Market Close Mar 31

China PMI, more stimulus hopes lift Asian markets

A report that the White House and congressional Democrats are working on a fourth round of stimulus boosted markets

China PMI, more stimulus hopes lift Asian markets
Asian markets were lifted by a report the White House is considering a fourth economic stimulus package. Photo: AFP

Trade of the Day: Asian stocks off highs after solid start; Europe, US shares lifted by stimulus hopes; gold tanks but US Treasuries firm

Quote of the Day: “The arguments for a quick recovery become even weaker when looking at historical recessions. Never before has the S&P hit its low in less than 6 months when it's drawn down 30% or more during a recession, and on average it's taken 11 months to find a low, given the size of this shock. With our economists projecting a 12% annualized decline in 2Q US GDP (3/4ths of the peak-to-trough economic loss during the GFC), history also suggests a 34% draw-down in S&P is likely not enough. So while those banking on a rapid equity market recovery are banking on unprecedented stimulus to erase the pain, history would also suggest they may be banking on a miracle,” BofA Securities said in a note on Tuesday.

Stock of the day:  Clear Media shares jumped after Ever Harmonic Global offered to pay HK$7.12 per share to buy all shares. Shares of the company which is engaged in the business of outdoor advertising, rose 37% to close at HK$6.99.     

Number of the Day: $12.5 billion: Aggregate value of Mergers & Acquisitions activity last week, which was the lowest weekly total since the financial crisis in April 2009, according to Refinitiv data.

Tip of the Day: Timothy Tay, head of APAC Credit at UBS Global Wealth Management CIO, said investors should focus on high-quality or short-dated issues when adding risk. “We see value in Asia IG bonds (295bps), particularly BBB bonds which are trading at an attractive level of 368bps (YTM 4.6%). For HY corporate bonds, we prefer short-dated BB/B HY issues, particularly in the China property space, where yields range from 9% to 20%. Among Asian sovereigns, we like Indonesian quasi-sovereign (YTM 5.4%) and Sri Lanka sovereign (YTM 15%) bonds,” he said.

Fourth round of stimulus

Financial markets added to their gains after a strong China data-related opening was followed by a Bloomberg report saying the White House and congressional Democrats are preparing for a fourth round of economic stimulus.

The Stoxx Europe 600 index rose 2% and the S&P Futures are 0.8% higher after the stimulus report.

White House officials have compiled lists of requests from government agencies totalling roughly $600 billion, Bloomberg said citing people familiar with the matter. Sentiment was also supported after Italy reported the lowest daily infections count in two weeks.

Earlier a surprise jump in China’s official Purchasing Managers’ Index (PMI) which rose to 52 in March from 35.7 in February gave markets hope activity in the world’s second largest economy had started to rebound although concerns about export demand and unemployment swirled. 

The Hang Seng index climbed 1.85%, Korea’s Kospi advanced 2.19% and China’s CSI 300 climbed 0.33%. Japan’s Nikkei 225 dropped 0.88% after the government issued a travel advisory against 73 countries and regions, including, Europe the US, and the UK.  Australia’s S&P ASX 200 retreated 2.02% pulled down by commodity stocks. Regionally the MSCI Asia Pacific ex-Japan benchmark advanced 1.8%.

Still, financial markets are not convinced this is the end of the gloomy economic backdrop as China’s exports will remain under pressure as western economies grapple with the coronavirus which has now claimed 37,840 lives and infected over 787,000 people globally.

“The contrasting readings between expansionary new orders and contractionary new export orders suggests an improvement in domestic conditions help offset weakness in external demand,” Barclays economists said in a note.

The rebound in March was not likely to help reverse the impact of the dismal economic performance in the first two months of the year which hammered quarterly data.

ANZ analysts said the coronavirus impact on the world’s second biggest economy will be reflected via two main channels - a decline in global demand for China’s exports as well as supply-side disruptions that hinder production in China.

Morgan Stanley analysts warned that the PMI employment sub-index in service sectors had picked up less than manufacturing sectors, suggesting possibly weaker job market conditions in service sectors due to continued social distancing measures.