Asian factories, including China’s manufacturing sector, showed signs of a tentative recovery in August and chip makers benefitted from firm demand, private surveys showed on Monday, but economic headwinds loom.

Analysts say prospects of slowing US growth, which is likely to lead to interest rate cuts by the Federal Reserve this month, and uncertainty over the outcome of the US presidential election cloud the trade outlook.

China’s Caixin/S&P Global manufacturing purchasing managers’ index (PMI) rose to 50.4 in August from 49.8 in July, the private survey showed on Monday, beating analysts’ forecasts and exceeding the 50 mark that separates growth from contraction.

The reading, which mostly covers smaller, export-oriented firms, shows a more optimistic view than an official PMI survey released on Saturday, which indicated an ongoing decline in manufacturing activity in August.

“The PMIs for August suggest that economic momentum held broadly steady last month, with modest improvements in manufacturing and services helping to offset a further slowdown in construction activity,” Gabriel Ng, assistant economist at Capital Economics, said in a research note on China’s PMI.

“But with factory gate price declines accelerating, the economy clearly remains at risk of slipping back into deflation,” Ng said.

Factory activity in South Korea and Taiwan also expanded in August, while Japan saw a slower rate of contraction due in part to solid global demand for semiconductors.

Japanese manufacturers also gained from a rebound in car output after a safety scandal led some plants to temporarily suspend production.

But manufacturing activity contracted in Malaysia and Indonesia, the surveys showed, underscoring the pain some of the region’s economies are facing from China’s prolonged slowdown.

“Chip-producing countries are doing fairly well, but China’s slowdown will continue to drag on Asia’s manufacturing activity for quite some time,” said Toru Nishihama, chief emerging market economist at Dai-ichi Life Research Institute.

“Slowing US demand could add to the pain on Asian economies, many of which are already wary of the fallout from sluggish Chinese growth,” he said.

Japan’s final au Jibun Bank Japan manufacturing PMI rose to 49.8 in August, contracting for a second straight month but less sharply than in July when the index reached 49.1.

South Korea’s PMI stood at 51.9 in August, up from 51.4 in July, due in part to strong customer confidence and new orders in the domestic market, the private survey showed.

Malaysia’s PMI stood at 49.7 in August, flat from the previous month, while that of Indonesia fell to 48.9 from 49.3 in July, the surveys showed.

India’s manufacturing activity growth eased to a three-month low in August as demand softened significantly, casting another shadow over the otherwise robust economic outlook.

The International Monetary Fund (IMF) anticipates a soft landing for Asia’s economies as moderating inflation creates room for central banks to ease monetary policies to support growth. It predicts growth in the region to slow from 5 per cent in 2023 to 4.5 per cent this year and 4.3 per cent in 2025.

Meanwhile Asian markets mostly followed Friday’s rally on Wall Street, with Japan’s Nikkei up 0.5 per cent and adding to last week’s 8.7 per cent bounce.

MSCI’s broadest index of Asia-Pacific shares outside Japan barely moved, while South Korean stocks edged up 0.1 per cent.

Chinese blue chips dipped 0.6 per cent, led by losses in real estate after a survey showed home prices growth had slowed.

The Caixin survey of manufacturing showed a pick up to 50.4 in August, topping forecasts of 50.0. Surveys on Japan and South Korea factories both showed an improvement in activity.

Cash Treasuries were untraded for the holidays, while Treasury futures were little moved. Ten-year yields stood at 3.914 per cent after rising in the wake of Friday’s inflation and spending data.

That rise underpinned the US dollar at 146.20 yen, having rallied 1.2 per cent last week and it now faces chart resistance around 148.54.

The euro was stuck at $1.1054, after losing 1.3 per cent last week, with political uncertainty in Germany not helping.

The European Central Bank (ECB) is considered certain to cut its rates by a quarter point next week following benign EU inflation figures.

“However, the path after is less clear with financial markets currently pricing around 1-1/2 cuts over the remaining two meetings of the year,” said Joseph Capurso, head of international economics at CBA. “We have one more cut in 2024 after September, but acknowledge that it will be a close call between one or two more cuts.”