Global Markets Lacked Direction Amid Rate Path Uncertainties In U.S., Europe, and Japan

Alexander Garcia
02 Sep, 2024
Miami

Stocks struggled to advance in Europe, Japan, and China on the first trading day of September as investors reassessed the economic growth outlook and rate path. 

In New York, financial markets are closed on Monday for the Labor Day holiday.

Global market indexes rebounded in August after suffering steep losses in the first week of the month, following the easing of worries about the U.S. economic slowdown and weakening labor market conditions. 

Investor sentiment rebounded over the last three weeks after a string of positive economic reports indicated healthy labor market conditions and steady economic growth coupled with weakening inflation. 

Moreover, Fed Chair Jerome Powell signaled that policymakers are ready to lower rates if the current downward trend in inflation continues, but he fell short of announcing the amount and timing of the rate cut.

In the week ahead, investors in the U.S. are looking forward to the release of private manufacturing and services surveys, nonfarm payroll, the JOLT survey, factory orders, and international trade balances.

 

European Markets Traded Down After China Reported Weakness In Manufacturing Activities 

Stocks struggled on the first day of September after recording sharp gains in August as investors reassessed the economic outlook and future rate path. 

Benchmark indexes in Paris, London, and Frankfurt traded around the flatline after China's manufacturing activities continued to shrink for the fourth month in a row. 

Investors also turned cautious ahead of rate decisions by the European Central Bank in September and the Federal Reserve rate announcements on September 18. 

Market indexes in Europe plunged as much as 10% over the two-week period ending in the first week in August on the worry that the U.S. economy may slowdown amid weakening labor market conditions. 

However, those expectations turned out to be not true following a string of subsequent positive reports on the labor market, factory orders, and inflation. 

Market indexes rebounded over the last three weeks, and the benchmark index in Germany traded at a new high last week. 

In Europe, investors are looking forward to the release of tourist arrivals and car sales update in Spain, the manufacturing and service sector surveys in the eurozone.

Investor are also awaiting the release of retail sales updates in the eurozone and Italy, international trade balance in Germany and France, and the third and the final estimate of the second quarter GDP growth in the eurozone.

 

Europe Indexes and Yields

The DAX index increased by 0.1% to 18,930.85; the CAC-40 index added by 0.2% to 7,646.42; and the FTSE 100 index fell by 0.2% to 8,363.84. 

In the previous week, the DAX index advanced 2%, the CAC-40 index declined 1.1%, and the FTSE 100 index gained 1.5%. 

The yield on 10-year German bonds edged higher to 2.32%, French bonds inched up to 3.04%, the UK gilts edged up to 4.03%, and Italian bonds increased to 3.71%.

The euro edged down to $1.10; the British pound inched higher to $1.31; and the U.S. dollar weakened to 85.05 Swiss cents.

Brent crude increased $0.46 to $77.87 a barrel, and the Dutch TTF natural gas rose by €0.85 to €38.55 per MWh. 

 

Europe Stock Movers

Atos SE decreased 2.9% to €0.80, and the French information technology company lowered its annual revenue outlook citing current weakness in its key markets. 

Rightmove soared 21% to 672.18 pence after the Australian real estate platform operator REA Group confirmed that it is considering a cash and share offer for the UK-based real estate online portal.

Kainos Group PLC dropped 14.7% to 950.0 pence after the Northern Ireland-based company confirmed its annual revenue is likely to be lower than the current market estimates. 

Concurrent Technologies PLC jumped 5.3% to 128.50 pence, and the UK-based maker of embedded solutions for mission-critical applications released record interim results. 

Danske Bank increased 1.2% to DKK 213.20, and the Danish bank appointed Cecile Hillary as new chief financial officer to succeed retiring Stephan Engels. 

Luxury stocks in France and automobile makers in Germany traded down after China's manufacturing activities continued to shrink for the fourth month in a row. 

Kering SA decreased 2.2% to €253.45, Hermes International declined 1% to €2,147.0, and LVMH eased 1% to €667.40. 

Mercedes Benz decreased 1% to €61.67, BMW fell 1% to €83.0, and Ferrari declined 0.4% to €446.10. 

 

Japan Indexes Struggled to Advance, Capital Spending In Second Quarter Accelerated 

Benchmark indexes in Tokyo opened higher and extended gains of the previous month but face selling pressure in the afternoon trading. 

The Nikkei 225 and Topix indexes closed nearly unchanged after market indexes struggled to hold early lead. 

Market sentiment weakened after capital spending for plant and equipment in the second quarter rose at a slower-than-expected pace of 7.4%, the Ministry of Finance reported Monday. 

