Money Matters September 10th, 2015

Money Matters September 10th, 2015

Money Matters September 10th, 2015 620 350 AMA Team

Asia Pacific
The MSCI Pacific Index was down 5.9% in the week to 4 September as regional markets were again hit by Chinese growth concerns.
Japan’s TOPIX fell 6.8%, hit by reduced expectations for further monetary easing by the Bank of Japan (BoJ). With recent Japanese economic data missing expectations and Chinese demand slowing, the BoJ has come under pressure to take action to prevent the country from falling back into recession.
Last week saw the announcement of disappointing wage growth and industrial production data for July, further hitting expectations for third-quarter Japanese GDP growth. However, while acknowledging that Japan’s economy is faltering and that inflation targets may be missed, BoJ officials played down hopes for further monetary stimulus.
Elsewhere, Hong Kong’s Hang Seng was down 3.6% and Singapore’s Straits Times was 3.1% lower, in line with falls on other global markets, while Australia’s All Ordinaries slipped 4.1%, hit by its bias towards mining and commodity-related stocks as commodity prices continued to weaken.
United States
US stocks fell in the week to 4 September, as nervousness ahead of the release of August’s employment report, and any potential implications for the timing of the first interest rate rise, weighed on sentiment. The S&P 500 and Dow Jones Industrial Average were down 3.4% and 3.2%, respectively, while the technology-biased Nasdaq fell 3.0%.
Chinese growth concerns also continued to have a negative impact, with energy, financial and technology stocks the weakest performers in the week.
Recent market volatility and worries over China have caused speculation that the Federal Reserve (the Fed) could delay interest rate increases. Investors were therefore focused on the release of August’s non-farm payrolls report on Friday for any hints as to when the Fed may begin to raise rates.
The report painted a broadly positive picture of the US labour market. 173,000 jobs were created in the US in August, short of expectations, but an upward revision to the previous two months’ readings left the three-month average gain at 221,000. The unemployment rate fell to 5.1%, the lowest level in more than seven years, while average hourly earnings rose 0.3%.
The drop in the unemployment rate and the increase in earnings support expectations for the Fed to begin to normalise policy at its meeting on 16/17 September. However, a lower-than-expected headline figure of 173,000 makes the outcome of the upcoming meeting a very close call.
Away from the labour market, economic data released in the week was mixed. Factory data was lacklustre, with the US Institute for Supply Management’s manufacturing index falling to a lower-than-expected 51.1 in August from 52.7 in July, marking the lowest reading since May 2013. The reading highlighted declines in orders, production and employment. The non-manufacturing index, however, remained strong at 59.0 in August, helped by robust consumer demand.
On the positive side, the US trade deficit narrowed to USD 49.1 billion in July, in line with expectations. Exports rose 0.4%, helped by a 4.7% jump in auto exports, while imports fell 1.1%, due to a decline in consumer goods.
Europe
European stock markets began September under pressure following the China-related volatility of late August. The MSCI Europe Index was 2.8% lower in the week ended 4 September.
Among the major markets Spain’s IBEX 35 underperformed with a 5.1% decline, while the French CAC 40 and UK’s FTSE 100 both dropped 3.3%, Germany’s DAX fell 2.5%, Italy’s FTSE MIB lost 2.4% and the Swiss SPI fell 1.4%.
Stocks linked to Chinese demand continued to suffer, with mining and resources companies down the most, while carmakers, banks and retailers all fell heavily.
Concerns over slowing growth in China were acknowledged by European Central Bank (ECB) president Mario Draghi in dovish comments following the latest monetary policy meeting. Draghi suggested that the ECB could boost its quantitative easing programme to bolster growth in the face of a slowdown in China and other emerging market economies.
Expectations for further ECB asset purchases helped push down eurozone government bond yields, with the yield on the German 10-year Bund falling 7 basis points to end the week at just 0.67%.
Nevertheless, eurozone economic data releases remained positive in the week. For example, the final reading for the August composite purchasing managers’ index (PMI), at 52.0, showed some resilience in European industrial output against a backdrop of rising global growth concerns.
Unemployment continued to drop across the region, with the euro area seasonally adjusted unemployment rate falling 0.2 percentage points to 10.9% in July—the lowest level since February 2012—while eurozone retail sales rose 0.4% month on month in July, supported by further falls in oil prices.
There was also some good news in Italy, where second-quarter GDP growth was revised up to 1.3% quarter on quarter annualised, from the initial estimate of 0.75%. Recent strength in PMI and economic sentiment surveys suggest that Italy’s recovery remains on track in the current quarter.
Despite the significant recent improvement in Europe’s economy, regional growth remains fairly dependent on the rest of the world. Therefore, nervousness over the state of the Chinese economy and worries over the economic impact of US interest rate increases may cause further market volatility. However, the ECB’s willingness to take further action to support the eurozone economy is positive and should provide support for Europe’s equity markets in the short term.
Global Emerging Markets
Chinese growth concerns contributed to a 2.5% fall in the MSCI Emerging Markets Index in the week to 4 September.
The MSCI China Index fell 5.3%. The National Bureau of Statistics’ official purchasing managers’ index (PMI) showed that China’s manufacturing sector contracted in August for the first time since February.
The devaluation of the Chinese yuan by the People’s Bank of China in mid August also continued to cause volatility, amid concern that the move was an attempt to stabilise an economy that is weakening more than initially thought.
Elsewhere in emerging Asia, India’s Sensex dropped 4.5%, as second-quarter GDP data surprised sharply to the downside. The Indian economy expanded 7% year on year in the April-to-June quarter, which was weaker than expected and slower than the 7.5% growth rate for the first quarter. Sentiment was further hit by news that the Indian government would drop plans to make it easier for the state to acquire land.
In Taiwan, the Taiex slipped 0.2%. August’s manufacturing PMI dropped to 46.1, from 47.1 in July, marking the fifth consecutive monthly reading below the 50 threshold. A decline in the export orders component of the index points to ongoing weakness in external demand. In South Korea, the Kospi was down 2.7%. Business sentiment improved in August, while domestic demand improved in July, helped by a rebound in consumer goods sales.
In Latin America, Brazil’s Bovespa ended 1.4% lower, while Mexico’s IPC was down 1.3%. Mexican stocks came under pressure following the release of the US employment report for August, which gave few hints to whether the Federal Reserve is likely to raise interest rates this month.
In emerging Europe, Turkey’s BIST 100 was down 2.3%, as August’s inflation reading surprising on the upside, helped by stubbornly high food prices.
Russia’s RTS ended the week 4.4% lower, while Poland’s WIG and Hungary’s BUX returned -0.4% and 0.0%, respectively.
Bonds & Currency

