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Asian stock markets cautious on worries over Chinese economy

Chinese economy

MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.2% from a five-week high, while South Korea dropped 0.9%

Share markets in Asia were cautious on Thursday on worries over the Chinese economy after a run of soft data, while the risk of a sub-par U.S. payrolls report kept the dollar on the defensive. A raft of manufacturing surveys suggested supply bottlenecks were tightening again with eight of nine Asian countries reporting longer delivery times.

The spread of the Delta variant amid still-low vaccination rates in many ASEAN economies and China’s zero-tolerance Covid strategy has prompted governments to impose restrictions and order factory/port closures, warned analysts at Nomura. Input shortages and low inventories will likely lead to production cuts and delayed shipments in Q3.

The uncertainty kept Chinese blue chips flat, though speculation of more fiscal stimulus offered some support. MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.2% from a five-week high. Japan’s Nikkei gained 0.2%, while South Korea dropped 0.9%.

Nasdaq futures and S&P 500 futures were barely changed, while EURO STOXX 50 futures and FTSE futures both declined 0.1%. Wall Street has been preoccupied with second-guessing U.S. August payrolls, due out on Friday, with the task made all the more uncertain by a disappointing reading on ADP private payrolls but a solid ISM survey of manufacturing.

Median forecasts are for a strong rise of 750,000 jobs, but they range from 375,000 to 1.02 million with the ADP report prompting speculation the risks are to the downside. Yet a soft number could be positive for risk assets since it would lessen pressure for early tapering from the Federal Reserve.

A print closer to 400k rather than 800k effectively means that the Fed’s condition of further substantial progress in the labour market will take longer to materialize, thus delaying the tapering decision from September to November, said Rodrigo Catril, a senior FX strategist at NAB. Bad news in the labour market is good news for risk assets given the punchbowl will remain well liquefied for a bit longer.

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