Global equities started September on a weak note, ending a four-month streak of gains, as China’s economic stimulus efforts appeared ineffective. Asian stock indices and global metrics declined on the first trading day of the month, which is often marked by volatility. Chinese stocks led the losses, with New World Development Co. plunging 14% after the company warned of its first annual loss in 20 years.
European and US index futures also fell, and while the dollar remained stable, purchasing managers’ indices for Taiwan, Thailand, and Indonesia dropped, impacting their currencies. The US Treasury market was closed due to the Labor Day holiday.
Investors are anticipating interest rate cuts from major central banks, including the Federal Reserve, this month. However, China’s multiple stimulus efforts have yet to revive economic growth, hindered by a prolonged slump in the property market that is dampening domestic demand in the world’s second-largest economy.
Carlos Casanova, Senior Asia Economist at Union Bancaire Privee, expressed concern about China’s economic situation, noting, “There’s not enough policy space for significant support measures like those in 2009.” Although the fourth quarter might see some improvement for Chinese assets due to efforts to boost domestic demand, the current policy measures seem inadequate.
Despite an unexpected rise in Caixin China manufacturing data on Monday, it did little to alter the negative sentiment following a fourth consecutive month of contraction in the official factory activity gauge for August. Additionally, worsening home sales and China Vanke Co.’s half-year loss further highlighted the property sector’s troubles.
Hao Ong, Chief Economist at Grow Investment Group, stated, “The government needs to do substantially more,” reflecting growing frustration with the current measures.
In trade and technology tensions, China has threatened economic retaliation against Japan over potential restrictions on chipmaking equipment sales to Chinese firms.
September has historically been a turbulent month for global markets, with stocks often underperforming and the dollar generally gaining strength. The Cboe Volatility Index (VIX), which measures market fear, has risen each September over the past three years.
The upcoming US jobs report on Friday will likely influence the Federal Reserve’s decision on rate cuts, with traders predicting a possible easing cycle to begin this month. Paul Mackel, Global Head of FX Research at HSBC, noted that the jobs data could determine whether the Fed opts for a 25 or 50 basis point cut.
In Europe, ECB Governing Council member Francois Villeroy de Galhau supported a potential interest rate cut in September amid a slowdown in inflation. Additionally, German Chancellor Olaf Scholz’s coalition suffered setbacks in regional elections, with the far-right achieving its first state victory since World War II, though it is unlikely to form a government due to parliamentary opposition.
In commodities markets, oil prices declined as OPEC+ plans to increase output from October, amid ongoing economic challenges in China. Gold and iron ore prices also fell.
