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(C) Reuters.

Investing.com – The U.S. dollar gained in early European trade Tuesday, as traders turned to this safe haven after disappointing Chinese services activity hit risk-taking sentiment.

At 03:00 ET (07:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher at 104.382, close to three-month highs.

Weak Chinese data boosts safe-haven dollar

Data released earlier Tuesday showed that China’s services activity expanded at the slowest pace in eight months in August, with stimulus from Beijing having so far failed to meaningfully revive the second largest economy in the world.

The Caixin services purchasing managers’ index rose 51.8 in August, lower than expectations for a reading of 53.6 and July’s figure of 54.1.

This disappointment has seen traders run to the safety of the U.S. dollar, with the dollar index climbing close to its highest level since early-June.

At the same time, USD/CNY rose 0.3% to 7.2940, with the yuan falling to a one-week low.

The U.S. market is set to return from Monday’s public holiday, and the focus is likely to be on the number of Fed officials who are set to speak this week, offering more cues on monetary policy before a hotly-anticipated meeting later in September.

While the U.S. central bank is expected to keep interest rates steady, it is also expected to reiterate its plans to keep rates higher for longer.

Euro weakens ahead of Lagarde speech

EUR/USD fell 0.3% to 1.0764 ahead of the release of the final eurozone activity data for August, which is expected to paint a negative picture of the strength of the region’s economy.

The eurozone composite PMI is expected to come in at 47.0 in August, a fall further into contraction territory from 48.6 the prior month.

A run of soft eurozone data, particularly out of Germany, Europe’s biggest economy, has raised the likelihood of the European Central Bank pausing its rate-hiking cycle later this month.

ECB President Christine Lagarde is set to speak later Tuesday, her second consecutive day in the spotlight. She declined on Monday to remove the impression that the central bank officials were looking to pause the series of rate hikes at the meeting later this month.

GBP/USD also fell 0.3% to 1.2584, with the U.K.’s composite PMI also expected to retreat, falling into contraction territory, at 47.9 in August, from 50.8 in previous month.

Aussie dollar slumps after RBA meeting

AUD/USD fell 1.3% 0.6373, with the Aussie dollar hit hard after the Reserve Bank kept its cash target rate at 4.10%, offering up no changes to its wait-and-see stance in its final meeting with Governor Philip Lowe at the helm

The RBA has now kept rates steady for a fourth straight month, and although it left the door open to future increases, markets are pricing only a small chance that rates go higher from here.

Elsewhere, USD/JPY rose 0.3% to 146.93, with the pair close to a one-week high and likely heading towards the 150 level unless Japanese authorities choose to intervene.

(C) Reuters.

Investing.com– Most Asian stocks fell on Tuesday with Chinese stocks retreating on continued concerns over slowing growth and a property sector meltdown, while hot inflation readings from across the region also pushed up concerns over higher interest rates.

Chinese stocks were the worst performers for the day, as investors grew more impatient with Beijing’s slow approach to rolling out more stimulus measures. A private survey also showed that Chinese service sector activity grew less than expected in August, as a slowdown in overseas demand added to pressure from weak domestic spending.

The Shanghai Shenzhen CSI 300 and Shanghai Composite indexes fell around 0.6% each, while Hong Kong’s Hang Seng index slid 1.5%, as investors locked in recent profits in property and technology stocks. Concerns over embattled property developer Country Garden Holdings (HK:2007) also weighed, given that while the firm won approval for the extension of some debt payments, it still has other bond payments due this week.

Chinese stocks saw a strong run-up over the past week, as the government outlined more supportive measures for the property sector and also cut duties on stock trading. But investors are now calling on Beijing to carry out targeted, fiscal measures to support the economy, especially after growth slowed substantially in the second quarter.

The selldown in China kept broader sentiment towards Asian stocks muted. Japan’s Nikkei 225 fell slightly after data showed household spending slowed more than expected in July, while futures for India’s Nifty 50 index pointed to a mildly weaker open.

