US equities tumbled overnight with DJIA losing -469.68 pts, or -2.84% to close at 16058.35, after breaching 16000 handle. S&P 500 also dropped -58.33 pts, or -2.96%, to close at 1913.85. Asian markets opened lower but quickly recovered. Sentiments were weighed down by renewed worry over slowdown in China and spillover to the global economy. IMF chief Christine Lagarde said yesterday that global growth was expected to remain moderated and would likely be "weaker than we anticipated last July". She noted two forces in play, "a weaker than expected recovery in advanced economies" and "a further slowdown in emerging economies, especially in Latin America". Also, Lagarde warned that Asia's growth was "turning out slower than expected" and may slow even further due to "recent spike in global risk aversion and financial market volatility". Regarding China, she noted that "unwinding of risks built up in recent years is complex and could well be somewhat bumpy." But she remained confidence that "the authorities have the policy tools and financial buffers to manage this transition."
The chance of a rate hike by Fed in September or October remained another focus in the markets. So far, the data didn't look good. The ISM manufacturing index dropped to 51.1 in August versus consensus of 52.8. Deteriorations were seen in most components, including production, new orders and inventories. Meanwhile, the employment component also dropped to 51.2, down from 52.7 and hit the lowest level since April. The ADP private employment data, ISM services tomorrow and non-farm payroll on Friday will be closely watched. Boston Fed president Eric Rosengren said that "there are very good reasons to expect a much more gradual normalization process than occurred in the previous two tightening cycles". And, such modest path was "both necessary and appropriate. Meanwhile, he downplayed the timing of the liftoff and said it didn't make much difference if the first hike was moved "forward or backward by a couple of months.
Australian dollar dipped through recent support against the greenback on risk aversion. There is additional selling pressure seen today after weaker than expected data. Q2 GDP growth slowed to 0.2% qoq, missing expectation of 0.4% qoq. That's the weakest quarter since March 2013. Most slowdown were due to plunge in export revenue which shrank -3.4% from Q1. Some analysts noted that while depreciation of Aussie helped, there were a number of headwinds and growth will stay weak in the year ahead. RBA kept cash rate unchanged at 2.00% yesterday and maintained a neutral stance.
Elsewhere, Japan monetary base rose 33.3% yoy in August. UK PMI construction, Eurozone PPI will be released in European session. US ADP employment is expected to show 200k growth in August. US will also release factor orders while Fed will release Beige Book economic report.