China’s official gauge of factory activity shrank in July, as the new virus outbreak weighed on demand, and the Caixin PMI missed expectations.
Reuters reported that South Korea’s activity was weak for the first time in two years, while Japan expanded at the slowest pace in 10 months.
That did not bode well for a host of other PMIs this week, including the influential US ISM survey, while Friday’s July jobs report should also show a further slowdown, Reuters reported.
Meanwhile, US data released on Friday showed a pickup in inflation and wage growth, while central banks in the UK, Australia and India are expected to rise again this week.
Analysts at Barclays warned: “We expect the Bank of England to step up monetary tightening with a 50bp hike at its August meeting. The increase in energy prices is likely to be the main driver.”
“Central banks are focusing on the still-strong inflation momentum and tight labor markets rather than signs of slowing growth. This could disturb bad news in markets that are good news viewers.”
Caution was evident as MSCI’s broadest index of Asia Pacific shares outside Japan was roughly flat.
Chinese blue chips rose 0.4%, while Japan’s Nikkei added 0.5% and South Korea held steady.
S&P 500 and Nasdaq futures were down 0.4%. EUROSTOXX 50 futures lost 0.3%, as well as FTSE futures.
While US corporate earnings beat lower expectations, analysts at Bank of America warned that only 60% of the consumer discretionary sector reported that it was under the most pressure given consumer concerns about inflation.
“Our bull market indicators also suggest that it is too early to call a bottom: historical market lows have been accompanied by more than 80% of these indicators have triggered versus only 30% currently,” Bank of America said in a note.
“Furthermore, bear markets have always ended after a Fed cut, which is likely at least six months away – Bank of America’s home bid is the first cut in Q3 ’23.”
Bond markets also saw a strong rally, with 10-year yields plunging 35 basis points last month in the biggest drop since the pandemic began.
Returns were last at 2.670%, a long way from the June high of 3.498%.
The yield reversal led to some heat from the dollar, which lost ground for the second week of last week to stand at 105.650 for a basket of currencies, compared to a recent high of 109.290.
The biggest drop against the yen came as the speculators were on huge shortfalls and found themselves trapped by the sudden turnaround. The dollar fell 0.5% to 132.52 yen, after falling 2.1 percent last week.
The dollar has fared slightly better against the euro, which has a European energy crisis to deal with and made no headway in the past week.
The Euro was last at $1.0221 and is looking for heavy resistance around $1.0278.
The decline in the dollar and yields was a relief to gold which settled at $1,760 an ounce after rebounding 2.2% last week.
Oil prices fell again as the market waited to see if this week’s OPEC+ meeting led to oversupply, even if only slightly.
US crude fell $1.35 to $97.27 a barrel, while Brent lost $1.04 to $102.93.
ZHB