Capital spending stayed positive for the thirteenth quarter in a row and accelerated from an increase of 6.8% in the first quartet. 

Electricity production and transmission spending soared nearly 32%, followed by an increase of 23.7% in real estate and 20.6% in transportation. 

However, fabricated metal products spending declined 25.1%, machinery production fell by 15.6%, and wholesale and retail trade fell 8.9%. 

The final update on the manufacturing activities showed activities remained in contraction, according to the S&P Global Market Intelligence. 

The final au Jibun Bank Japan manufacturing purchasing managers' index edged up to 49.8 in August from 49.1 in July, and the index improved from 49.5 reported in the preliminary estimate. 

The index stayed below 50, the level that separates expansion from contraction. 

Weak new order trends from key customers in China and South Korea continued to weigh on the overall index. 

The yen edged slightly lower to 146.45 against the U.S. dollar, supporting the early rise in benchmark indexes. 

In Asia, investors are looking forward to the release of foreign exchange reserve in Japan, a private survey of service sector, and growth in bank loan, deposits, and foreign exchange in India. 

 

Japan Stock Movers 

The Nikkei 225 stock average increased 0.1% to 38,680.61 and the Topix index rose 0.09% to 2,714.96.

Banks edged higher in Tokyo in Monday's trading as investors awaited the Bank of Japan's monetary policy decisions later in the month. 

Sumitomo Mitsui Financial increased 0.5% to ¥9,597.0, Mitsubishi UFJ gained 1.3% to ¥1,548.50, and Mizuho Financial Group jumped 1.7% to ¥3,059.0. 

IHI Corp. increased 5.5% to ¥6,688.0, Kawasaki Heavy Industries advanced 3.5% to ¥5,321.0, Yakasawa Electric edged higher 1.4% to ¥4,900.0, and Tokyo Electric advanced 0.5% to ¥698.10. 

Seven & I Holding advanced 2.8% to ¥2,156.50, Takashimaya gained 2.7% to ¥1,146.50, Fast Retailing gained 0.4% to ¥46,820.0, and Isetan Mitsukoshi jumped 2% to ¥2,236.50. 

Sumitomo Pharma declined 6% to ¥628.0, Chugai Pharma decreased 6% to ¥6,936.0, and Toto fell 2.9% to ¥4,911.0. 

 

China Indexes Drop 1% After Manufacturing Activities Contracted for the Fourth Consecutive Month 

Stock market sentiment soured after manufacturing activities contracted and weak quarterly results from leading property developers. 

The Hang Seng and CSI 300 indexes dropped more than 1%, following a rebound of nearly 4% in April, after the official manufacturing survey showed activities contracted for the fourth month in a row in August. 

The official Manufacturing Purchasing Managers' Index fell to 49.1 in August, down from 49.4 in July, the National Bureau of Statistics reported Monday. 

The non-manufacturing survey, which includes activities in service and construction sectors, edged slightly higher to 50.3 from 50.2 in July. 

Caixin Manufacturing PMI, which mostly focuses on private and smaller companies, held at 50.4 in August. 

A reading above 50 indicates expansion, and below 50 shows contraction in activities. 

China's manufacturing sector is going through a rough patch amid restrictive economic policy and an uncertain macroeconomic outlook amid fragile economic recovery over the last nine months. 

Market sentiment was also weak after two China Vanke reported its first interim loss in two decades, and China Construction Bank and Industrial and Commercial Bank of China reported weaker-than-estimated quarterly results. 

 

China Stock Movers 

The Hang Seng index declined 1.6% to 17,700.40 and the CSI 300 index dropped 1.2% to 3,280.55.

New World Development Company dropped 13% to HK $6.82 after the real estate developer estimated annal loss. 

China Vanke declined 4.4% to HK $3.93, and the state-controlled residential real estate developer reported a net loss of 9.85 billion yuan in the first six months of 2024. 

The company swung from a net profit of 9.87 billion yuan in the six-month period in 2023 after revenue dropped 29% to 142.8 billion yuan. 

Contracted home sales in the period plunged 37% to 127 billion yuan. 

China Vanke, along with other leading mainland developers Shimao Group, Kaisa Group, and Fantasia, reported large losses last Thursday. 

China Resources Land declined 4.5% to HK $21.15 and China Overseas Land dropped 5.3% to HK $11.72. 

China Shenhua Energy eased 0.5% to HK $33.55 after the coal producer said net income in the first half declined 11% from a year ago. 

ICBC declined 3.2% to HK $4.35 and China Construction Bank dropped 1.8% to HK $5.42 after the two leading banks reported a 2% decline in profit in the first half.