Asian Stocks Decline as China’s Economy Falters: Markets Wrap

(Bloomberg) — Asian shares edged lower after ratcheting up four months of gains, as China’s efforts to support its ailing economy showed no signs of taking hold.

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Benchmarks in Australia and China slipped, while those for South Korea were little changed. Japanese equities, the outlier of the region, advanced on Monday helped by news of corporate profits surpassing expectations. In Hong Kong, the benchmark index declined with shares of New World Development Co. falling 12% after the indebted property developer said it expected to post its first annual loss in two decades.

US contracts were also slightly down, suggesting the S&P 500 is in for a reversal after closing higher on Friday, as data supported expectations of pending Federal Reserve rate cuts. The dollar was steady as cash Treasuries were closed globally Monday for the US Labor Day holiday. Australian government bond yields rose.

On the first day of trading in a typically volatile month for markets, economic statistics for a number of Asian countries were set for publication. Caixin China manufacturing data increased more than expected, but failed to reverse sentiment after an official gauge of factory activity contracted for a fourth straight month in August. Purchasing managers’ surveys for Taiwan, Thailand and Indonesia all declined.

The latest Chinese home sales figures showed a worsening residential slump, after China Vanke Co. — one of the nation’s biggest developers — underlined the industry’s woes late Friday by reporting a half-year loss for the first time in more than two decades.

Authorities said on Friday they had stepped into the government-debt market to curb a relentless bond rally, though the move raises new questions about efforts to stimulate the world’s second-largest economy.

Elsewhere in Asia, Japanese businesses boosted investment in the second quarter of the year, reaffirming signs of moderate domestic demand-led activity after growth rebounded in the period.

September Volatility

September is historically a volatile month for global markets. It’s been one of the worst months for stocks in the past four years, while the dollar typically outperforms, according to data compiled by Bloomberg. Wall Street’s fear gauge – the Cboe Volatility Index, or VIX – has risen each September the past three years, the data show.

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This month may be no different with the crucial US jobs report later this week serving as a guide to how quick, or slow, the Fed will cut rates, and as the US election campaign gets into full swing. Options traders spent upwards of $9 million to protect against a surge in the VIX this month.

Meanwhile, data on Friday also showed the Fed’s preferred measure of underlying US inflation — the core personal consumption expenditures price index — rose at a mild pace. Traders are pricing the Fed’s easing cycle will begin this month, with a roughly one-in-four chance of a 50 basis point cut, according to data compiled by Bloomberg.

“Tactically, good news should be good news for risky assets” and a better-than-expected jobs report will likely lift stocks and the dollar, said Chris Weston, head of research at Pepperstone Group in Melbourne. “A 25 basis point cut is the move the Fed really wants to make, so further evidence that the US economy is headed for a soft landing, amid non-urgent rate cuts, plays into a nirvana backdrop for risk.”

In commodities markets, oil pushed lower on signs OPEC+ will progress with a plan to lift output from October, while the economic headwinds mount in China. Gold also declined.

Key events this week:

China Caixin manufacturing PMI, Monday

Indonesia CPI, Monday

India HSBC manufacturing PMI, Monday

Eurozone HCOB manufacturing PMI, Monday

UK S&P Global manufacturing PMI, Monday

US markets closed for Labor Day holiday, Monday

South Korea CPI, Tuesday

Switzerland GDP, CPI, Tuesday

South Africa GDP, Tuesday

US construction spending, ISM Manufacturing index, Tuesday

Mexico unemployment, Tuesday