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  • The Dow Jones Industrial Average lost 230.01 points, or 0.8%, to 28,423.86.
  • The S&P 500 dropped 8.11 points, or 0.23%, to 3,499.9.
  • The Nasdaq Composite added 79.82 points, or 0.68%, to 11,775.46.

US stocks were elevated on Monday following the Federal Reserve’s tolerance of higher inflation levels, Chinese industry expansion, hopes for a vaccine and a firm tech sector.

On the other hand, there were the usual geopolitical concerns, but overall, the start to the week was positive in term of risk appetite despite lower closes for both the DJIA and S&P.

While the S&P boasted its steepest August percentage gain in more than three decades, the index was unable to hold on to the lofty positive territory and ended lower.

Unofficially, the Dow Jones Industrial Average lost 230.01 points, or 0.8%, to 28,423.86.

The S&P 500 dropped 8.11 points, or 0.23%, to 3,499.9 while the Nasdaq Composite added 79.82 points, or 0.68%, to 11,775.46, rallying thanks to high-flying stocks including Apple Inc.

China bouncing back

Helping to lift sentiment at the start of the week, the Chinese data arrived with a strong composite PMI number which raises prospects of a faster global recovery.

China’s official manufacturing Purchasing Manager’s Index (PMI) for the month of August came in at 51.0 as compared to 51.1 in July, according to the National Bureau of Statistics.

Services moved at a faster clip in August with the official Non-manufacturing PMI coming in at 55.2 as compared to 54.2 in July.

PMI readings above 50 indicate expansion which we have now seen in manufacturing activity and industrial output for the fifth straight month.

TikTok poses a risk 

On the geopolitical front, reports that Beijing will need to approve the sale of TikTok to a potential US buyer was weighing on risk appetite. 

Hopes of reaching a deal to sell the US operations of its TikTok video app in the coming days have been thrown into doubt after Beijing announced new rules governing technology exports.

The FT reported that ”China’s Ministry of Commerce revealed late on Friday that the government had expanded its list of technologies subject to export controls to include new rules related to artificial intelligence.”

The updated list of controlled exports, which had not been changed since 2008, added restrictions for ‘personalised information recommendation services based on data analysis’. Inclusion on the list means companies must obtain additional government approvals for the export of certain technologies.

ByteDance-owned TikTok is built on algorithms that analyse user behaviour to push personalised content.

People close to the TikTok sale negotiations said the Chinese government’s decision could derail ByteDance’s plans to reach a preliminary agreement, which was expected as early as this week. Any deal would now take longer to assess in light of the export control changes, the people said.

US data surprises to the upside

The Dallas Fed manufacturing index surprised on the upside in August lifting 11 points to +8 (mkt: 0.0).

Analysts at ANZ Bank explained that the results were mixed across the sub-components with production and capacity utilisation falling slightly and new orders ticking up.

Employment made further gains and the 6-month ahead outlook lifted 9.8 points to 20.4. This time tomorrow we’ll have a read on nationwide manufacturing activity with the ISM manufacturing index out overnight. Market expectations are for a lift of a little more than 2 points. But fair to say that ongoing virus risks and possible winding back of fiscal support to households, could see the pace of recovery slow over the latter half of the year.  

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