Tuesday, August 3, 2021

Asia Stocks Record Gains Despite Covid-19 Concerns

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News shaping
the markets today

     

What’s happening: Asian markets closed higher on Monday, tracking a sharp recovery in Chinese stocks.

What happened: Markets in Asia started the week on a strong note, despite China recording some slowdown in factory activity.

Investors remain concerned, however, about the rapid spread of the Delta variant in the region, with one of the major Asian countries reporting its highest daily surge in covid-19 infections year to date.

Why it matters: Chinese stocks started the week with a sharp rebound, surging as much as 2% on Monday. China’s equity market rebounded after recording steep losses last week, following a crackdown on the country’s tech companies.

“Despite the long-term prospects of Chinese stocks, we think the stringency of recent regulatory actions will likely keep foreign investors on the edge for now until the sentiment starts improving,” Nomura analysts said in a note.

The gains in China’s markets followed economic report released Saturday showing a decline in the country's official PMI (Purchasing Managers' Index) to 50.4 in July, amid rising raw material costs, from 50.9 in the previous month. On Monday, a manufacturing survey by Caixin also showed July's index declining to 50.3, from 51.3 in June. The figure was the weakest since February last year.

“None of the factors for slower manufacturing and non-manufacturing growth have gone away. In fact, more policy directions were announced on 30 July, and they are directly from a meeting chaired by President Xi. Those policies aim at solving problems to achieve long-term economic stability, which could sacrifice short-term growth momentum,” ING analysts said.

China is also witnessing a rise in covid-19 infections with the spread of highly transmissible Delta variant. The country recorded its highest surge in daily cases since the start of the year.

Despite these concerns, China’s Shanghai Composite index settled higher by 1.97% at 3,464.29 on Monday.

Japan’s Nikkei 225 surged 1.8%, after settling at a near seven-month low on Friday, driven by strong economic reports. Japan’s consumer sentiment surged to its strongest level in seventeen months in July, while the manufacturing PMI for July was also revised higher, with growing output and new orders. Employment rose for the fourth straight month.

On the covid-19 front, Japan, extended the state of emergency in Tokyo to August 31.

Hong Kong’s Hang Seng index gained 1.06%, after retail sales rose 2.8% year-over-year in June. India’s BSE Sensex also rose 0.7% on Monday.

What to watch: Investors will continue to monitor the spread of the Delta variant in the Asian region, which could significantly impact overall sentiment. Markets also await the release of services data from several Asian countries, scheduled for Wednesday.

The Markets Today

     

Crude oil will be in focus today ahead of the API (American Petroleum Institute) data on stockpiles.

Context: Oil prices closed lower on Monday, following weak economic reports from the world's top oil consumers.

Details: The US and China released disappointing economic data, which fuelled concerns of weakening demand for crude oil. The higher crude output from the OPEC (Organization of the Petroleum Exporting Countries) group stoked fears of an oversupply in the market.

Factory activity growth in China fell in July, with demand contracting for the first time in over a year. The report added to worries of a slowdown in the second-biggest economy of the world.

America’s manufacturing index also fell in July, with growth slowing for the second month in a row. The ISM's manufacturing index declined to 59.5 in July, the weakest reading since January, compared to 60.6 in the previous month.

Oil prices also came under pressure after a Reuters survey suggested oil output from the OPEC in July had risen to its highest level since April last year.

Investor sentiment was supported to some extent by reports of the daily gasoline consumption in India, the world’s third-biggest oil consumer, surpassed the pre-covid levels in June with easing covid-19 restrictions in the country.

WTI crude oil for September delivery shed $2.69 to settle at $71.26 per barrel on Monday, while Brent crude oil for October delivery declined $2.52 to close at $72.89 per barrel.

In other energy commodities, wholesale gasoline for September delivery slipped 10 cents to close at $2.27 a gallon, while September natural gas added 3 cents to reach $3.94 per 1,000 cubic feet on Monday.

What to watch: Traders await the release of API’s data on crude oil stockpiles in the US, which had declined by 4.728 million barrels in the week ending July 23, following a 0.806 million rise in the prior week.

Rising covid-19 cases remains a major concern for markets, with total global cases surpassing 198.8 million.

Other Markets: European trading indices closed higher on Monday, with the FTSE 100, German DAX 30, French 40 and STOXX Europe 600 up by 0.70%, 0.16%, 0.95% and 0.59%, respectively.

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What else to watch today

     

Spain’s unemployment change and number of foreign tourist arrivals, Turkey’s consumer price index and producer price inflation, Eurozone’s producer prices, France's new car registrations, Mexico’s consumer confidence, Brazil’s industrial production, America’s Redbook index, factory orders, IBD/TIPP economic optimism index and Logistics Manager’s Index, as well as Canada’s manufacturing PMI.