Asian stock markets ended mixed last week as concerns over the euro zone crisis and Chinese economic growth weighed on the sentiment. The ambitious Spanish budget and hopes of stimulus measures from China lifted market sentiment during the second half and limited losses for the week.
Markets in Asia are expected to be relatively quiet due to the absence of Chinese markets for the whole week and Hong Kong for the first half. Market participants will be focused on the U.S. and Europe as central bank meetings and major economic releases are due during the week.
The U.S. economic data will be the point of focus particularly after the materialization of QE3 from the Fed to bolster the U.S. economy. Reports are likely to show a slight improvement but nothing would suggest significant acceleration in the growth momentum.
The U.S. Department of Labor's monthly non-farm payrolls report, which is the most closely watched economic statement pertaining to the job market and a key gauge for the direction and pace of the economic recovery, is due to be released Friday and is likely to show that the world’s largest economy added 125,000 jobs last month. ISM manufacturing survey is expected to show another month of contraction in September but at a slightly slower pace than in August.
The European Central Bank (ECB), the Bank of England (BoE) will hold their policy meetings Thursday while the Bank of Japan (BoJ) concludes its monetary policy meeting Friday. However, the meetings are unlikely to show any major impact on the market as all the central banks are widely anticipated to remain on hold in October and it is also quite clear that the loading of the OMT program now depends on Spain more than the ECB.
“The main market driver coming from Europe will likely be the way the market digests Moody’s decision on Spain’s rating, as well as the results of the Spanish banks’ stress test. We tend to believe that the market should digest those without major difficulty, as hopes for further action on the Spain/ ESM/ECB front may continue to provide a floor to possible disappointment,” said a note from Credit Agricole.
In Asia, market participants will likely focus on China’s September manufacturing PMI which is expected to show a straight second month of contraction but will still reflect an improvement from August. However, expectation of a further easing measure from the Chinese central bank to rejuvenate the economic growth momentum in the world’s second largest economy may provide some comfort during the week.
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