Overnight Trouble in Asia Could Weigh on Markets Monday

U.S. futures are up in the early hours of the morning but two big events sent major indices in Asia tumbling on Monday. How will that affect U.S. markets?

First, The HSBC/Markit Purchasing Managers’ Index, the unofficial PMI number for China, came in at 49.2. This is below the May preliminary reading of 49.6, according to CNBC. PMI measures the health of a country’s manufacturing sector.

Anything below 50 indicates a contraction from one month prior while readings above 50 indication an expansion. Even the smallest reading below 50 is a troubling sign.

The official Chinese PMI was 50.8 in May but that survey has a larger focus on larger and state-owned companies.

The number reinforces the growing world view that China’s growth is slowing. The IMF recently lowered China’s 2013 growth prediction to 7.75 percent while the Chinese government set a target of 7.5 percent.

The disappointing Chinese data was one factor that caused the Japanese Nikkei to continue its slide. The index closed down another 3.7 percent to close at 13,261.82. Since reaching a five-and-a-half year high in May, the index is down 15 percent.

Along with Chinese data, fears that the United States will slow down its bond buying program is weighing on Japanese markets but new concerns that Japanese Prime Minister Shinzo Abe’s policy moves may not be sustainable in the long-run have added to fears.

Finally, investors have their eyes on the yen. In overnight trading the dollar gained slightly against the yen further pushing it towards the key 100 market.

The yen later recovered a little this morning but currently sits at 100.31. Some strategists fear that a close below 100 will cause a further sell off in the Nikkei as the currency continues gaining strength.

The performance of other Asia-Pacific markets proves that not all markets are reacting as severely as the Nikkei. The Kospi was down 0.57 percent to 1989.57, the ASX 200 is down 0.78 percent, and the Hang Seng was down 0.50 percent.

After a 200 point drop in the Dow on Friday, markets look to open higher. Futures are currently up about 55 points but the end of May saw volatility return to the market. The VIX was up 12 percent on Friday proving the slightest bit of bad news could send U.S markets tumbling after starting the day in the green.