MSCI’s broadest index of Asia-Pacific shares outside Japan slid 1.2%, after dropping 2.25% last week
Asian share markets slid on Monday as concerns over U.S. and Chinese growth weighed on sentiment, though U.S. and European stock futures did manage a rise while bond yields retreated from their lows.
Data on consumer prices from China showed the world’s second largest economy remained a driver of global disinflation, with producer prices dropping an annual 1.8% in August when analysts had looked for a decline of 1.4%.
The CPI also missed forecasts at 0.6% for the year, with almost all the rise in food prices, and goods prices just 0.2% higher, pointing to subdued domestic demand.
Chinese blue chips declined 1.0% to seven-month lows, having already stumbled 2.7% last week.
Japan’s Nikkei bore the brunt of the early selling as tech stocks slipped, losing another 0.8% on top of a near 6% decline last week.
MSCI’s broadest index of Asia-Pacific shares outside Japan slid 1.2%, after dropping 2.25% last week, while South Korea’s market tumbled 0.2%.
On a steadier note, S&P 500 futures rallied 0.4% and Nasdaq futures 0.6%, following Friday’s decline. EUROSTOXX 50 futures gained 0.5% and FTSE futures gained 0.6%.
Fed fund futures slipped as investors wondered whether the mixed U.S. August payrolls report would be enough to tip the Fed into reducing rates by an outsized 50 bps when it meets next week.
So far, markets imply a 30% possibility of a large cut, in part due to comments from Fed Governor Christopher Waller and New York Fed President John Williams on Friday, though Waller did leave open the option of aggressive easing.
Our read of the data is that the labour market continues to cool, but we see no sign of the kind of rapid deterioration in conditions that would call for a 50bp rate cut, according to Barclays economist Christian Keller.
Importantly, we also see no indication of any appetite for this in Fed communications, he said. We retain our call for the Federal Reserve to begin its cycle with a 25bp cut, followed by two more 25bp at the remaining two meetings this year, and a total of 75bp of cuts next year.
Investors are considerably more dovish and have priced in 113 bps of easing by Christmas and another 132 bps for 2025.
Data on August U.S. consumer prices on Wednesday should underscore the case for a cut, if not the size, with headline inflation seen slowing to 2.6% from 2.9%.
