August 2024 Outlook: United States-Neutral | Europe-Neutral | Japan-Slightly Negative | China-Neutral | Asia-Neutral
Market concerns about the US falling into a recession, with the market expecting the US to cut interest rates in September; The Eurozone economy is weak, and the rate cut in September will depend on the Jackson Hole central bank meeting; The Japanese market is weighed down by the US, with the central bank raising interest rates and the risk of unwinding the yen increasing; The Third Plenum failed to stimulate the market, and the Chinese and Hong Kong markets are expected to maintain a sideways trend; Affected by the decline in the US dollar, there is a potential for capital to flow into Asia.

🇺🇸 United States-Neutral
Market Concerning Over a Potential U.S. Recession with Expectation of Rate Cut in September
There have been major changes in the U.S. presidential election – Republican candidate Donald Trump has been the victim of an attack, and Democratic candidate Joe Biden has withdrawn from the race, with Kamala Harris becoming the new Democratic nominee, increasing the uncertainty surrounding the election. In the stock market, the S&P 500 index rose to 5660 points in July before experiencing a slight correction, ending the month with a 1.13% gain. In August, Intel reported results that missed expectations, causing its stock price to plummet 26% in a single day, affecting market confidence in the tech and AI sectors.

On the economic data front, July non-farm payrolls significantly missed expectations, with the unemployment rate rising to 4.3%, signaling recessionary signals. The market now expects the Federal Reserve to cut interest rates in September. While the upward trend in U.S. stocks is expected to continue, volatility is likely to increase gradually. Investors are advised to remain cautious.

🇪🇺 Europe-Neutral
Eurozone Economy Remaining Weak with September Rate Cut Depending on Jackson Hole Central Bank Meeting
In July, the MSCI Europe index recorded a 1.11% gain. The Bank of England announced a 0.25% rate cut on August 1st, lowering the interest rate to 5.0%. The market generally expects the UK economy to gradually recover under the Labour government. However, several Eurozone countries have reported their Q2 GDP data, with Germany and Hungary declining by 0.1% and 0.2% respectively, reflecting the continued weakness in the Eurozone economy.

While the market anticipates the possibility of another rate cut in Europe in September, investors need to keep a close eye on the upcoming Jackson Hole global central bank meeting from August 22-24. The stance of various central banks on further rate cuts will be revealed at this event, which will influence the future monetary policy direction in Europe.

🇯🇵 Japan-Slightly Negative
Japanese Market Weighing Down by U.S., Together with Rate Hikes and Rising Risks of Yen Unwind
The Nikkei index had briefly crossed the 42,000 mark in July, but failed to sustain the momentum, ultimately closing 1.22% lower at 39,000. The Bank of Japan announced a tightening of monetary policy on July 31st, raising interest rates to 0.25% and reducing bond purchases by 400 billion yen per quarter. Combined with the recession fears triggered by U.S. data, the Japanese market came under pressure. These factors led to a 19.5% plunge in the Nikkei 225 index to 31,458 points over the first 3 trading days of August.

While Japan’s Q2 GDP grew 3.1% on an annualized quarter-on-quarter basis, far exceeding the market’s 2.1% expectation, the risk of a Yen unwind remains elevated. Additionally, Japanese Prime Minister Fumio Kishida has decided not to seek re-election as the Liberal Democratic Party president, increasing political uncertainty. The Japanese market is expected to experience significant volatility, with greater downside risks going forward. Investors need to be vigilant.

🇨🇳 China & Hong Kong-Neutral
Third Plenum Failing to Stimulate Markets, Expecting Sideways Trend in China and Hong Kong
Although China’s July services PMI rose to 52.1, exceeding expectations, the manufacturing PMI was only 49.8, down 2 percentage points from June, falling below the boom-bust line. The growth in services was unable to offset the weakness in manufacturing. Moreover, the “Third Plenum” held in July failed to stimulate a rise in the Chinese and Hong Kong stock markets. As a result, the Hang Seng Index retreated from 18,000 to around 17,400, declining 2.1% in July.

Due to the weakening of the US dollar amid global recession concerns, the Renminbi exchange rate has risen to 7.16 against the US dollar, which may lead to capital inflows into Asian markets. However, the current market sentiment is cautious, and the Chinese and Hong Kong stock markets are expected to trade sideways at low levels. Investors need to closely monitor the implementation of new policies to assess the future direction of the domestic economy.

Asia-Neutral
US Dollar Declining, Potential for Capital Inflows into Asia
The economic situation in major Asian countries and regions is mixed, with the MSCI Asia index falling 0.59% in July. South Korea’s July exports grew less than expected, while the Indian stock market performed strongly, rising 3.35%, reflecting investor confidence in the Indian market.

Due to the decline in the US dollar, capital may flow out of the US and into Asia. The stock market performance in the Asian region is still similar to the sideways trend observed in the Chinese and Hong Kong markets. With the weakening of the US dollar, there is a potential for capital inflows into Asia.

However, the overall market sentiment in the region remains cautious, and the stock markets are expected to trade in a relatively sideways manner.

－ The End －

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