Markets Aug 04

Asian markets advance on recovery signs

Stability in July PMI data, tech rally boosts sentiment; US-China tensions weigh as Trump sets Sept 15 deadline for TikTok; India, Australia rate decisions eyed

Asian markets advance on recovery signs
Analysts are watching the Reserve Bank of India's rate decision today. Goldman Sachs economists have tipped the RBI to trim policy rates by 25 basic points today. File photo by AFP. 

(ATF) Asian markets opened on a firm footing on Tuesday extending gains after signs of an economic recovery across the region. Overnight, Wall Street’s gains helped boost sentiment with positive economic data and hopes for additional stimulus lifting investor sentiment.

“The reopening of the global economy has led sentiment on output and new orders to pick up sharply from the March-April lows in most major production hubs,” Barclays economists Akash Utsav and Pooja Sriram said in a note.

“Stabilising domestic demand, output and employment were major sources of improvement in the July PMI data. However, the elevated number of new daily cases poses a potential downside risk to recovery.”

Japan’s factory activity contracted at the slowest pace in five months in July, while South Korea’s manufacturing activity data showed shrinkage was at a much slower pace last month, and China’s Caixin manufacturing PMI surprised markets by jumping to 52.8 in July from 51.2 in June, marking the highest point since February 2011.

Japan’s Nikkei index is up 1.4%, Australia’s S&P ASX 200 benchmark has leapt 1.64% and China’s CSI 300 is underperforming and was flat as tensions with the US over technology could heighten in the coming days. Hong Kong’s Hang Seng benchmark has rebounded 0.74% after their previous day’s underperformance following shock HSBC earnings.

Rate decisions

During the week rate decisions are expected from central banks in Australia and India. While the Reserve Bank of Australia is expected to hold rates today, the Reserve Bank of India decision will be a close call when it makes its decision known on August 6.

“We now expect the RBI to reduce policy rates by 25 bp,” said Goldman Sachs economists Prachi Mishra and Andrew Tilton, who trimmed their forecast from an earlier expectation of 60bp by the end of Q3. “We now expect the remaining 35 bp of cuts in the final quarter of the calendar year. While it is not our base case, a decision to hold rates steady at the August meeting remains a significant possibility.”

US China tensions also pose a resistance to the market rally after new US sanctions announced last week on some Chinese entities and government officials that are involved in Xinjiang affairs, and a potential ban on TikTok’s operations in the US.

US President Donald Trump escalated tensions with China with the threat to ban TikTok from the United States, claiming it was a threat to national security. He has given Microsoft 45 days to buy the app's US operations from its Chinese owner, ByteDance.

“So it’ll close down on September 15th, unless Microsoft or somebody else is able to buy it and work out a deal — an appropriate deal,” Trump said at a meeting with tech workers.

Gold and US Treasuries are steady as financial markets are also hopeful for another round of US stimulus as the US Senate races against the clock to push through a deal before the summer recess on Friday August 7.

Overnight, the Dow Jones Industrial Average added 0.89%, the S&P 500 advanced 0.72% and the Nasdaq Composite jumped 1.47% to a record closing high.

This followed an increase in the ISM manufacturing index by more than expected in July.

“The composition of the report was strong, with improvements in the production, new orders, and employment components,” Goldman Sachs economists said in a report.

Asian credit markets are marginally firm with the Asia IG index moving in one basis point to 70/71. Primary markets are quiet as investors digest recently issued bonds. Agricultural Development Bank’s CNH bond issue, and Yiwu State Owned Capital’s Reg S 3-year dollar bond offerings are in the market.