South Korea, Philippine inflation reads more than expected

South Korea’s KOSPI and the Philippine PSEi Composite both fell 0.3% on Tuesday after respective inflation readings from the two countries read higher-than-expected for August.

The readings pushed up concerns over a broader resurgence in inflation through Asia, especially amid rising oil prices and potential disruptions in global food supplies. Any signs of sticky inflation gives regional central banks more impetus to remain hawkish, which in turn bodes poorly for stock markets.

Inflation readings from Thailand are also due later in the day, while China will report inflation figures later this week. China has been the key outlier among its global peers, and is grappling with rampant disinflation due to a slowing economic recovery.

Australian stocks hit by China fears, RBA awaited

Australia’s ASX 200 fell 0.6%, tracking a decline in Chinese stocks amid persistent concerns over Canberra’s biggest trading partner.

Investors were also awaiting an interest rate decision from the Reserve Bank, which is widely expected to keep rates on hold amid easing inflation and some cooling in the jobs market.

But the RBA could still flag more rate hikes later this year, given that inflation still remains well above the bank’s annual target range.

(C) Reuters. FILE PHOTO: A Chinese flag is displayed next to a “Made in China” sign seen on a printed circuit board with semiconductor chips, in this illustration picture taken February 17, 2023. REUTERS/Florence Lo/Illustration/File Photo

By Julie Zhu, Kevin Huang, Yelin Mo and Roxanne Liu

HONG KONG/BEIJING (Reuters) – China is set to launch a new state-backed investment fund that aims to raise about $40 billion for its semiconductor sector, two people familiar with the matter said, as the country ramps up efforts to catch up with the U.S. and other rivals.

It is likely to be the biggest of three funds launched by the China Integrated Circuit Industry Investment Fund, also known as the Big Fund.

Its target of 300 billion yuan ($41 billion) outdoes similar funds in 2014 and 2019, which according to government reports, raised 138.7 billion yuan and 200 billion yuan respectively.

One main area of investment will be equipment for chip manufacturing, said one of the two people and a third person familiar with the matter.

President Xi Jinping has long stressed the need for China to achieve self-sufficiency in semiconductors. That need has become all the more pressing after Washington imposed a series of export control measures over the last couple of years, citing fears that Beijing could use advanced chips to boost its military capabilities.

In October, the U.S. rolled out a sweeping sanctions package that cut China’s access to advanced chipmaking equipment and U.S. allies Japan and the Netherlands have taken similar steps.

The new fund was approved by Chinese authorities in recent months, two of the people said.

China’s finance ministry is planning to contribute 60 billion yuan, said one person. Other contributors could not be immediately learned.

All the sources declined to be identified as the discussions were confidential.

The State Council Information Office, which handles media queries on behalf of the government, the finance ministry and the Ministry of Industry and Information Technology did not immediately respond to Reuters requests for comment.

The Big Fund also did not immediately respond to requests for comment.

INVESTMENTS TO DATE

The fundraising process will likely take months and it was not immediately clear when the third fund will be launched or if further changes will be made to the plan, said the first two sources.

Backers of the Big Fund’s previous two funds include the finance ministry and deep-pocketed state-owned entities such as China Development Bank Capital, China National Tobacco Corporation and China Telecom (NYSE:CHA).

Over the years, the Big Fund has provided financing to China’s two biggest chip foundries, Semiconductor Manufacturing International Corporation and Hua Hong Semiconductor, as well as to Yangtze Memory Technologies, a maker of flash memory and a number of smaller companies and funds.

Despite those investments, China’s chip industry has struggled to play a leading role in the global supply chain, especially for advanced chips.

INVESTMENT MANAGERS

The Big Fund is considering hiring at least two institutions to invest the new fund’s capital, said the three people.

Several senior officials and former officials at SINO-IC Capital, the sole manager for the Big Fund’s first two funds, have been under investigation by China’s anti-graft authority since 2021.

Even so, SINO-IC Capital is expected to remain one of the managers for the third fund, said two of the people.

SINO-IC Capital did not immediately respond to a request for comment.

