Market Close Aug 03

Markets rise as data shows Asian recovery 

Strong PMI data from China, Japan; Gold, US Treasuries take a breather after July rally; Credit markets sees issuance wave; HSBC shares hit 11-year low

Markets rise as data shows Asian recovery 
A job seeker talks with a recruiter of a company during a career fair in Zhengzhou, in China's Henan province. China's economy may have rebounded sharply after a historic contraction from the coronavirus outbreak, but jobseekers face a less rosy situation, with businesses still reeling and household savings on the decline. Photo: Wang Zhao / AFP.

(ATF) Asian markets were broadly higher on Monday as investors cheered strong PMI numbers which underlined the recovery in the fastest growing region in the world.

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. The official manufacturing PMI, which was released on Friday, also rose in July, to 51.1 from 50.9 in June.

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, signalling that a gradual recovery in demand is gaining momentum on easing lockdowns. And Australia’s PMI rose to 54 points versus June's 51.2, and its highest reading since December 2018.

The focus was squarely on the recovery in the world’s second largest economy.

“The positive signal from the July Caixin/ Markit manufacturing PMI seems consistent with the constructive tone on near-term growth from the July NBS manufacturing PMI,” Grace Ng, senior China economist at JPMorgan, said.

“It is worth noting that, with the ongoing recovery in manufacturing activity, the employment component of both manufacturing PMIs picked up in July, hinting at further recovery and normalising manufacturing sector employment,” she said, noting that the data suggested early signs of recovery in global demand.

The official PMI survey typically polls a large proportion of big businesses and state-owned companies. The private Caixin and IHS Markit survey features a bigger mix of small- and medium-sized firms.

The Nikkei 225 leapt 2.24%, China’s CSI300 advanced 1.62% and Australia’s S&P ASX 200 ended flat.

HSBC drags down Hang Seng Index

But Hong Kong’s Hang Seng Index benchmark retreated 0.56% weighed down by index heavyweight HSBC’s 4.4% slide as it warned that bad debts could surge, while reporting a surprise plunge in net profit.

Safe havens gold and US Treasuries took a breather after their surge last month which saw the yellow metal climb 10% and the 10-year yield drop 12 basis points to 0.54%. And more gains are expected for gold.

“The share of negative yielding assets is increasing, suggesting market participants expect central banks to remain dovish. We agree with that, as financial repression looks to remain in full swing. Yet, with policy rates already at or even below the zero bound, support to gold prices will increasingly have to come from higher inflation,” said Michael Widmer, Commodity Strategist at BofA Securities. “The Fed effectively backstopping the government is a key reason, we expect gold to hit $3,000/oz in the coming 18 months.”

Credit markets extended their rally with the benchmark Asia IG index moving in 2 basis points to 71/72 basis points. This triggered a wave of issuance as CICC, KWG Group, Zhongtai Financial, Agricultural Development Bank and Yiwu State Owned Capital unveiled bond offerings.

Also on Asia Times Financial

Chinese regulators give green light to class-action lawsuits 

Asian fixed income graduating from emerging market school 

Microsoft gets six weeks to negotiate TikTok deal 

This week: PMI, trade date, central bank decisions 

Young, gifted and broke: China's young jobseekers 

Foreign Exchange: Fast growth in China manufacturing spurs yuan rise

Asia Stocks

# Japan’s Nikkei 225 leapt 2.24%

# Australia’s S&P ASX 200 ended flat

# Hong Kong’s Hang Seng index retreated 0.56%

# China’s CSI300 advanced 1.62%

# The MSCI Asia Pacific index added 0.9%.

Stock of the day 

HSBC shares plunged 4.4% on the Hong Kong Exchange after unveiling a 65% fall in net profit, missing analyst expectations. Its shares struck an 11-year low. Its London-listed shares fell 5.6%.