Asia News Jun 29

China, US data set to show recovery on solid footing

Purchasing Manager's Index information from China and US non-farm payrolls data expected to confirm global economy has begun to recover from the impact of the Covid-19 pandemic

China, US data set to show recovery on solid footing
People pick and collect lichees from trees growing at Shenzhen University in southern China's Guangdong province on 29 June 2020. Photo: Liu Yujie / Imaginechina via AFP.

(ATF) Economic events

Investors are looking for further confirmation in the week ahead that the global economy has started to recover from the initial impact of the Covid-19 pandemic.

“China’s PMIs will be especially closely watched given its earlier relaxation of virus-related restrictions. So far the data have shown encouraging strength, with business activity across manufacturing and services growing in May at the fastest rate since the start of 2011. The data for China may therefore help gauge the extent to which early rebounds in activity from lockdowns might fade,” Chris Williamson, chief business economist at IHS Markit, said.

Barclays analysts said they expected the Caixin manufacturing PMI to edge lower to 50.2 in June from 50.7 previously on an expected moderation in export-related manufacturing production. China’s NBS manufacturing PMI would have moderated to 50.2 in June from 50.6 in May as the pace of the recovery in high frequency activity data, including coal consumption by major power plants, slowed in June, they said.

The Asian PMIs are accompanied by official industrial production numbers for Japan and South Korea, with trade data issued in Taiwan, Malaysia and South Korea, all of which will help gauge the depth of second-quarter downturns.

“In most other Asian economies, manufacturing should have continued to slow albeit at a reduced pace than in May. India and Indonesia are likely to remain at the low end of the Asian spectrum, given worsening Covid-19 situations in these countries,” Prakash Sakpal, ING Bank’s senior economist in Asia, said.

“May retail sales figures from Hong Kong and Singapore should reflect the extent of the hit to domestic demand in these economies. We expect the worse, around 50% YoY contraction in sales in both economies, as rising job losses depress spending,” he added.

Weak consumer spending should keep CPI inflation under downward pressure in most reporting countries during this week in South Korea, Indonesia, and Thailand, with Thailand's continuing to lead the way down, Sakpal said.

Also this week, US data releases include the monthly employment report, which includes unemployment and non-farm payroll data and Fed chair Jerome Powell will also give testimony before the Committee of Financial Services.

“Heading into a heavy laden indicator schedule that will determine whether recently instilled confidence over the unfolding economic recovery is indeed on solid footing, market participants will closely scour the incoming data performance before bolting into the long Fourth of July holiday weekend,” said Sam Bullard, senior economist at Wells Fargo. US financial markets are closed on Friday, which would mean the non-farm employment numbers will be reported a day earlier on Thursday. A Bloomberg poll said the labour department will report a 3 million increase in payrolls.

Fund flows

In the week ended June 24, bond flows attracted $19 billion of inflows with US and Global bond funds being the favoured segments, according to fund flow tracker EPFR Global. EPFR tracked bonds funds have now consistently seen inflows for 11 straight weeks attracting an aggregate of $192 billion. With that they have recouped some 40% of the $445 billion that investors pulled out of these funds in March.

Gold Funds also pulled in over $1 billion for the 11th time in the past 14 weeks and inflation protected bond funds gained over $2 billion for the first time indicating wariness about price pressures in the economy.

Emerging market equity funds notched up their 19th straight week of outflows and developed markets were cautious despite the record high posted by the Nasdaq index.

“Growing Covid-19 caseloads in India, Latin America, southern Africa and Russia, (plus) geopolitical tensions in Asia and depressed levels of both trade and tourism gave investors plenty of reasons to continue keeping their distance from emerging markets going into the final week of June,” EPFR said of the outflows from emerging market equity funds.

It noted that Developed Markets Equity Funds posted their second straight outflow as redemptions from US and Global Equity Funds exceeded the modest commitments to Europe and Japan Equity Funds.

Economic data calendar 

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