WORLDWIDE: HEADLINES
Tech demand drives Asia’s factory revival, China’s slowdown puts dampener
TOKYO – Solid demand for technology goods drove extended growth in Asia’s factories in February, but a slowdown in China underscored the challenges facing the region as it seeks a sustainable recovery from the shattering COVID-19 pandemic blow.
The vaccine rollouts globally and pick-up in demand provided optimism for a vast number of businesses that had grappled for months with a cash-flow crunch and falling profits.
In Japan, manufacturing activity expanded at the fastest pace in over two years while South Korea’s exports rose for a fourth straight month in February, suggesting the region’s export-reliant economies were benefiting from robust global trade.
On the flip side, China’s factory activity expanded at the slowest pace in nine months in February, hit by a domestic flare-up of COVID-19 and soft demand from countries under renewed lock-down measures.
China’s was the first major economy to lead the recovery from the COVID-19 shock, so any signs of prolonged cooling in Asia’s engine of growth will likely be a cause for concern.
With the global rebound still in early days, however, analysts say the outlook was brightening as companies increased output to restock inventory on hopes vaccine rollouts will normalise economic activity.
“The recovery in durable-goods demand is continuing, which is creating a positive cycle for manufacturers in Asia,” said Shigeto Nagai, head of Japan economics as Oxford Economics.
“As vaccine rollouts ease uncertainties over the outlook, capital expenditure will gradually pick up. That will benefit Japan, which is strong in exports of capital goods,” he said.
China’s Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 50.9 in February, the lowest level since last May but still above the 50-mark that separates growth from contraction.
Full coverage: REUTERS
China’s factory activity growth slips to nine-month low: Caixin PMI
BEIJING – China’s factory activity expanded at the slowest pace in nine months in February as weak overseas demand and coronavirus flare-ups weighed on output, adding pressure on the country’s labour market, a business survey showed on Monday.
The slowdown in the manufacturing sector underscores the fragility of the ongoing economic recovery in China, although domestic COVID-19 cases have since been stamped out and analysts expect a strong rebound in full-year growth.
The results back an official survey released over the weekend showing China’s factory activity expanded at the weakest pace since last May.
February also saw the Lunar New Year holidays, when many workers return to their hometowns, although this year saw far fewer trips amid coronavirus fears.
The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 50.9 last month, the lowest level since last May.
Analysts polled by Reuters had expected the index to remain unchanged from January’s reading of 51.5. The 50-mark separates growth from contraction on a monthly basis.
“Overseas demand continued to drag down overall demand…Surveyed manufacturers highlighted fallout from domestic flare-ups of Covid-19 in the winter as well as the overseas pandemic,” said Wang Zhe, senior economist at Caixin Insight Group, in comments released alongside the data.
A sub-index for production fell to 51.9, the slowest pace of expansion since April last year, while another sub-index for new orders fell to 51.0, the lowest since May.
Export orders shrank for the second month. Factories laid off workers for the third month, and at a faster pace, with Wang noting “companies were not in a hurry to fill vacancies.”
Full coverage: REUTERS
WORLDWIDE: FINANCE / MARKETS
Asian stocks rally, battered bond market tries to steady
SYDNEY – Asian shares rallied on Monday as some semblance of calm returned to bond markets after last week’s wild ride, while progress in the huge U.S. stimulus package underpinned optimism about the global economy and sent oil prices higher.
China’s official manufacturing PMI out over the weekend missed forecasts, but Japanese figures showed the fastest growth in two years. Investors are also counting on upbeat news from a raft of U.S. data due this week including the February payrolls report.
Helping sentiment was news deliveries of the newly approved Johnson & Johnson COVID-19 vaccine should start on Tuesday.
MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.8%, after shedding 3.7% last Friday.
Japan’s Nikkei rallied 2.1%, while Chinese blue chips added 0.5%.
NASDAQ futures bounced 1.2% and S&P 500 futures 0.9%. EUROSTOXX 50 futures and FTSE futures both rose 1.1%.
Yields on U.S. 10-year notes came off to 1.41%, from last week’s peak of 1.61%, though they still ended last week 11 basis points higher and were up 50 basis points on the year so far.
“The bond moves on Friday still feel like a pause for air, rather than the catalyst for a move towards calmer waters,” said Rodrigo Catril, a senior strategist at NAB.
“Market participants remain nervous over the prospect of higher inflation as economies look to reopen aided by vaccine roll outs, high levels of savings along with solid fiscal and monetary support.”
Full coverage: REUTERS
Oil prices climb after progress on huge U.S. stimulus bill
SINGAPORE – Oil prices rose more than $1 on Monday on optimism in the global economy thanks to progress in a huge U.S. stimulus package and on hopes for improving oil demand as vaccines are rolled out.
Brent crude futures for May rose $1.07, or 1.7%, to $65.49 per barrel by 0042 GMT. The April contract expired on Friday.
U.S. West Texas Intermediate (WTI) crude futures jumped $1.10, or 1.8%, to $62.60 a barrel.
“Oil prices are recovering this morning in line with most risk assets on the back of the U.S. stimulus bill passing the House and as central banks continue to sabre rattle to ward off market-implied financial tightening,” Stephen Innes, chief global markets strategist at Axi, wrote in a note on Monday.
U.S. House of Representatives passed a $1.9 trillion coronavirus relief package early Saturday. Democrats who control the chamber approved the sweeping measure by a mostly party-line vote of 219 to 212 and sent it to the Senate, where Democrats planned a legislative manoeuvre to allow them to pass it without the support of Republicans.
More positive news on the coronavirus vaccination front and signs of an improving Asian economy also boosted prices.
On the flip side, investors are betting that this week’s meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies, a group known as OPEC+, will result in more supply returning to the market.
“More supply needs to come onto the market to ensure OPEC+ meets incremental demand and keeps internal discipline ducks in a row,” Innes added.
Full coverage: REUTERS
Risk currencies recover from Friday carnage, dollar consolidates
TOKYO – The Australian dollar and other riskier currencies recovered some lost ground against the U.S. dollar on Monday, after suffering their biggest plunges in a year at the end of last week amid a hefty sell-off in global bond markets.
The greenback weakened broadly early in Asia trade, but barely enough to trim its biggest surge since June from Friday.
Currency markets have taken cues from the global bond market, where yields have surged in anticipation of an accelerated economic recovery.
The aggressive bond selling implies a bet that global central bankers will need to tighten policy much earlier than they have so far been forecasting.
Equities and commodities have also sold off as the debt rout unsettles investors.
“USD direction is likely to hinge on not only the direction, but also the pace, of global bond moves,” Commonwealth Bank of Australia strategists wrote in a research note.
Bond moves are trumping economic data as the driver of foreign-exchange markets, with yields moving “well in advance” of economic fundamentals, they said.
“The risk is tilted to a firmer USD this week because we doubt central banks will intervene in any meaningful way yet.”
The Aussie jumped 0.6% to $0.7754 early in the Asian session on Monday, following a 2.1% plunge on Friday.
The New Zealand dollar strengthened 0.6% to $0.7270, recovering some of Friday’s 1.9% slide.
The euro gained 0.2% to $1.20910, after dropping 0.9% at the end of last week, the most since April.
The dollar slipped 0.1% to 106.415 yen, but still near the six-month high of 106.69 touched Friday.
Full coverage: REUTERS
