After the solid run of gains across most major Asian equity markets at the end of last week, the rally appears to have run out of steam – at least for now. There’s growing concern over the state of the Chinese economy, with even the state owned enterprises reporting slower profit growth in the first eight months of the year. Operating costs continue to outpace revenues, in turn squeezing margins. Even the Nikkei has broken its recent run of gains as USD/JPY dipped back below 109 during the session, adding weight on Japanese stocks. Tonight sees the HSBC estimate of Chinese PMI for September and in the event this falls below the 50 mark, unless we see some news of meaningful stimulus measures from Beijing then it could be difficult to stop this slide.
Wall Street is eyeing a softer start to the week too, with these fears of a Chinese slowdown certainly lingering. US home sales data is due for release before the open but it seems as if there are bigger sentiment issues in play right now so this reading is unlikely to provide any meaningful direction. News from China – or any further clues on how the Fed intends to time hiking interest rates – is what traders will be watching for. Right now we’re calling the DOW to open down 31 at 17249 and the S&P down 7 at 2003.