Stocks Retreat From Highs as Traders Await Data: Markets Wrap

(Bloomberg) — European stocks retreated from a record high as traders positioned for a data-intensive week that will cast fresh light on the likely pace of monetary policy easing by major central banks.

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Europe’s Stoxx 600 fell 0.5% in the first day of trading in a typical volatile month for markets. A gauge of Asian stocks dropped after Chinese factory activity contracted for a fourth straight month and a residential property slump worsened in the world’s second-biggest economy.

US equity futures weakened after the S&P 500 closed within a whisker of an all-time high on Friday. The dollar was steady, while cash Treasuries were closed for the US Labor Day holiday.

September has been one of the worst months for stocks in the past four years, while the dollar typically outperforms, according to data compiled by Bloomberg. Wall Street’s fear gauge – the Cboe Volatility Index, or VIX – has risen each September the past three years, the data show.

This month may be no different with the crucial US jobs report on Friday serving as a guide to how quick, or slow, the Fed will cut rates, and as the US election campaign gets into full swing. Traders are pricing the Fed’s easing cycle will begin this month, with a roughly one-in-four chance of a 50 basis point cut, according to data compiled by Bloomberg.

“This week’s jobs data will likely be a deciding factor for the FOMC to start with a 25 or 50 basis point cut,” Paul Mackel, Global Head of FX Research at HSBC Holdings Plc wrote in a note to clients. “At the recent Jackson Hole symposium, Fed Chair Jerome Powell made specific comments about avoiding a further weakening of the employment situation.”

Two days before Friday’s report, the government will issue figures on July job vacancies. The number of open positions, a measure of labor demand, is seen easing to a three-month low of 8.1 million — just above a more than three-year low.

As for the European Central Bank, Governing Council member Francois Villeroy de Galhau backed a cut in interest rates in September, according to an interview published on Friday, after data showed a marked slowdown in inflation.

Elsewhere, German Chancellor Olaf Scholz’s ruling coalition was punished in two regional elections in east of the country on on Sunday, with the far right clinching its first triumph in a state ballot since World War II. Still, the extreme right is highly unlikely to be able to form a government, as it’s shunned by the other parties represented in parliament.

China Woes

In Asian markets, multiple rounds of stimulus have failed to revive growth in China, where a prolonged property market slump is curbing domestic demand in the world’s second-largest economy.

While the Caixin China manufacturing data registered an unexpected increase on Monday, it fell short of reversing sentiment after an official gauge of factory activity contracted for a fourth straight month in August. Latest home sales figures showed a worsening residential slump, after China Vanke Co. underlined the industry’s woes late Friday by reporting a half-year loss for the first time in more than two decades.

“I think there’s a huge problem — by now everybody recognizes that,” Hao Ong, chief economist at Grow Investment Group told Bloomberg’s David Ingles and Yvonne Man in an interview. “The government needs to do substantially more.”

Oil pushed lower on signs OPEC+ will progress with a plan to lift output from October, while the economic headwinds mount in China. Gold and iron ore also declined.

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