Chinese officials have also reached out to China Aerospace Investment, the investment arm of state-owned China Aerospace Science and Technology Corporation, to discuss being one of the managers, said two of the people.

China Aerospace Investment did not immediately respond to a request for comment.

($1 = 7.2901 Chinese yuan)

(C) Reuters. FILE PHOTO: A construction site of residential buildings by Chinese developer Country Garden is pictured in Tianjin, China August 18, 2023. REUTERS/Tingshu Wang/File Photo

By Xie Yu and Shuyan Wang

HONG KONG/BEIJING (Reuters) -China’s Country Garden made interest payments on U.S. dollar bonds hours ahead of a grace period deadline, a person close to the firm said, pulling back from the brink of default for the second time in four days and bringing some relief to the country’s crisis-hit property sector.

China’s largest private property developer failed to pay coupons on the bonds totalling $22.5 million due on Aug. 6, exacerbating fears over how much cash it has left and keeping markets on tenterhooks throughout the bonds’ 30-day grace periods.

Though the amount was modest, failure to pay would have undermined fragile hope in financial markets that China’s steady drip feed of policy stimulus was starting to stabilise the economy and its struggling property market.

It would also have raised the prospect of default on other dollar bonds as well as creditor calls to accelerate payments, bondholders and lawyers said, while heightening concern of a spillover into the banking system in the world’s second-largest economy.

Country Garden also offered on Tuesday to extend repayment of eight onshore bonds worth 10.8 billion yuan ($1.48 billion) by three years, according to people with knowledge of the matter and documents seen by Reuters.

Those bonds, issued by Country Garden and a unit, were set to mature and be puttable – an option given to bondholders to sell the notes back to the borrower at a fixed date – in 2023 and 2024, showed the documents sent to onshore creditors.

Country Garden did not respond to a request for comment.

The people familiar with the matter declined to be identified as they were not authorised to speak with media.

“Country Garden is trying hard to fulfil debt obligations but whether this can continue will depend on the effectiveness of this round of stimulus and regulatory relaxation (of curbs on the property sector),” said Gary Ng, Natixis Asia Pacific senior economist.

The latest government stimulus measures over the last few days included lowering existing mortgage rates and preferential loans for first-home purchases in big cities, but many analysts say more support will be needed to stabilise the property sector, restore consumer confidence and sow the seeds for an eventual recovery.

STUTTERING ECONOMY

Country Garden’s cash squeeze highlights the fragile state of China’s real estate sector, which accounts for roughly a quarter of the economy and whose situation has deteriorated since a government campaign against high leverage began in 2021.

Making matters worse is a lacklustre post-pandemic economic recovery.

Services sector activity grew at its slowest pace in eight months in August, a private-sector survey showed on Tuesday, as weak demand continued to dog the economy and stimulus measures failed to meaningfully revive consumption.

Global stock markets fell on Tuesday as the weak services data rekindled worries over the health of China’s economy, though factory surveys hinted at some signs of steadying.

“With domestic demand weak and house prices on the slide in smaller Chinese cities in particular, there are still worries about the fragility of the real estate sector,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown, U.K.

“Stimulus efforts to increase mortgage lending are welcome but a much larger package of support is likely to be needed to restore more confidence in the sector, and put exposed property firms on a firmer footing.”

DODGE, DUCK, DIP AND DIVE

Some of Country Garden’s dollar bonds added 2 points to their prices after news of Tuesday’s payments – a sign the bonds were trading with accrued interest, or with expectations that coupons will be paid, traders said.

Prices were, however, still at distressed levels, ranging from 11 to 15 cents to the dollar.

Country Garden’s share price ended down 1%, after having fallen as much as 5% earlier in the day. The Hang Seng Mainland Properties Index and China’s CSI 300 Real Estate Index lost more than 2% each.

The interest payments for offshore bonds came after Country Garden on Friday won approval from onshore creditors to extend the maturity of a private bond worth 3.9 billion yuan ($536 million).

Country Garden has not missed a debt payment obligation, onshore or offshore. However, it flagged the risk of default should its financial performance continue to deteriorate after posting a record loss for the first half of the year.

