Chinese factory activity expanded at the fastest clip in nearly a decade in August as manufacturers scaled up production to meet an increasing demand, according to a private survey. The yuan jumped to its strongest level in over a year over the improving domestic data and the widening interest rate gap favouring the Chinese currency. China stocks closed higher led by new energy vehicle-related and mining shares, as strong factory data reflecting a bounce-back in its economy from the coronavirus crisis lifted sentiment.
The dollar hit a more than two-year low and a fourth straight month of losses yesterday in the wake of the US Federal Reserve’s policy shift on inflation. The euro continued to gain for the fourth consecutive session after gaining around 1.4% in August, also its fourth straight month of increases. Fed Chair Jerome Powell outlined an accommodative policy change that is believed could result in inflation moving slightly higher and interest rates staying lower for longer, reinforcing an ongoing downward trend in the dollar. The Fed’s stimulus to offset the economic effects of the coronavirus pandemic has driven risk assets higher and hurt the safe-haven dollar. The Japanese yen weakened almost 0.5% to 105.67 per dollar on the view that Japan's next leader will stay the course on the 'Abenomics' economic revival program. The yen climbed to 105.18 last week after Shinzo Abe resigned as prime minister for health reasons.
European shares opened higher after registering small gains in August, but there is increased volatility ahead of key economic readings that are likely to indicate an uneven recovery from the coronavirus. A stronger British pound, buying over $1.34 led London’s FTSE 100 lower after the index recorded its strongest August in six years on optimism that the worst of the pandemic’s economic damage was easing. The pan-European STOXX 50 rose in early trade, taking some support from promising Chinese manufacturing data. The FTSE 100 was down 0.6% after being closed yesterday for a bank holiday.
Japan’s factory activity contracted at the slowest pace in six months in August reducing as policymakers remain pressured to take more radical steps to prevent the economy from sliding deeper into recession. The world’s third-largest economy is expected to see a modest bounce in the current quarter after a record slump in April-June as new coronavirus cases keep a lid on consumer sentiment and slow the overall recovery. The seasonally adjusted unemployment rate was 2.9% in July, up from 2.8% in June. Economy Minister Yasutoshi Nishimura last week said he hoped the economy will recover to levels seen before the coronavirus around the first quarter of 2022.