Lower than expected manufacturing activity in China continued to pull Asian stocks down on Monday as lower commodity prices added to speculation about a US Federal Reserve meeting to discuss interest rates later this week.
In China, Shanghai’s Composite index fell 1.2 per cent at the beginning of Monday trading extending a loss from Friday’s 4,071 to just above 3,971 at press time.
Hong Kong’s Hang Seng dropped 2.8 per cent to 24,418.73 on Monday opening trade.
On Friday, Caixin Media/Markit reported that the flash manufacturing purchasing managers’ index (PMI), a key measure of factory activity in China, posted at 48.2, below the 49.7 level anticipated by most experts.
While the PMI was 50.2 in May, up from 48.9 in April, Friday’s data indicates that the index is at its lowest level in 15 months.
On Monday, Japan’s Nikkei 225 continued its sell-off as a result of the negative data from China – it fell 1.2 per cent to 20,297.41.
South Korea’s Kospi dropped 0.48 per cent to 2,036.29.
It was a similar scenario in Australia, Taiwan and New Zealand.
The Monday sell-off is likely to set the pace for the rest of the week, particularly when one considers the rapid decline in US stocks on July 24.
When markets closed in New York on Friday, SP 500, Dow Jones, and the Nasdaq had fallen 2.2, 2.9, and 2.3 per cent respectively, partly brought down by the lower commodities prices.
Oil, copper, and gold were all dramatically down on Friday.
Although gold recuperated some losses on Monday’s opening, commodity demand – and prices – have taken a downward spiral following China’s disappointing PMI data.
The logic follows that with manufacturing down in China – the world’s economic dynamo and greatest buyer of oil, demand for vital commodities will drop.
US Crude, for example, fell again on Monday Asian trade after ending last week with an overall 5.5 per cent drop.
More speculation, volatility
While most markets do not anticipate that the US Federal Reserve will announce an increase in interest rates this month – the earliest, they believe, will be September – they are nonetheless looking to Wednesday’s meeting of its powerful, decision-making Federal Open Market Committee (FOMC).
When Fed Chair Janet Yellen appeared before Congress on July 15, she said that gradual rate increases would be determined on a “meeting by meeting” basis of the FOMC.
However, markets will be looking to see what the FOMC says about inflation in the US. Yellen previously reiterated that while the pace of job gains had picked up in the US, inflation is running below the level preferred by the FOMC at 2 per cent.
Markets are also worried about the dollar’s continued strength against major currencies, and how it affects inflation in the US.
But the drop in US stocks has rubbed off somewhat on the dollar’s sheen in early Monday Asian trading; it traded lower against almost all major currencies, including the euro and the yen.
The BRICS Post with inputs from Agencies