’t working as intended.An article in state media this week revived an idea implemented in the United States and elsewhere during the pandemic but resisted in Beijing.China Daily, citing three economists from government-backed think tanks, said the government “should consider additional direct support to consumers worth at least 1 trillion yuan ($139 billion) — either cash or vouchers.”That sum is equivalent to 0.8% of last year’s GDP.Such a step “would necessitate expanding this year’s deficit ratio or approving additional special treasury bonds,” the article said. Li Daokui, director of Tsinghua University’s Academic Center for Chinese Economic Practice and Thinking, was quoted as saying “it was advisable” that the consumption coupons be issued during the week-long National Day break in October.Most economists are sceptical that Beijing will implement such a move, given past resistance. During the pandemic officials preferred to support businesses and left consumers to fend for themselves.Xing Zhaopeng, senior China strategist at ANZ, said the impact of such vouchers would be a one-off and that consumption would only pick up sustainably when the crisis-hit property market and stocks start recovering.He estimated households’ property wealth has fallen by 20%-30% from a 600 trillion yuan peak – a drop roughly equivalent to China’s annual economic output.”People will spend during the month they get the vouchers,” Xing said. “Only property and stock prices will put consumption in perpetual motion.” More

(Reuters) – A look at the day ahead in Asian markets. The trading week gets underway in Asia on Monday, with investors in pretty good spirits following last week’s rebound in risk appetite as the fabled U.S. ‘soft landing’ comes back into view, a scenario that should bode well for Asian and emerging markets.Emerging market equities posted their biggest weekly rise since April and world stocks their best week since October. The Nasdaq and S&P also had their best week since October, and the VIX ‘fear index’ of Wall Street volatility is back below 15.0.Even Chinese stocks snapped a three-week losing streak to rebound from a six-month low. Although the bounce was a slender 0.4%, it is a move in the right direction as far as China bulls – and policymakers – are concerned. But China’s economic numbers remain weak and continue to undershoot even economists’ increasingly gloomy expectations. China’s economic surprises index, which has been negative since June, last week fell to its lowest in almost a year.U.S. data and expectations have also slumped in recent months, but there are signs of stabilization, and investors are cooling on bets that the Fed will be forced into delivering a jumbo-sized rate cut next month.Traders have slashed the probability of a 50-basis point move to around 25% as the market turmoil from early this month has evaporated. If recession fears wane, riskier assets like stocks and emerging markets should benefit. The recent strong rebounds in U.S. megacaps should also support Asian assets exposed to U.S. Big Tech – Nvidia (NASDAQ:NVDA) shares are up 37% from their Aug. 5 low, so Taiwan’s TSMC and the Hang Seng tech index could be in line for further gains this week.The Asian economic and policy calendar on Monday is light. Japanese machinery orders, Malaysian trade and Thai GDP figures are the main highlights. Figures on Friday from the U.S. Commodity Futures Trading Commission, meanwhile, showed that currency speculators are now ‘long’ the Japanese yen for the first time since March 2021. Since the first week of July when the dollar was at a 38-year high around 162.00 yen, CFTC funds have completely covered one of their biggest short yen positions on record and the Japanese currency has rallied around 10%.These are seismic moves, but it’s worth remembering what it took to trigger them – another bout of intervention from Tokyo, an interest rate hike and hawkish posture from the Bank of Japan, and a frenzy of safe-haven buying and carry trade unwinds following the global volatility shock earlier this month. Last week’s wave of ‘risk on’ sentiment that washed over global markets, however, put the brakes on that. Dollar/yen rose 0.7%, not a big move by recent standards, but the biggest rise since June. Here are key developments that could provide more direction to Asian markets on Monday:- Japan machinery orders (June)- Malaysia trade (July)- Thailand GDP (Q2) More

“Gradualism is not weak, it’s not slow, it’s not behind, it’s just prudent,” Daly said to the newspaper, adding the labor market, while slowing, was “not weak.”In remarks earlier this month, she said it is too soon to know if the July jobs report signals a slowdown or real weakness, but cautioned it is “extremely important” to prevent the labor market tipping into a downturn. She was “more confident” that inflation is headed toward the 2% goal.Fed Chair Jerome Powell is scheduled to deliver remarks on the economic outlook on Friday, the first full day of the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming. More

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While the economic data is a mix of positive indicators and some that are more concerning, he said, “If you keep too tight for too long, you will have a problem on the employment side of the Fed’s mandate.” More

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