China’s economic woes offset Federal Reserve’s rate hopes

TOKYO

Asian markets were mixed on Monday, with optimism over an expected U.S. interest rate cut offset by worries over the Chinese economy following the release of more disappointing data.

Figures on Aug. 30 showed the Federal Reserve's favored gauge of inflation fell in line with forecasts in July, setting the bank up to ease monetary policy this month.

Focus is now on the release of the closely watched non-farm payrolls report on Sep. 6, which will provide the latest snapshot of the world's top economy.

While a cut has been priced in, the data could determine how big it will be, with analysts saying another big miss to the downside could prompt officials to slash rates by 50 basis points, rather than the expected 25.

A well-below-forecast reading last month fanned fears of a recession and sparked a rout across equities, though figures since then have soothed those concerns.

"Inflation data remains permissive should the Fed need to respond more assertively on the labour market,” said Taylor Nugent at National Australia Bank.

"That leaves the focus squarely on payrolls on Friday as the key indicator ahead of the Sept. 18 [rate] decision."

He said markets had priced in 100 basis points of cuts by the end of the year.

Investor sentiment was jolted by worries over China's economy after a report showed activity in the country's manufacturing sector contracted for a fourth consecutive month in August and more than expected.

"The world's second-largest economy is sputtering, with factory activity lagging, deflationary pressures mounting, and the call for stimulus growing louder," said independent analyst Stephen Innes.