Stocks Tumble as China Services Data Disappoints, Australian Dollar Weighed Down by Unchanged Interest Rates

Global markets experienced a downward trend as disappointing China services data added to concerns over the nation’s fragile economic recovery.

Australia’s dollar continued its losses after the central bank decided to keep interest rates unchanged.

The MSCI Asia Pacific Index is on track for its first decline in seven days, with Hong Kong shares leading the way with a dip of more than 1%.

According to an industry survey, China’s services sector saw the slowest growth this year in August, further reinforcing the notion that the economic recovery is losing steam.

Hebe Chen, an analyst at IG Markets Ltd. in Melbourne, stated, “It’s the typical post-party reality check that’s cooling down China’s rally today, as the services PMI notably missed expectations, suggesting further economic downturn ahead.”

During Asian trading, futures for European and US stocks also fell while South Korean stocks joined the decline as August inflation accelerated faster than economists had predicted, driven by rising energy costs.

This development supports the argument for the central bank to remain open to further policy tightening.

Australian equities remained relatively stable, while the Australian dollar continued its earlier decline following the central bank’s decision to keep rates on hold for the third consecutive month.

Although officials indicated that further tightening might be necessary, they also acknowledged that inflation had peaked, and Australia’s bonds recovered some of their earlier losses.

In contrast, the US dollar gained strength against most of its Group-of-10 peers, while Treasuries slipped as cash trading resumed following a US holiday on Monday. The offshore yuan weakened in response to the PMI data.

Later in the day, traders will shift their focus to August PMI data from the euro area amid concerns about stagflation in the region. European Central Bank President Christine Lagarde refrained from signaling whether policymakers would raise or maintain interest rates in her speech on Monday.

In other market developments, oil prices remained near their highest levels since November due to supply cuts from OPEC+. Gold, on the other hand, experienced a decline.

In a more positive development, Country Garden Holdings Co. informed creditors that it had paid coupons of two dollar bonds within the grace periods. The developer is also proposing to extend principal payments for eight yuan bonds, as reported by holders briefed by company advisers.

Meanwhile, Goldman Sachs Group Inc. reduced its estimate of the probability of a US recession.

Chief economist Jan Hatzius noted, “Continued positive inflation and labor market news has led us to cut our estimated 12-month US recession probability further to 15%, down 5pp from our prior estimate.”