Asian share markets turned mixed on Monday as US lawmakers struggled to hammer out a new stimulus plan amid a global surge of new coronavirus cases, though a squeeze on crowded short positions gave the dollar a rare bounce.
Sentiment was helped by a survey showing China's factory activity expanded at the fastest pace in nearly a decade in July, with the Caixin/Markit PMI at 52.8.
That lifted Chinese blue chips 0.9 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.2 per cent, though that was from a six-month top.
Japan's Nikkei added 2.1 per cent courtesy of a pull-back in the yen, while South Korea shares were flat.
E-Mini futures for the S&P 500 inched up 0.1 per cent, while EUROSTOXX 50 futures and FTSE futures were little changed.
Investors were nervous at the lack of a new stimulus package in the US with White House Chief of Staff Mark Meadows not optimistic on reaching agreement soon on a deal.
On Friday, Fitch Ratings cut the outlook on the US' triple-A rating to negative from stable, citing eroding credit strength and a ballooning deficit.
The credit rating agency also said the future direction of US fiscal policy depends in part on the November election and the resulting make-up of Congress, cautioning there is a risk policy gridlock could continue. Strong results from tech giants helped the S&P 500 climb 5.5per cent last month, while the NASDAQ rose 6.8per cent. Other sectors, however, did not fair nearly as well as many states rowed back on opening their economies in the face of surging infections.
“Amid improvements in business sentiment, signals are emerging that the initial boost from pent-up demand is fading and consumer confidence is slipping lower,” wrote economists at Barclays in a note.
“Together with concerns about labour market and virus developments, this clouds the outlook and could be exacerbated if US fiscal support is not renewed in time.”
Much will depend on what key data show this week including the ISM survey of manufacturing later on Monday and the crucial payrolls report on Friday.
The uncertainty saw benchmark 10-year Treasury yields hit their lowest since March at 0.52 per cent last week and were currently just a fraction higher at 0.55 per cent.
The 10-year real rate has broken below -1 per cent for the first time amid a marked flattening of the yield curve as investors wager on yet more accommodation from the Federal Reserve.
That took a heavy toll on the US dollar, which suffered its worst monthly drubbing in a decade in July, though it was attempting a rally on Monday as bears took profits on crowded short positions.
The dollar was last at $1.1758 per euro, with the single currency having gained 4.8 per cent in July to stretch as far as $1.1908. Against a basket of currencies, the dollar stood at 93.566 having touched its lowest since May 2018 on Friday at 92.538.
The dollar regained a little ground on the yen to 106.01 after hitting a 4-1/2-month low last week at 104.17.
It had bounced in part when Japanese Finance Minister Taro Aso described the yen's recent rise as “rapid”, signalling concern that a strong currency could add pain to an export-led economy already in recession.
The decline in the dollar combined with super-low real bond yields has been a boon for gold, which boasted its biggest monthly gain since February 2016.
The metal made a fresh peak early Monday at $1,984 an ounce and seemed on track to take out $2,000 soon.
Oil prices eased on concerns about oversupply as OPEC and its allies, together known as OPEC+, are due to pull back from production cuts in August while an increase in COVID-19 cases worldwide raised fears of slower pick-up in fuel demand.
Brent crude futures dipped 7 cents in early trade to $43.45 a barrel, while US crude eased 8 cents to $40.19.