Chinese growth concerns contributed to a 2.5% fall in the MSCI Emerging Markets Index in the week to 4 September.
The MSCI China Index fell 5.3%. The National Bureau of Statistics’ official purchasing managers’ index (PMI) showed that China’s manufacturing sector contracted in August for the first time since February.
The devaluation of the Chinese yuan by the People’s Bank of China in mid August also continued to cause volatility, amid concern that the move was an attempt to stabilise an economy that is weakening more than initially thought.
Elsewhere in emerging Asia, India’s Sensex dropped 4.5%, as second-quarter GDP data surprised sharply to the downside. The Indian economy expanded 7% year on year in the April-to-June quarter, which was weaker than expected and slower than the 7.5% growth rate for the first quarter. Sentiment was further hit by news that the Indian government would drop plans to make it easier for the state to acquire land.
In Taiwan, the Taiex slipped 0.2%. August’s manufacturing PMI dropped to 46.1, from 47.1 in July, marking the fifth consecutive monthly reading below the 50 threshold. A decline in the export orders component of the index points to ongoing weakness in external demand. In South Korea, the Kospi was down 2.7%. Business sentiment improved in August, while domestic demand improved in July, helped by a rebound in consumer goods sales.
In Latin America, Brazil’s Bovespa ended 1.4% lower, while Mexico’s IPC was down 1.3%. Mexican stocks came under pressure following the release of the US employment report for August, which gave few hints to whether the Federal Reserve is likely to raise interest rates this month.
In emerging Europe, Turkey’s BIST 100 was down 2.3%, as August’s inflation reading surprising on the upside, helped by stubbornly high food prices.
Russia’s RTS ended the week 4.4% lower, while Poland’s WIG and Hungary’s BUX returned -0.4% and 0.0%, respectively.
*Source: J.P. Morgan Asset Management

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