Asian investors took a breather Tuesday as the previous day’s gains fuelled by the resumption of China-US trade talks were offset by worries about the global economic outlook following the release of disappointing factory data.
Hong Kong stocks rallied more than 2% as dealers returned from a long weekend to play catch-up with the rest of the region, with overnight violent protests in the city appearing to have had little effect on sentiment.
While Donald Trump and Xi Jinping’s agreement to kick-start negotiations provided some much-needed relief – and sent the S&P 500 to a new record on Wall Street – key questions remained unresolved, including on tech trade and intellectual property.
Stephen Innes at Vanguard Markets said: “Traders found themselves running too far ahead of the economic realities after a swathe of disappointing manufacturing reports from the US, China, and Europe provided a not-too-subtle reminder that the outlook for global growth remains quite harmful to risk sentiment.”
The closely watched Institute for Supply Management’s nationwide manufacturing index in the US fell to its lowest level in almost three years in June, hit by weak overseas demand with factories reluctant to produce stock they may not be able to sell.
Earlier, figures out of China and Europe pointed to contraction in their respective factory sectors, while Britain’s index fell to its lowest since 2013.
Eyes on central banks
Observers said the figures could put further pressure on central banks to provide support to economies with fresh stimulus.
The Federal Reserve is widely tipped to cut interest rates at its next policy meeting this month and the release of a US jobs report Friday will be closely followed as a weak reading could boost the case for a big reduction.
OANDA senior market analyst Edward Moya: “Stocks may see the next catalysts stem from deteriorating economic data that will support the arguments for the Fed to deliver a stronger commitment to easing and for the other major central banks to step up their efforts.”
Hong Kong was the biggest gainer, rising 1.2% as the trade news overshadowed a night of historic violence that saw protesters storm the city’s legislature before being dispersed by police.
The flare-up – on the 22nd anniversary of the handover to China – comes after weeks of massive demonstrations over a push to pass a bill that would allow extraditions to the mainland.
Innes added: “Unless this apparent one-off act of civil disobedience turns into a much, much longer affair, it won’t have any lasting economic impact. And while it is causing a few ripples, it won’t trigger a tidal wave impact on markets.”