Improved sentiment boosts Asian equity markets

Summary:

  • Chinese manufacturing activity expanded last month at its fastest pace in eight months
  • Asian equity markets jump on improved sentiment
  • China continues to suspend tariffs on US vehicles

Unexpected improvement

March brought some improvement of sentiment among Chinese manufacturers - such conclusions could be drawn from PMI surveys we were offered over the weekend. The first official PMI index was released on Sunday and produced 50.5 points beating the median estimate of 49.6 points. It was an improvement from 49.2 points seen in February, meaning that China's manufacturing sector came back to an expansion territory. This scenario was confirmed today by Caixin/Markit whose PMI for China’s manufacturing rebounded to 50.8 from 49.9, the consensus had pointed to 50 points. The survey’s details showed an improvement in employment which rose for the first time in over five years. Surveyed companies also saw firmer demand conditions and higher selling prices - the clear signs behind livelier hiring activity. On top of that, sentiment regarding the 12-month business outlook improved to a 10-month high and new export orders bounced back to some extent. While total new work increased slightly, it remained relatively muted. In terms of better employment one needs to underline that it coincided with sustained signs of stretched capacity at manufacturers. Apart from manufacturing PMIs there was also a non-manufacturing PMI reading showing a rise to 54.8 from 54.3. All in all a series of unexpected beats is shoring up Asian stocks this morning. The better performance of Asia-based stock markets could also stem from the firm session in the US on Friday as well as the commentary from Beijing. Namely on Sunday the China’s State Council informed that it would continue to suspend additional tariffs on US vehicles and auto parts after April 1. Note that we have yet to get any statement concerning China-US talks.

The Hang Seng (CHNComp) has bounced back notably during the first trading day this week, as a result it is trading 1.6% higher a while before the market’s close. Technically the index keeps moving within a range between 11800 and 11200 points for some time. Source: xStation5

Mixed sentiment data from Japan and Australia

Looking at the FX market performance one may notice that risk-on sentiment is prevailing with the New Zealand dollar rising as much as 0.45%. Other risk-correlated currencies such as Australian dollar or Norwegian krone are also gaining almost 0.4% against the US dollar. Over Asian hours trading we got some mixed soft indicators from Japan and Australia. A series of Tankan indices for the first quarter came in rather below expectations. The worse results in terms of current and expected conditions came from large and small manufacturing companies. Whereas the results from large and small non-manufacturing companies did not change compared to the previous survey. In turn, the sentiment data from Australia concerned business conditions and confidence. The index of business conditions improved to 7 from 4 while the index of business confidence deteriorated to 0 from 2 - the data for March.

The AUDUSD keeps rising after bouncing off 0.7020. Bulls may aim at 0.7190 as their another target. Source: xStation5

In the other news:

  • UK Parliament will hold another round of indicative votes on Brexit proposals seeking a compromise to break a deadlock over May’s withdrawal agreement

  • US 10Y yield trades at 2.433%, up almost 3 bps on improved market sentiment

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