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Share markets fell slightly on Monday as investors braced for a data-packed week culminating in a US jobs report that could decide whether a rate cut expected this month will be regular or super-sized.
Survey data released on Saturday showed Chinese manufacturing activity sank to a six-month low in August, and data on Monday showed euro zone factories are also still struggling, as per Reuters reports.
Wins for the populist parties in German state elections added a fresh layer of political uncertainty in European markets, while a holiday in the United States and Canada made for thin liquidity.
Europe's STOXX 600 index fell 0.21 per cent, after hitting a record high on Friday. Germany's DAX and Britain's FTSE 100 were down 0.1 per cent and 0.2 per cent respectively.
"European equities have opened on a weaker footing owing to weaker economic data from China," said Aneeka Gupta, equity strategist at WisdomTree. "The industrials and consumer discretionary sector led the declines."
The dollar index, which tracks the currency against six peers, was down very slightly at 101.68 after hitting a two-week high overnight. The US currency climbed 0.55 per cent against the yen to 146.96 .
"We are seeing some natural caution at the beginning of a critical month for markets, with the Fed set to start its interest rate cutting cycle," said Ben Laidler, head of equity strategy at Bradesco BBI.
"Markets made a dramatic recovery from the early August flash sell-off but now face seasonally by far the weakest performance month of the year."
Chinese stocks lost 1.7 per cent, led by losses in real estate after a survey showed home prices growth had slowed. Shares of New World Development, a major Hong Kong property developer, dived 14 per cent after it estimated a net loss.
Futures for the US S&P 500 index were down 0.1 per cent, while those for the tech-laden Nasdaq 100 were flat. US stock markets were closed for Labor Day on Monday and Treasuries were untraded.
"We're always a bit cautious when we're trading at all time highs and when earnings expectations continue to be fairly lofty in the US in particular," said said Carl Hammer, head of asset allocation at lender SEB.
The big event of the week will be the US non-farm payrolls report on Friday, which is expected to show the economy added 165,000 jobs in August, up from 114,000 in July.
Traders currently think a September Federal Reserve rate cut is nailed on and see a 33 per cent chance that it could be an outsized 50-basis point reduction, but that could shift on Friday.
The weak July jobs report helped spark a sell-off in global stocks at the start of August, although the S&P 500 has since rebounded to sit 0.4 per cent off a record high.
Germany's 10-year bond yield rose to its highest in a month at 2.349 per cent, up 6 basis points.
Pressure mounted on German Chancellor Olaf Scholz after the far-right Alternative for Germany (AfD) won its first regional election.
September has recently been a down month for stocks and bonds, analysts said, perhaps adding to the caution on Monday.
Deutsche Bank analysts said the S&P 500 and STOXX 600 have lost ground in each of the last four Septembers, while global bonds have fallen in the last seven.
Also important this week will be US survey data, job openings figures, weekly jobless claims and the Fed's beige book on current economic conditions.
Oil prices were little changed after falling in recent days. Brent crude held steady at $76.91 a barrel, down more than 5 per cent from a week earlier.