The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, September 4, 2023.
A glance at the upcoming day’s events in European and global markets reveals a relatively light calendar for Europe, which implies that market sentiment is likely to draw inspiration from Asian markets. Asia, particularly China, is a focal point today with significant developments.
Property shares are bearing the brunt of negative sentiment following weekend data that unveiled a sharp 50% drop in new home sales in China’s major cities during the first week of September. This downturn in the real estate sector is a reflection of China’s ongoing economic challenges.
Country Garden, China’s largest private developer, has compounded the sector’s difficulties. It now faces its third round of voting by creditors this month, in a bid to stave off default. The proposed solution involves extending debt repayments to onshore creditors for a period of three years.
Additionally, the tech sector is underperforming, driven by the unexpected news of Alibaba’s outgoing CEO stepping away from the cloud business. These developments have led to Hong Kong’s Hang Seng index (.HSI) taking the lead in regional declines, with a significant slide of approximately 1.5%.
However, on the mainland, blue-chip stocks (.CSI300) exhibited relative strength, potentially bolstered by the release of data over the weekend indicating a reduction in deflationary pressures.
Simultaneously, China’s central bank has intervened by strengthening the yuan, pulling it away from a 16-year low. This action defied market expectations and resulted in the strongest official midpoint fixing on record.
Concurrently, the yen has rebounded from a 10-month low reached last week, driven by remarks from Bank of Japan Governor Kazuo Ueda in an interview with the Yomiuri newspaper. Ueda hinted at the possibility of ending the negative interest rate policy by the year-end.
Despite the subdued start in Europe, the upcoming week is anticipated to be eventful, with a primary focus on monetary policy.
The European Central Bank (ECB) is scheduled to announce its rates on Thursday, and market expectations for a rate hike have been increasing, bolstered by hawkish statements from officials and a rally in crude oil prices.
While ECB policymakers have entered a blackout period, the Bank of England (BOE) remains in focus, as it will make its announcement on September 21, a day after the U.S. Federal Reserve.
BOE’s chief economist, Huw Pill, is expected to speak today, laying the groundwork for British jobs data scheduled for Tuesday and GDP data to follow.
Regarding the Federal Reserve, recent communications from officials have emphasized a reluctance to raise rates this month, although they have not declared victory over inflation either. As such, the key data point to monitor this week will be the U.S. Consumer Price Index (CPI) data set for release on Wednesday.
