JAPAN DATA: August Manufacturing PMI Rises But Still Sub 50.0
Japan preliminary PMIs for August were mixed. Manufacturing improved to 49.9 from 48.9, but services eased to 52.7 from 53.6. This left the composite index slightly higher at 51.9 (versus 51.6 in July).
- The manufacturing index is up from March lows (just under 48.5), but hasn't yet re-captured the expansion point. The index has spent little time above 50.0 in recent years. In terms of the detail, output rose to 50.5 from 47.6, while new orders were also up on July levels.
- On the services side, we are just off recent highs, but remain comfortably in expansion territory. BBG notes the employment sub index did contract to 49.6 though, from 50 in July.
- The data is unlikely to shift broader thinking around Japan's macro backdrop, with officials generally characterizing it as a continued modest recovery.
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US STOCKS: S&P Breaks Through 6300 But Closes Poorly
The ESU5 overnight range was 6339.75 - 6374.00, Asia is currently trading around 6350. The September contract surged higher on the US open but some decent selling capped this and it was a pretty weak close for stocks. This morning has seen US futures open slightly higher, ESU5 +0.09%, NQU5 +0.05%. The animal spirits remain strong even though price is looking stretched. While above the 6230/50 area dips will probably continue to be supported, a break below this support is needed to signal a possible correction. As mentioned by Lance Roberts below be on the look out for potential rotation to the broader lagging sectors of the market.
- (Bloomberg) -- “Trend following investors, or CTAs, are expected to scoop up US and global equities this week no matter the stock market’s direction, according to Goldman Sachs’ trading desk. On a scale from 1 to 10, global equity exposure across systematic funds stands at six — and more is likely to come. The group is expected to buy $107 billion of global stocks over the next month, which would push the total equity exposure to eight out of 10.”
- Lance Roberts(RIA): “Lance Roberts - Investors should be prepared for rotational opportunities as positive earnings momentum starts filtering into under-owned sectors, such as financials, industrials, and select cyclicals, which are still trading below their relative highs. Maintaining tactical flexibility will allow investors to capitalize on sector rotation opportunities, particularly if earnings from financials or industrial companies exceed expectations.”
- Lance Roberts on X: “The latest bout of extreme crowding — currently in the 100th percentile — is in high-beta stocks. And this spans both riskier low value alongside speculative growth plays, according to JPMorgan.” See Graph below.
- Daily Chartbook on X: “There are good reasons to expect weaker corporate earnings in the months ahead. Tariffs will either squeeze margins or raise prices (reducing sales); either way, there is a good chance that profits will go down." @darioperkins
- Short-term this continues to look stretched but it's very hard to fight a market with this type of momentum. First support is back towards the 6000/6100 area.
Fig 1: S&P High Beta Crowding
Source: MNI/@LanceRoberts/JP Morgan
ASIA STOCKS: South Korea Inflows Rebound, Positive Momentum For Thailand Remains
Monday saw strong South Korean equity inflows, with $633mn the best daily inflows since the 9th of June. Yesterday the Kospi closed above 3200 and is holding above this level in the first part of dealings today. Renewed interest in Samsung is aiding the better offshore inflow backdrop over recent sessions. Earlier the company noted that pre-orders for its new foldable phone in South Korea have hit a record (via BBG). Yesterday' strong inflows brings the last five trading days of inflows up to just over $1bn.
- Elsewhere, positive inflow momentum continued for Taiwan, albeit at a reduce pace compared to earlier in July. The daily average pace of inflows for Taiwan since the start of the month has been $443mn.
- Positive inflow momentum continued for Thailand as well, keeping its recent positive run intact. The SET is trying to establish a move above 1200, while we may see the Thailand cabinet endorse a new central bank Governor today.
- Indian flows were positive to end of last week, but not enough to offset recent outflows.
Table 1: Asian Markets Net Equity Flows
| Yesterday | Past 5 Trading Days | 2025 To Date | |
| South Korea (USDmn) | 633 | 1003 | -7338 |
| Taiwan (USDmn) | 142 | 2520 | 415 |
| India (USDmn)* | 91 | -476 | -8804 |
| Indonesia (USDmn) | -11 | -42 | -3613 |
| Thailand (USDmn) | 36 | 135 | -2188 |
| Malaysia (USDmn) | -12 | -61 | -2854 |
| Philippines (USDmn) | -1 | -72 | -623 |
| Total (USDmn) | 877 | 3006 | -25005 |
| * Data Up To July 18 |
Source: Bloomberg Finance L.P./MNI
GOLD: Gold Rallies On Uncertain Outlook & Weaker Dollar
Gold prices rose 1.4% to $3397.05/oz on Monday supported by continued trade uncertainty and a weaker US dollar (BBDXY USD index -0.5%) even though Treasury yields were little changed. Challenges to Fed Chair Powell from President Trump and his administration are also buoying the yellow metal.
- Bullion trended higher through the day reaching a high of $3401.60 but has started today down slightly at $3394.0. It is now up 2.8% in July and a bullish theme remains. It broke above resistance at $3377.4 and $3395.1 on Monday with the bull trigger at $3500.1 the next level to watch. Initial support is at $3282.8.
- While rates are likely to be kept on hold at the July 30 Fed meeting, Governors Bowman and Waller have recently voiced a willingness to resume easing, which would be positive for non-yielding gold. Also any soft US data releases would also be supportive, especially given current elevated uncertainty.
- Silver was up 2% to $38.93 on Monday after just breaching $39 to make a high of $39.05, which was still below initial resistance at $39.13, 14 July high. It has started today around $38.90.
