According to Bloomberg, Asian markets are expected to face losses on Monday as concerns over a deeper economic slowdown and rising tensions in the Middle East unsettle traders. US futures declined in early trading amid reports of escalating conflict in the Middle East, adding to market volatility. Investors are cautious, with global and Australian shares appearing vulnerable to further declines in the coming months, suggesting it may be too early to buy the dip.
US nonfarm payrolls rose, but the market reaction was negative. US Treasuries climbed on Friday, with policy-sensitive two-year yields falling to their lowest since May 2023. This decline reflects growing worries that the Federal Reserve's decision to maintain rates at a two-decade high could lead to a deeper economic slowdown. Brian Rose, a senior US economist at UBS Group AG’s wealth management unit, noted that with the unemployment rate above and core PCE inflation below the Fed’s year-end forecasts, the balance of risks favors more aggressive action by the Fed. Rose indicated that UBS is now expecting rate cuts of 50 basis points in September and 25 basis points each in November and December, a more aggressive stance than previously anticipated.
In Asia, traders will soon turn their attention to the private Caixin China services and composite activity data for further insights into the health of the world’s second-largest economy. This follows an unexpected contraction in manufacturing PMI for the first time in nine months. Chinese officials had previously indicated in July that there would be measures to support the economy.
Elsewhere this week, inflation data from Thailand and Chile are expected, while Mexico and Peru will hold policy decisions. Chris Weston, head of research at Pepperstone Group, suggested that better data this week could provide some confidence to a bond market that is currently overbought and offer reassurances to equity and credit markets. However, if the data continues to weaken and central banks do not align with market expectations, buying the dip in risk assets may not be as effective, and short sellers could find more opportunities.
