With no lead from the US markets, which were closed yesterday, Asian markets are primed for small moves at the open today, awaiting key policy decisions out of Australia and a wage report from Japan. This follows Asian markets shrugging off weaker-than-expected manufacturing activity from China yesterday.

Tougher business climate

Both the private and state-owned surveys showed manufacturing activity slowing in August, signalling a tougher business climate internally, and dwindling global demand. This helped to spur talks of stimulus by the government, which lifted the Shanghai composite. The Shanghai composite gained 0.8% while the Nikkei added 0.3%. In the meantime, the Hang Seng was mostly flat after protestors took to the streets in the central region after Beijing ruled out a democratic election in 2017. The RBA is widely expected to keep interest rates unchanged later today, as the central bank tries to find equilibrium between supporting an economy that is facing decelerating mining investment and rising inflation, worsened by an overheated property market. Building approvals in Australia are expected to rebound in July, while the current account in Q2 is expected to show a deficit which has more than doubled from Q1. In Europe, disappointing manufacturing data out of the EU and an escalating crisis in Ukraine led to speculation that the ECB may offer a more concrete display of support for the economy, even if it fails to act later this week. This has hardened the stance for looser monetary policy in the upcoming months.

European slowdown ‘synchronised’

The slowdown of manufacturing activity from EU members was alarmingly synchronised. The manufacturing PMI figures slipped to an 11-month low in Germany, a 15-month low in France and a 14-month low in Italy, contributing to an overall EZ manufacturing PMI of 50.7, which hit an ominous 13-month low. Combined with the fact that EZ inflation slumped to a five-year low last Friday, and with German retail sales slipping back into the red, the European central bank will be pressured to act when it meets on Thursday. The US markets return later this evening with the release of ISM manufacturing PMI and construction spending. Investors will also want to note that the preview to the non-farm payrolls - otherwise known as the ADP jobs report - will be due out on Thursday instead of Wednesday, promising a volatile session with the ECB trade conference due 15 mins later.

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