Asian equities began the week on a positive note following a robust performance by U.S. stocks, which achieved their best weekly gains of the year and approached record highs. However, the momentum was tempered by recent economic data from China that painted a picture of a slowing economy.
Hong Kong’s Hang Seng Index experienced volatility throughout the trading day, fluctuating between gains and losses before settling just above its previous close by less than 0.1%, finishing at 17,371.36 points. The tepid performance came in the wake of weekend data revealing that China’s economic growth further slowed in August. Key indicators such as factory output, retail sales, and investment all fell short of expectations, while the unemployment rate unexpectedly climbed to a six-month high, signaling mounting challenges for the world’s second-largest economy.
“The drums of a deepening economic slowdown are beating louder, and it’s time for China’s leadership to decide whether to step up or risk sliding further into stagnation,” commented Stephen Innes of SPI Asset Management.
Meanwhile, Australia’s S&P/ASX 200 index saw a slight increase of 0.3%, closing at 8,121.60 points. Markets in Japan, mainland China, and South Korea remained closed for holidays, providing a brief respite for investors in the region.
Global investors are now turning their attention to the upcoming Federal Reserve policy meeting scheduled for Tuesday and Wednesday. Expectations are high that the Fed will announce its first interest rate cut since 2020, a move that could have significant implications for both U.S. and Asian markets. Additionally, the Bank of Japan is set to hold its policy meeting later in the week, with analysts anticipating that it will maintain its current interest rates.
In the currency markets, the Japanese yen strengthened against the U.S. dollar, declining to 139.75 yen from 140.82 yen. The euro also saw a modest increase, rising to USD 1.1115 from USD 1.1076. Concurrently, U.S. futures slipped while oil prices climbed, reflecting a complex interplay of global economic factors.
U.S. stock indices rebounded strongly on Friday. The S&P 500 rose by 0.5% to 5,626.02 points, marking its fifth consecutive day of gains and bringing it within 0.7% of its all-time high set in July. The Dow Jones Industrial Average and the Nasdaq Composite each climbed 0.7%, closing at 41,393.78 and 17,683.98 points respectively. This rally was driven by substantial gains in major technology stocks, including Microsoft and Broadcom, which helped the indexes recover from recent losses—the most significant downturn in nearly 18 months.
Support for stocks also came from the bond market, where Treasury yields eased ahead of the Fed’s anticipated rate cut. Wall Street unanimously expects the Fed to implement the first rate reduction in over four years on Wednesday, with some traders hoping for a more substantial decrease than the typical quarter-point adjustment.
The Federal Reserve has maintained its main interest rate within a two-decade high range of 5.25% to 5.50% to curb inflation. However, with inflation significantly lower than its peak two summers ago, the Fed is now poised to focus more on strengthening the slowing job market and broader economy. Determining the extent of the rate cut will be a delicate balancing act for the Fed, as reducing rates could alleviate economic pressures but also risk reigniting inflationary trends. Recent reports suggest persistent underlying inflationary pressures, initially causing traders to temper their expectations for the size of the Fed’s forthcoming move. Nevertheless, data from CME Group indicates that there remains about a 50% chance the Fed could implement a larger-than-expected rate cut of half a percentage point, compared to the more standard quarter-point reduction.
In the energy sector, benchmark U.S. crude oil prices increased by 41 cents to USD 68.16 per barrel, while Brent crude, the international standard, rose by 29 cents to USD 71.90 per barrel.
As Asian markets navigate the complexities of China’s economic slowdown and global investors await pivotal decisions from the Federal Reserve and other central banks, the financial landscape remains poised for further developments in the weeks ahead.
