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Bargain hunting provides boost to risk assets

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By Hussein Sayed, Chief Market Strategist at Exinity Group

Equity markets found support early Monday as bargain hunters considered the latest selloff in risk assets as an opportunity to deploy some cash.

Asian stocks posted their biggest daily gains so far this month, with Chinese tech firms bouncing strongly off their year-to-date lows. US and European equity futures also indicate a positive start to the day. Meanwhile, the dollar declined against most major currencies providing some additional support to commodities.

There was no major news event leading to the shift in sentiment and Monday’s rally should be seen as dip buying rather than a shift in fundamentals. China has not ended the regulatory clampdown on several sectors and the Covid19 Delta variant continues to spread.

The coronavirus outbreak is becoming a serious concern to growth, with the latest wave being seen in deteriorating hard and soft economic figures across advanced and emerging economies. Preliminary data from IHS Markit showed on Monday that Australia’s manufacturing purchasing managers’ index fell to a 14-month low in August, while services contracted for a second month to record the lowest reading since May 2020.

Similarly in Japan, manufacturing and services PMI surveys fell sharply, as the country continued to grapple with a worsening outbreak of coronavirus. PMIs from Europe will be closely watched by investors as businesses last month recorded their fastest expansion in more than 20 years.

 

Data missing economists’ forecasts

Data released from the US and other advanced economies over the past several weeks have been missing economists’ forecasts at an accelerating pace. Citi’s economic surprise index, which measures the extent data is beating or missing economists’ forecasts, currently stands at its lowest point since mid-2020.

The deceleration in economic growth comes at a critical time, as the Fed has already signalled a willingness to begin tapering its bond buying programme later this year. That’s what makes the Jackson Hole summit later this week a critical event for investors, with the comments from Federal Reserve Chair Jerome Powell being the highlight. Is he going to offer any timeline as to when the Fed will begin tapering its monthly purchases of $120 billion or will recent events lead to a postponement of the plan?

The answer to this question will dictate the next move in Treasury yields, the dollar and other asset classes.

 

For information, disclaimer and risk warning note, visit: https://exinity.com/en-ae

Exinity ME Ltd, a company registered under the Laws of the Abu Dhabi Global Market (ADGM), is authorised and regulated by the Financial Services Regulatory Authority (FSRA)