Dollar rise on Fed rate risk

Bonds in Asia declined as speculation U.S. interest rates will be raised as soon as next month underpinned the dollar. Copper and gold fell as shares in the region were mixed. Crude oil rallied.

 

The Bloomberg Dollar Spot Index extended gains at a four-month high, up 0.2 percent by 12:32 p.m. in Tokyo, as yields on 10-year debt from New Zealand to Japan climbed. Oil rose a second day, continuing its recovery from Monday’s rout, while copper resumed losses with gold. The MSCI Asia Pacific Index fluctuated as U.S. index futures rose 0.2 percent after Apple Inc. drove equity losses Tuesday.

 

Traders boosted bets on a September rate hike in the U.S. after Federal Reserve Bank of Atlanta chief Dennis Lockhart said he would only endorse putting it off should there be a significant deterioration in economic data. Oil’s rebound steadied commodity markets, quelling losses among energy and mining stocks ahead of a swag of services industry data from China to Japan and the U.S. Thailand is projected to keep benchmark borrowing costs unchanged at a review Wednesday.

 

“The overseas environment will continue to be a drag on the market,” Hiroichi Nishi, a manager at SMBC Nikko Securities Inc. in Tokyo, said by phone. “Lockhart’s comments made the market wary of rate hikes once again. Caution toward the Chinese economy continues to weigh on the market as well.”

 

Bloomberg’s dollar gauge, which tracks the greenback against 10 major peers, rose a third day, with the currency eking out further gains Wednesday against 12 of 16 major peers. The Malaysian ringgit slid 0.6 percent ahead of trade data, while the Korean won resumed losses, falling 0.7 percent. The Thai baht was down 0.3 percent before the rate decision.

China and Asia on shaky ground as factories step back in July

SYDNEY, Aug 3 (Reuters) – Headwinds for the world’s second-biggest economy intensified at the start of the third quarter, with manufacturing conditions in China deteriorating to their worst in two years in July and triggering fresh slides in global commodity prices.

 

Similar business activity surveys for Taiwan, South Korea and Indonesia – all heavily reliant on Chinese demand – reflected varying degrees of weakness that is clouding hopes for a convincing global recovery in the second half of the year.

 

With Greece’s latest debt squeeze resolved, for now, investors’ focus will shift back to sluggish European growth and whether the U.S. economy has healed enough to withstand its first expected increase in interest rates since 2006.

 

As emerging economies appeared on track to post their smallest share of global growth in years, the hope is for continued recovery in the United States and Britain. Manufacturing surveys for both countries, along with Europe, are due later in the day.

Both U.S. and UK data in recent weeks has been mixed, adding to doubts about whether they are on a sounder and sustainable footing.

 

“We believe the macro environment remains challenging for emerging market assets amid headwinds of low commodity prices, concerns over China and a looming Fed tightening cycle,” Barclays strategists wrote in a daily note in clients.

 

China’s factory activity shrank more than initially estimated in July as new orders fell, dashing hopes that the world’s second-largest economy may be steadying, a private survey showed on Monday.

The final Caixin/Markit China Manufacturing PMI came in at 47.8 in July, from 49.4 in June, sinking deeper below the 50-mark that divides growth from contraction.

A similar official factory survey at the weekend was also weaker than expected, suggesting growth had stalled.

 

Both indicators signalled a slowdown in factory activity at a time when Beijing has been intervening heavily to prevent a full-blown crash in the country’s stock markets.

“My view is that they are distorted numbers due to the stock market panic. If that’s the case, it’s a transitory dip and given the amount of stimulus that has been put in place, we should expect a bounce back in the August numbers,” said ING economist Tim Condon.

 

“But the economy can hardly afford much of a headwind, so probably it brings forward the timing of when people expect the next (policy) move from the authorities.”

China’s central bank has already cut interest rates four times since November and repeatedly loosened restrictions on bank lending in its most aggressive stimulus campaign since the global financial crisis.

 

Analysts at Nomura expect another 50-basis-point cut in banks’ reserve ratio and one more quarter-point easing in interest rates, likely in August.

 

Yet, a senior Chinese central bank official predicted that downward pressure on the economy will persist in the second half of the year, saying growth in infrastructure spending and exports were unlikely to pick up.

 

The frosty state of China saw South Korean exports fall for a seventh month in July, while economic growth in Taiwan cooled to its slowest in three years in the second quarter.

 

China’s slowdown is also forcing Western companies to take a hard look at their businesses, leading many to reduce investments, costs and product lines.

 

“In terms of external demand, loose monetary conditions and lower energy prices should support a pick-up in global activity in the coming quarters,” Krystal Tan, Asian economist at Capital Economics wrote in a report.

 

“However, the pace of recovery is likely to be gradual, suggesting a strong rebound in Asia’s export performance is still some way away.”

 

Providing a bit of relief, manufacturing activity in Japan and India both picked up in July thanks to new orders, though analysts questioned if the momentum can be sustained.

 

Japan’s Manufacturing PMI climbed to a five-month high of 51.2, from 50.1, while India’s Manufacturing PMI rose to a six-month high of 52.7, from 51.3.

 

“While this is a generally positive set of data, upcoming PMI data releases will indicate whether the manufacturing sector can sustain this momentum,” said Pollyanna De Lima, economist at Markit and author of the Indian PMI survey.