Investors in Asia kick off the new trading month on the front foot, optimistic about a U.S. ‘soft landing’ and dovish Fed outlook, which should help boost risk appetite and the appeal of emerging market assets.
The recent slide in the dollar, falling U.S. bond yields and global equity bounce have resulted in a significant loosening of financial conditions that is fueling a virtuous cycle of increasing bullishness.
The 10-year U.S. Treasury yield fell 20 basis points in August, the fourth consecutive month it has declined.
Data last week showed U.S. growth beating forecasts and inflation cooling, just as the Fed is about to start its easing cycle later this month. Add in a decent Q2 earnings season, and a ‘Goldilocks’ scenario is clearly emerging.
As ever though, the danger at times like this is complacency – episodes like the Aug. 5 volatility shock are always lurking, and next time the impact may not be so fleeting. And there’s also China.
China’s ‘official’ purchasing managers index data on Saturday gave the first insight into how the world’s second largest economy performed in August, and it made for sobering reading – factory activity is flagging, deflationary pressures are intensifying, and the need for stimulus is growing.
Manufacturing activity sank to a six-month low, contracting for a fourth straight month as factory gate prices tumbled and owners struggled for orders. Services activity picked up pace, but growth in the sector is barely visible.
In fact, the composite PMI slipped to 50.1, the lowest since December 2022 when China’s economy re-opened, signaling almost no growth at all.
