Asian shares came under pressure on Monday after Chinese markets were hit by soft economic data, while the dollar sagged as investors questioned whether the US Federal Reserve will be confident enough to raise rates for the first time in almost a decade.
MSCI’s broadest index of Asia-Pacific shares outside Japan was wavering between positive and negative territory.
Chinese shares got the week off to a downbeat start after the disappointing data released over the weekend, with the CSI300 index and Shanghai Composite Index down 3.5 per cent and 3.2 per cent, respectively.
Growth in China’s investment and factory output missed forecasts in August, raising the chances that China’s third-quarter economic growth may dip below 7 per cent for the first time since the global crisis and adding to expectations that Beijing will take more measures to prop up the economy.
“China’s economy faces relatively big downward pressure, so investor sentiment remains weak,’’ said Gu Yongtao, strategist at Cinda Securities.
US stock futures pared earlier gains but were still up about 0.2 per cent from late US levels in Asian trade, building on Friday’s solid daily and weekly gains on Wall Street.
But Japan’s Nikkei stock index erased an early rise and dipped 1.5 per cent.
Bank of Japan's policy meet
Ahead of the US Federal Reserve’s policy meeting on Wednesday and Thursday, the Bank of Japan’s own two-day meeting will wrap up on Tuesday. Policymakers are widely expected to hold steady, despite increasing evidence that Japan’s inflation and growth remain in the doldrums.
“The majority of investors do not expect a policy change for now, but there is a slight expectation that the bank will ease some time soon,’’ said Chihiro Ohta, general manager at investment research and investor services at SMBC Nikko Securities, adding the market will scan BOJ Governor Haruhiko Kuroda's post-meeting speech for policy clues.
Slowing demand from China was likely to keep a lid on commodity prices.
China’s industrial commodities
China's output of key industrial commodities, including coal and steel, weakened in August, as government measures to prevent smog from affecting World War Two commemorations further cut production already lowered by a slowing economy.
Influential Wall Street trader Goldman Sachs cut its outlook on oil late last week, lowering its 2016 forecast for US crude to $45 a barrel from $57 previously, citing oversupply and concerns over China’s economy.
The investment bank said crude could even fall to near $20 a barrel.
US crude futures reversed earlier gains in Asian trade, skidding about 0.3 per cent to $44.52, after losing 3.0 per cent last week. Brent crude tumbled 0.8 per cent to $47.74.
All eyes on Fed
Trade in most asset classes could be subdued as investors assess the probability of the Fed finally implementing its long-awaited increase in interest rates.
A small majority of forecasters are sticking to their guns and predicting the Fed will pull the trigger on the first US interest rate increase in nearly a decade.
Currency speculators raised bullish dollar bets for the first time in about a month in the week ended September 8, according to Reuters’ calculations and the latest figures from the Commodity Futures Trading Commission, suggesting that some investors were betting on or hedging against a stronger greenback ahead of the Fed meeting.
But overall, traders are pricing in a smaller chance of a rate hike, suspecting the Fed may tread cautiously given the sharp falls in equity markets and commodities in recent weeks, as well signs of slacking global growth.
“We think it is almost 50-50 whether the Fed will raise rates this week but we expect a rate hike by December on the grounds that the US economy is pretty strong,’’ said Fumio Nakakubo, Japan CIO at UBS's wealth management division.
In the currency market, the dollar edged down against major currencies, with the dollar index giving up about 0.1 per cent to stand at 95.083.
Against the yen, the greenback traded at 120.33 yen, down about 0.2 per cent from late US trade on Friday, while the euro inched up about 0.1 per cent to $1.1347, holding on to last week’s 1.8 per cent gain.