The developer has about $162 million of offshore bond interest payments due during the rest of the year, showed data from researcher CreditSights.

Country Garden’s onshore debt extension deal “might have given a template” on how the firm will negotiate for new repayment plans with creditors both onshore and offshore, said Ting Meng, a senior credit strategist at ANZ.

“The three-year extension of maturity offered by Country Garden looks better than restructuring plans by most of the other troubled developers,” Meng said.

“But the key is whether the plan could roll out smoothly, which can only be achieved if China manages to turn around the downward spiral on its property market,” she added.

(C) Reuters.

Investing.com – European stock markets traded lower Tuesday, weighed by Chinese economic weakness ahead of the release of the final business activity data for the region.

At 03:25 ET (07:25 GMT), the DAX index in Germany traded 0.5% lower, the FTSE 100 in the U.K. fell 0.6% and the CAC 40 in France dropped 0.8%.

Weak Chinese data hits global sentiment

Sentiment has been hit Tuesday by the release of a private-sector survey showing China’s services activity expanded at the slowest pace in eight months in August, with stimulus having so far failed to meaningfully revive the second largest economy in the world.

The Caixin services purchasing managers’ index rose 51.8 in August, lower than expectations for a reading of 53.6 and July’s figure of 54.1.

This disappointing reading offset some of the optimism seen on Monday after property developer Country Garden earned bondholder approval to extend some debt deadlines, averting a potential default.

China is a major market for Europe’s largest companies, and the faltering recovery of its economy has weighed on their bottom lines.

Eurozone services activity data likely to disappoint

Back in Europe, Spanish services PMI unexpectedly slipped into contraction territory in August, falling to 49.3, from 52.8 the prior month, and similar readings throughout Europe are likely paint a similarly depressing picture of a fathering regional economy.

A run of soft eurozone data, particularly out of Germany, Europe’s biggest economy and the region’s major growth driver, has raised the likelihood of the ECB pausing its rate-hiking cycle later this month.

ECB President Christine Lagarde is set to speak later Tuesday, and her comments will be closely followed for clues of further action.

“It will be critical for central banks to keep inflation expectations firmly anchored while these relative price changes play out,” Lagarde said on Monday, noting price swings due to changes in the labor and energy markets as well as geopolitical turmoil.

Renault on course to float EV division next year

In corporate news, the initial public offering of Renault’s (EPA:RENA) Ampere electric vehicle division could get a valuation of up to 10 billion euros ($10.8 billion), the Financial Times quoted Chief Executive Luca de Meo as saying, in an interview. Its stock rose 0.4% Tuesday.

The French auto giant was still planning to list Ampere in the spring of 2024, de Meo said on Monday, but cautioned that market conditions would have to be right for a flotation

Crude just lower; Chinese economic woes continue

Oil prices inched lower Tuesday as weak Chinese services activity data pointed to more headwinds for the world’s second largest economy, and largest crude importer.

However, these losses are minimal as traders still await an extension in supply cuts by leading OPEC+ members Saudi Arabia and Russia this week, leading to a further tightening of the market.

By 03:25 ET, the U.S. crude futures traded 0.4% lower at $85.67 a barrel, remaining close to levels last seen in November, while the Brent contract dropped 0.4% to $88.61, near its highest level since late-January.

Additionally, gold futures fell 0.1% to $1,962.25/oz, while EUR/USD traded 0.3% lower at 1.0764.

(C) Reuters

Investing.com — U.S. stock futures edge down following the Labor Day holiday, with traders trying to suss out the path ahead for price gains and the wider economy. Meanwhile, Goldman Sachs reduces the chances that America will slip into a recession over the next 12 months, pointing to recent labor and inflation data. Elsewhere, weak overseas demand weighs on activity in China’s services sector.

1. Stock futures lower

U.S. stock futures inched lower on Tuesday, as investors attempt to parse out the health of the broader economy and gauge price pressures following the end-of-summer holiday.

