Stock markets worldwide experienced a volatile trading session on Monday as new data revealed weakening economic performance in China, dampening investor sentiment. This overshadowed the optimism surrounding an anticipated interest rate cut by the US Federal Reserve.
Asian Markets Dip While European Markets Rebound
Most major Asian markets ended the day lower following the release of data showing that China’s manufacturing sector contracted for the fourth consecutive month in August. The Purchasing Managers’ Index (PMI) fell to 49.1 points, indicating a sharper decline than July’s 49.4 points. A PMI below 50 signals contraction, causing concern among investors about the strength of the world’s second-largest economy.
Despite the initial downturn, European markets managed to recover by the end of the trading day. Frankfurt’s DAX index closed with a modest gain, setting a new record close. In contrast, Wall Street remained closed due to a public holiday in the United States.
China’s Economic Woes and Global Market Repercussions
The weaker-than-expected PMI data intensified calls for the Chinese government to introduce new stimulus measures, especially for the struggling property sector. Market analysts warned that without significant intervention, China’s government might miss its GDP growth target of around 5% for the year.
In response to the data, oil prices initially dropped but later stabilized, while the Chinese yuan weakened against the US dollar. The market jitters also affected specific sectors exposed to Chinese demand, such as luxury goods. British fashion brand Burberry saw its shares fall by 2.2%, and French luxury conglomerate Kering, owner of Gucci, shed 0.7% in Paris trading.
Mixed Reactions in Other Markets
Despite the overall cautious mood, some stocks surged. British online real estate platform Rightmove jumped 21.8% after its Australian competitor, REA Group, which is majority-owned by Rupert Murdoch’s News Corp, announced it is considering a multi-billion-pound takeover bid.
Conversely, Volkswagen shares rose 1.3% after the company issued a warning that job cuts and potential factory closures could be on the horizon due to economic pressures.
Focus Shifts to US Federal Reserve’s Next Moves
Looking ahead, market focus is on the US Federal Reserve and its upcoming decision on interest rates. Investors are closely monitoring economic data, including the non-farm payrolls report, which is due for release later this week. The report will provide a critical update on the health of the US economy and could influence the Fed’s rate cut decision.
While markets have already priced in a rate cut, there is still uncertainty about its size. A weaker-than-expected jobs report could prompt the Fed to implement a larger cut of 50 basis points instead of the widely expected 25 basis points, potentially setting the stage for more volatility in global markets.
JPMorgan Economist Predicts Prolonged Slump In China’s Housing Market Despite Stimulus Efforts
