Markets returned to meltdown mode overnight as Fed inspired uncertainty and Asian Development Bank estimated growth downgrades slapped sentiment ahead of crucial PMI readings over the next twenty four hours. Shares, commodities and risk currencies all come under pressure as fears for emerging economies dominated. A regulatory scandal at Volkswagen added to the pressure on the German DAX, culminating in a 3.8% belting.
The new market maxim appears to be “when in doubt, sell out”. There were no major economic releases overnight, no announcements, no surprises. Instead, the market abhorred the vacuum, succumbing to underlying doubts sown by the Fed’s inaction last week. The action may be partly explained by position trimming ahead of numbers dropping in the Asia Pacific and European sessions.
Around the East Asian mid-session flash manufacturing PMI data is released in China. Participants expect the read to show ongoing contraction, with the index below the 50 break even line at 47.5. A read at these levels would likely confirm the current bearish mood, although there is a possibility of positive surprise. In contrast, European investors are expecting services and manufacturing PMIs for France, Germany and the EC to show expansion across most areas, potentially setting up a negative surprise.