US stocks started August with a bout of volatile trading, slipping lower after capping off their best month since 2020 last week.
The broad S&P 500 index swung between gains and losses on Monday, closing down 0.3 per cent for the day, while the tech-heavy Nasdaq Composite gave up 0.2 per cent.
Trading volumes in equity markets are typically thinner during the summer vacation period, which can exacerbate swings.
Monday’s declines followed a gain of more than 9 per cent for the S&P 500 in July, and a 12.3 per cent increase in the Nasdaq that marked the tech benchmark’s strongest month since April 2020.
A series of closely watched indicators of the health of the global manufacturing industry clouded the economic outlook. The Institute for Supply Management’s US purchasing managers’ index slipped to 52.8 in July, its lowest level sine June 2020. Any figure above 50 indicates an expansion, but the latest result points to a slowdown in growth.
However, the ISM’s prices index did provide an encouraging indication that cost pressures on companies may be easing. The sub-index fell to an almost two-year low of 60 in July from 78.5 the previous month, well below economist’s forecasts.
In China, meanwhile, an official survey released over the weekend showed that factory activity contracted unexpectedly last month, after new coronavirus flare-ups and stress in the nation’s property market weakened demand. The PMI for the manufacturing sector gave a reading of 49, down from 50.2 in June.
“Both domestic demand and external demand for manufacturing were weak,” Iris Pang, greater China economist at ING, said in a note to clients.
“Uncompleted real estate projects could be at least part of the reason,” Pang said, after indebted developers suspended construction of millions of apartments. Pang also cited a “risk of contagion from financially unhealthy property developers to their downstream and upstream industries”.
The weak data weighed on oil prices, with Brent crude falling 3.8 per cent to $100.03 per barrel.
Europe’s regional Stoxx 600 share index closed 0.2 per cent lower. An index of European banking stocks rose 0.9 per cent, lifted by quarterly earnings from lender HSBC that beat analysts’ forecasts.
In bond markets, the yield on the benchmark 10-year Treasury note slipped 0.05 percentage points to 2.59 per cent as its price rose, building on a strong rally for government debt last week after data showed the US economy had contracted for the second consecutive quarter.
In recent weeks, investors have scaled back their expectations of the extent to which the Federal Reserve will tighten monetary policy to curb red-hot inflation. Futures markets on Monday were pricing in a benchmark interest rate of about 3.3 per cent for February 2023, down from expectations of 3.9 per cent in mid-June. The US central bank’s current target range stands at 2.25 to 2.5 per cent, after it last week raised borrowing costs by 0.75 percentage points for the second time in as many months.
Markets are “looking beyond the well-known inflation issue and what they see as a slowdown which will force central banks to ease again”, said Antonio Cavarero, head of investments at Generali Insurance Asset Management.
Elsewhere, Italian government bonds rallied after weeks of coming under intense pressure. The yield on Rome’s 10-year debt dropped 0.15 percentage points, sitting below 3 per cent for the first time since May.