Markets Jun 01

China PMI data fuels early gains in Asia

Supply was stronger than demand in the manufacturing, Caixin said, but there was relief that Trump did not indicate tariffs or a withdrawal from the phase-one trade agreement with China

China PMI data fuels early gains in Asia
Turmoil in the US has taken the focus off US-China ties. Here demonstrators confront police outside the White House on Saturday May 30 after the death of George Floyd, an unarmed black man, when a policeman kneeled on his neck for several minutes in Minnesota. The latest death spurred riots across the US. Photo: Eric Baradat/ AFP

(ATF) Asian markets received a boost from solid economic data in China, as the world’s second largest economy continued to recover. But investors are watchful of the unrest in the US and Washington’s threat to Beijing over the new security law in Hong Kong.

Japan’s Nikkei rose 1.18%, South Korea’s benchmark Kospi rose 1.31% and Australia’s S&P ASX 200 index advanced 0.85% as investors were relieved on the US-China trade front.

China’s CSI300 leapt 2.3% as investors tracked the recovery in the word’s second-largest economy. Early on Monday, Caixin PMI data, which focuses on smaller export-driven firms, revealed manufacturing output increased by the strongest since January 2011.

The headline seasonally adjusted PMI – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – rose from 49.4 in April to 50.7 in May.

“The above 50.0 reading signalled a renewed improvement in overall operating conditions midway through the second quarter, albeit one that was only marginal,” the compilers said in a report.

The Caixin China General Manufacturing PMI™ is compiled by IHS Markit from responses to questionnaires sent to purchasing managers in a panel of around 500 private and state-owned manufacturers.

“Supply was generally stronger than demand in the manufacturing sector, as production continued its expansion amid a broader economic rebound while demand had yet to recover,” Dr Wang Zhe, senior economist at Caixin Insight Group, said.

Drag on demand

“Sluggish exports remained a big drag on demand as the virus continued spreading overseas. Stabilising the job market is a top priority on policymakers’ agenda this year, as shown in last month’s government work report. Boosting employment is not an easy task, as the employment subindex in the Caixin manufacturing PMI survey has remained in contractionary territory for five months in a row.”

On Sunday, it unveiled official manufacturing PMI which eased to 50.6 in May from 50.8 in the previous month, although it is still in expansionary territory.

President Donald Trump pledged to end Hong Kong’s special status after China’s new law targeted secession, subversion, terrorism and foreign interference in Hong Kong, which critics say threatens its legal system and free media. Still, there is relief that he did not indicate tariffs or a withdrawal from the phase-one trade agreement with China.

Market jitters received another setback as violent protests in the US flared and Trump indicating deployment of the National Guard, a reserve component of the US Armed Forces.

Credit markets were firm as yield-hungry investors eyed new bond offerings from Yinchuan Tonglian and Starhill Global REIT. Sovereign CDS were 2-10 basis points tighter with China’s 5-year contract an outperformer, having moved in 5 bps to 51/52 as investors eyed its economic recovery.