At 05:18 ET (09:18 GMT), the Dow futures contract slipped by 46 points or 0.1%, S&P 500 futures edged down by 12 points or 0.3%, and Nasdaq 100 futures lost 65 points or 0.4%.

The main indices were mixed to end the previous trading week, with the benchmark S&P 500 and 30-stock Dow Jones Industrial Average posting gains and the Nasdaq Composite dipping marginally. However, on a weekly basis, all three finished in the green.

Data on Friday showed that the unemployment rate unexpectedly rose in August, while average hourly wage growth eased.

The figures bolstered expectations that the Federal Reserve would keep interest rates steady at its September meeting. Prior to the two-day gathering, more crucial economic releases — including fresh inflation numbers — are due out.

2. Goldman Sachs lowers chance of U.S. recession

Analysts at Goldman Sachs seem to be more persuaded that the U.S. economy will avoid a massive contraction in the near term despite a recent spike in borrowing costs.

The investment bank on Tuesday lowered the probability that the country would fall into a recession in the next 12 months to 15% from 20%, citing positive inflation data and last week’s labor market report.

Goldman also predicted that the drag from the Fed’s long-standing monetary tightening cycle will continue to lessen before “diminishing entirely” early next year. Meanwhile, the analysts highlighted Fed Chair Jerome Powell’s current “careful” approach to future rate decisions, arguing it is a signal that a September hike is “off the table.” The case against a November increase is also “significant,” they added.

Ideally, Fed officials would like their campaign of interest rate hikes to cool inflation back down to its 2% target without causing an economic collapse — a scenario known as a “soft landing.”

3. China services sector activity slumps to eight-month low

Chinese services sector activity grew at a slower-than-expected pace in August, according to a private survey on Tuesday, due mainly to stuttering overseas demand.

The Caixin China General Services purchasing managers’ index (PMI) came in at 51.8 in August, lower than expectations for a reading of 53.6 and July’s figure of 54.1, Caixin Insights said in a statement. It was the index’s weakest showing in eight months.

Stock markets in China fell in the wake of the data, as concerns continued to mount around the country’s flagging post-pandemic recovery. The Shanghai Shenzhen CSI 300 and Shanghai Composite indices dropped by around 0.7% each, while Hong Kong’s Hang Seng index slid 2.3%.

Shares in Country Garden (HK:2007) pared back some losses on reports that the ailing property giant had made payments on two dollar bonds before the end of a 30-day grace period, narrowly avoiding a potential international debt default. The developer previously missed the payments last month, starting a grace period that was set to end this week and exacerbating fears over the state of China’s key real estate sector.

4. Oil dips as Chinese economic woes weigh

Oil prices edged down on Tuesday after the Chinese services activity data stoked worries over further headwinds to the world’s second-largest economy and biggest crude importer.

Yet these losses were mitigated by expectations that major oil producers and leading OPEC+ members Saudi Arabia and Russia would announce more output reductions this week that could lead to tighter global supplies.

Crude prices remain near some of their highest levels in months. By 05:26 ET, the U.S. crude futures traded 0.2% lower at $85.35 a barrel, hovering near a mark last touched in November. Meanwhile, the Brent contract dropped 0.6% to $88.47 per barrel, but was still close to its highest point since late-January.

5. OpenAI founder receives “Golden Visa” from Indonesia

Indonesia has given OpenAI Chief Executive Sam Altman its first-ever “Golden Visa,” as Southeast Asia’s biggest economy attempts to attract foreign investors.

The 10-year “Golden Visa” grants the co-founder of the company behind ChatGPT the right to stay for longer periods in Indonesia, as well as perks like priority screening at airports around the country. In a statement, a government official said “the hope” is that Altman aids the domestic development and use of AI.

Altman visited Indonesia earlier this year as part of a tour of several Asian cities. According to Bloomberg News, it was unclear if he had applied for the visa or planned to invest in Indonesia.

Designed as a scheme to boost its national economy, the visa allows foreigners who make large investments in Indonesia to remain for between five to ten years. Similar visas have also been rolled out in the U.S., Ireland, Spain and New Zealand in a bid to bring in more capital and entrepreneurial residents.