China surprise lifts mood before US payrolls

US equities were mixed Thursday as investors welcomed another moderate inflation update, even as they braced for a potentially consequential jobs report Friday and the start of a three-day weekend. The Nasdaq Composite stood out, edging up to a four-week high, while Treasury yields, which surged around the end of July, slipped near three-week lows. August was a bit of a roller coaster for equities markets as investors digested earnings reports, as well as concerns about inflation, interest rates, and resurgent Treasury yields. At one point, the S&P 500 Index was down as much as 5.5% from its late July peak, though it has since recovered as some sources of potential concern have evolved. Meantime, in Europe, the Euro Stoxx 50 Index was down 0.4% for the day and wrapped up the month of August with a decline of 2.5%. 

Summary for 01.09.2023 

• Asian equity markets mostly rose on Friday as investors digested a private survey showing Chinese manufacturing activity unexpectedly expanded in August. Growing expectations that the Federal Reserve is hiking rates amid signs of cooling the US economy also supported equities. Shares in Japan, South Korea, and mainland China advanced, while Australian shares tumbled. Meanwhile, Hong Kong markets paused trading as Super Typhoon Saola approached. 
• European and US shares are on course to nudge higher later in the day after China unveiled more stimulus measures. 
• Oil prices steadied at three-week highs in Asian trade this morning as the prospect of tighter supplies, stemming from deeper Saudi and Russian production cuts, largely offset concerns over slowing economic growth. 
• China intensified efforts to stimulate the economy and support its currency, as investor concerns over the growth outlook persist. The central bank will trim the amount of foreign currency deposits banks are required to hold as reserves for the first time this year, the People’s Bank of China said Friday. The move came hours after authorities announced fresh stimulus for the beleaguered property sector and unveiled plans to expand tax breaks for child and parental care and education.  
• The Caixin China General Manufacturing PMI rose to 51.0 in August from 49.2 in July, topping market estimates of 49.3. This was the strongest pace of expansion in factory activity since February, amid multiple efforts from Beijing to revive a weakening post-pandemic recovery. Both output and new orders returned to expansion while employment expanded for the first time in 6 months. 
• The Fed’s preferred inflation, the core PCE price inflation, was at 0.2% in July and remained unchanged from the prior month’s seven-month low, marking the smallest back-to-back increase in over two years. Additionally, personal spending surpassed estimates of a 0.8% monthly growth rate, underscoring resilience from the US consumer and raising hopes that the US economy will refrain from contracting. 
• Eurozone inflation held steady at 5.3% in August, unchanged from the previous month’s figure and above the market consensus of 5.1%, a preliminary estimate showed yesterday. Meanwhile, the core rate cooled as expected to 5.3%, down from July’s 5.5%.  
• European Central Bank policymakers maintained the possibility of a September rate hike when they raised interest rates in July, but certain members appeared to suggest that such a move might no longer be necessary once new projections are disclosed, the minutes from the most recent ECB meeting showed. Arguments in favour of a pause are gaining traction, driven by the belief that the cumulative tightening’s impact is potent enough to reduce underlying inflation. 
• Broadcom forecast fourth-quarter revenue slightly above Wall Street estimates on Thursday, on optimism that generative artificial intelligence will keep demand for its AI networking chips solid and an expected boost in sales from the Apple iPhone launch. Nonetheless, shares were down more than 4% in after-hours trading.