Analyst
The Stoxx 600 fell 0.6%, pointing towards a fifth consecutive day of declines, after the European stock index failed to hold onto yesterday's initial gains through the end of the European session. Investors are now on the August PMI data amid rising concerns of stagflation. Eurozone and U.K. PMI data likely to add to recession/stagflation concerns. ECB President Christine Lagarde did not provide clarity on interest rate decisions in her recent speech.
In the Eurozone, service sector activity in countries like France and Germany has been slowing down, with PMIs indicating declines meeting general market consensus. The Eurozone as a whole also experienced a dip in services PMI to 47.90 in August, indicating the most significant monthly contraction since March 2013, excluding the pandemic period.
The USD strengthened a bit further against the Group-of-10 currencies while US Treasuries dipped after a yesterday's holiday. Goldman Sachs exhibited optimism for the US economy by cutting its 12-month US recession probability from a prior estimate, citing positive inflation and labor market trends. Investors are waiting for the release of the U.S. Purchasing Managers Index for August to get more clarity on the state of the U.S. economy.
Asian equities, particularly Hong Kong, also took a hit due to the renewed concerns over China's slowing economic recovery. China's services sector growth weakened in August, revealing the economic recovery might be stalling. The services PMI for the month was 51.8, a significant miss against the expected 53.6 and the main driver for today's slump in Asia/Europe. Notably, export sales decreased for the first time since last December, however, employment trends continued to be positive.
Country Garden Holdings, a notable player in China's property sector, is taking steps to address its financial concerns by proposing extensions on principal payments and ensuring coupon payments on its bonds.
Japan's service sector marked growth for the twelfth consecutive month. In contrast, Australia's service sector recorded a decline, with the Judo Bank Australia Services PMI at 47.8 in August 2023.
The Reserve Bank of Australia has left its key interest rate unchanged at 4.1%, but expressed concern about persistent inflation rates. The board does not expect the inflation rate to approach its target range until the end of 2025.
The oil price fell slightly after weak Chinese data and could thus temporarily end its recent rally. Gold also experienced a downturn. The changes in these commodities come in as the market reacts to China concerns and shifts in the global economic outlook.
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