Another difficult day for Asia

Asia is going to face another difficult session on Wednesday. Markets in Europe and US sold heavily during the overnight session, with weak China data seemingly the catalyst.

China Skyline
Source: Bloomberg

In early trade, Australian, Japanese and Korean equities already started on a slippery tone. 

Many believe that China’s massive stimulus programme in the aftermath of the Global Financial Crisis in 2008 helped to prevent a repeat of the Great Recession in the 1930s. China is also a giant consumer of raw materials and an exporting powerhouse. All of this means China’s economic health and policies are critical for many other economies.

While China’s manufacturing PMI might be the trigger for another bout of losses in US and Europe, Chinese manufacturing activity has been unimpressive this year, therefore it should be nothing new. Furthermore, average or weaker manufacturing activities were reported across the world. This cannot be just an outcome of a slowing China.

In truth, there is still a slack in global demand despite optimism of a decent recovery at the start of the year. This would add fuel to the fear in the financial markets. The CBOE VIX index jumped above 30.

As long as the view that China is the saviour (or culprit, depending on your stand) holds true, what they do next will have a great impact on the financial markets. Today will be the last trading session for the Chinese markets this week as the country breaks for Victory Day commemoration on 3-4 September.

Many have the idea that the government would want it to end on a positive note, based on speculations that Beijing has intervened in the markets recently ahead of the military parade. This shall remain to be seen.

With risk aversion raging across the globe, we are seeing the recent theme in the currency sector solidifying. Commodity currencies were being hit hard, with CAD, AUD and NZD lower. The euro and Japanese yen were stronger, and the JPY strength is going to hurt Japanese equities further.

The dollar is rather mixed, so price action in the Asian currencies will be interesting. The Bloomberg JP Morgan Asia Dollar index (ADXY) is steady within 107.4-107.6.

In Singapore, the Straits Times Index closed below 2900 yesterday, slumped 1.3%, and a cumulated 2.5% during the first two days of the week. Poor overnight leads may push the STI below 2850 again. There is a significant barrier at the 2800 mark, and a retest of the lows at 2808.31 on 25 August 2015 may be on the cards.

Meanwhile, the Singapore general election (GE) begins in earnest, with the various political parties putting up banners and debating on national television. However, it is unlikely that the GE 2015 will affect the Singapore stock markets, as studies done on the impact in previous GEs proved inconclusive.

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