Market Close Jul 01

China factory rebound boosts markets

China leads the region higher after factory activity rebound; Japan underperforms after weak Tankan; US Treasuries shunned

China factory rebound boosts markets
A vendor records a video to attract online customers at a market in Shenyang in China's northeastern Liaoning province on July 1, 2020. Photo: AFP.

(ATF) Hong Kong: Asian financial markets were broadly higher on Wednesday after a rebound in China’s factory activity boosted sentiment, but Japanese stocks underperformed the region as data showed confidence among large manufacturers has fallen to its lowest since 2009.

China’s manufacturers signalled increased production for the fourth month running in June, as businesses continued to recover from company shutdowns and restrictions. The headline seasonally adjusted Purchasing Managers’ Index – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – increased from 50.7 in May to 51.2 in June, to signal a second successive monthly rise in the health of the sector. The rate of improvement was the strongest since December 2019.

“The gauge for future output expectations continued to rise in June, reflecting manufacturers’ confidence that there would be a further relaxation of epidemic controls and a normalisation of economic activities,” Wang Zhe, senior economist at Caixin Insight Group, said. “Meantime, we should still pay attention to the pressure on employment. For some time to come, increasing employment will remain an arduous task.”

China’s CSI300 jumped 2.01% in response to this positive signal and outperformed the region. Australia’s S&P ASX 200 advanced 0.62% and the MSCI Asia Pacific ex-Japan index added 0.35%

But at the other end of the spectrum, Japan’s Nikkei 225 fell 0.75% after data showed Tankan’s headline index of business conditions for large manufacturers plunged from -8 to -34, the lowest since 2009 but still above the trough of -58 during the global financial crisis.

“While business conditions collapsed in the Q2 Tankan, with economic activity now recovering that probably marks the trough. And surprisingly resilient investment forecasts for the upcoming fiscal year suggest weak business investment won’t hold back the recovery much,” Tom Learmouth, a Japan Economist at Capital Economics, said.

In a broadly risk-on market US Treasury yields rose with the 10-year benchmark 3 basis points higher at 0.69%.

It was a public holiday in Hong Kong today.

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PBoC lowers refinancing, rediscount rates

Asia Stocks

# Japan’s Nikkei 225 fell 0.75%

# Australia’s S&P ASX 200 advanced 0.62% 

# China’s CSI300 jumped 2.01%

# The MSCI Asia Pacific index 0.44%.