Global equities faced a downturn on Tuesday due to weak service sector data that reignited concerns about China’s post-pandemic economy. Concurrently, Australia’s central bank opted to maintain interest rates at their current levels, leading to a decline in the Australian dollar.
European equity indexes opened with losses, with the pan-European benchmark STOXX 600 dropping 0.8%. Major indices including Germany’s DAX, France’s CAC 40, and Britain’s FTSE 100 sustained losses ranging from 0.6% to 1.2%.
MSCI’s broadest index of Asia-Pacific shares outside Japan experienced a 1.1% decline, retreating from a three-week high reached on Monday. This downturn contributed to a 0.3% decline in MSCI’s global stock index.
Recent optimism in China’s stock markets, boosted by government measures to revive the economy, has begun to wane. The blue-chip CSI 300 Index fell by 0.7%, while Hong Kong’s Hang Seng Index dropped by 2.1%, following their best performance in over a month on Monday.
However, this optimism diminished after a private-sector survey revealed that China’s services sector grew at the slowest pace in eight months in August due to persistently weak demand.
Charu Chanana, a market strategist at Saxo in Singapore, noted, “The miss in China’s Caixin services PMI has offset some of the sentiment shift we got yesterday.
Despite these challenges, investors are hopeful that Beijing’s gradual policy stimulus will stabilize the Chinese economy. Dan Boardman-Weston, CEO and CIO at BRI Wealth Management, remarked, “It feels like China has been tinkering around the edges, and they probably need to do something more substantial.”
In a rare positive development for China’s property sector, Country Garden made interest payments on two U.S. dollar bonds as a grace period expired.
The Australian dollar experienced a significant decline of 1.4% to $0.6374, marking its most significant daily drop in a month. This drop followed the decision by Australia’s central bank to keep interest rates steady at 4.10%. The central bank also noted that recent data align with the expectation of inflation returning to the 2% to 3% target range by late 2025.
While the bank maintained a hawkish bias, it conveyed a reluctance to act on this bias unless data necessitate such action.
U.S. markets were closed on Monday, resulting in light trading volumes. However, several Federal Reserve officials are scheduled to speak during the week.
Markets are currently pricing in a 93% likelihood of the Fed maintaining rates at their current levels later this month, as indicated by CME’s FedWatch tool. Additionally, there is roughly a 60% chance of no further rate hikes in the remainder of the year.
The euro weakened by 0.4% to $1.0750, reaching its lowest level since June. Simultaneously, the Japanese yen depreciated by 0.3% to 146.8555 per dollar, a level that previously prompted intervention by Japanese authorities last year.
This led to a 0.4% increase in the dollar index, which measures the U.S. currency against six major rivals.
In the commodities market, U.S. crude fell by 0.2% to $85.40 per barrel, while Brent crude traded at $88.38, down 0.7% for the day. Both crude oil benchmarks remain close to year-to-date highs.
BRI’s Boardman-Weston noted, “It’ll be interesting to see how rising oil prices start to shape the inflation narrative again. If inflation starts accelerating again, the Fed might need to go higher than we thought.”