Asian shares rallied on Monday as China announced new measures to support its struggling markets. However, investors remained cautious ahead of key U.S. economic data that could impact interest rates. Beijing’s decision to halve the stamp duty on stock trading was seen as a positive step to boost the market. This move followed previous measures to support the housing market. The help was necessary as China’s industrial profits continued to decline, falling 6.7% in July. Despite the challenges, Chinese blue chips saw a 3.0% jump in choppy trade. The focus now shifts to the official PMI for August, which is expected to show continued weakness.
The broader Asia-Pacific shares outside Japan also experienced gains, climbing 1.4%. Japan’s Nikkei rose 1.5%, supported by the weakness of the yen. Risk sentiment improved, with EUROSTOXX 50 futures adding 0.7% and S&P 500 futures and Nasdaq futures edging up 0.1%. The market reacted to Federal Reserve Jerome Powell’s slightly hawkish outlook, but analysts believe that further policy tightening may not be necessary. Futures imply an 80% chance of a steady outcome at the September meeting, but a 58% probability of a hike by year-end.
The flow of U.S. data will play a crucial role in determining market direction. Manufacturing surveys last week indicated a slowdown, raising concerns. This week’s ISM survey on manufacturing, along with reports on payrolls, core inflation, and consumer spending, will be closely watched. Median forecasts predict a rise of 170,000 in payrolls for August, with a steady jobless rate of 3.5%. However, analysts caution that job gains could be depressed by the entertainment industry strike, predicting an increase of just 125,000. EU inflation figures will also be instrumental in the European Central Bank’s decision on whether to hike rates next month. Central banks worldwide have emphasized the need for restrictive policies, except for the Bank of Japan, which advocates for loose policy.
The yen remained under pressure, while the dollar gained support from higher Treasury yields. Yields on U.S. two-year notes reached their highest level since early July. Gold faced headwinds due to high yields and a strong dollar. Oil prices received some support from a rise in U.S. diesel prices, but concerns about Chinese demand persisted. Brent crude edged up to $84.70 a barrel, while U.S. crude rose to $80.04 per barrel.
In conclusion, Asian shares rallied on China’s new measures to support its markets, but caution remained ahead of key U.S. economic data. The focus now shifts to the official PMI for August and upcoming reports on payrolls, inflation, and consumer spending. The market reacted to the slightly hawkish outlook from the Federal Reserve, but analysts believe further policy tightening may not be necessary. The yen remained under pressure, while the dollar gained support from higher Treasury yields. Gold faced headwinds, and oil prices received some support.
