Markets Mar 28

Markets this week: Political tensions, PMI numbers

The continued fallout from China's reaction to US and EU sanctions over its alleged mistreatment of its Uighur minority will darken the mood but positive manufacturing figures from China and the States could bring some brightness

Markets this week: Political tensions, PMI numbers
Annual profits at China’s industrial firms surged in the first two months of 2021.  

ECONOMIC EVENTS

Financial markets this week will be on edge after Beijing reacted to sanctions imposed by the United States, European Union, Britain and Canada for what they say are human rights violations in Xinjiang region.

In another reflection of the US-China tensions, US-listed shares of China-based Baidu Inc and Tencent Music Entertainment group plunged by as much as 33.5% and 48.5% last week after the US Securities and Exchange Commission (SEC) pledged to delist shares of companies that failed to comply with US accounting standards.

In the long run this is expected to benefit Hong Kong as firms have already sought secondary listings there with the US unlikely to remain the top destination for Chinese tech IPOs.

Read more: India orders disclosure on all cryptocurrency dealings

Also weighing on sentiment will be downbeat US data which showed consumer spending fell by the most in 10 months in February after a cold wave and as the boost from a second round of stimulus cheques faded.

Markets will take some relief from China’s corporate data that showed annual profits at China’s industrial firms surged in the first two months of 2021.  

Economic data releases during the week include China’s PMI reading for March which is expected to show a pick-up in activity after a pullback at the start of the year.

A Bank of Japan meeting summary release will reveal which measures might still be subject to further change and for more details on the reasons behind the changes.

Later in the week, US non-farm payrolls are expected to show the largest employment increase in months as vaccinations increase and economic activity picks up. A Bloomberg survey of economists showed the unemployment rate fell to 6% as non-farm payrolls rise 643,000 in March.

“With recent robust survey data pointing to upbeat business confidence, buoyed by the vaccine rollout and new $1.9 trillion stimulus measures, hiring is likely to have remained solid in March,” said Chris Williamson, Chief Business Economist, IHS Markit.

“Even more US stimulus looks to be on the cards, with President Biden earmarked to announce at least $3 trillion of infrastructure spending on Wednesday. Any news of additional stimulus could be dampened, however, by countermeasures brought into pay for the extra spending, especially tax hikes.”

FUND FLOW

Risk-averse investors pared inflows into equity funds while bond and money market funds saw heightened subscriptions in the week to March 26 as a bunch of factors resulted in elevated uncertainty.

While investors committed fresh money to Emerging Markets Equity Funds for the 25th time in the past 26 weeks, for the second straight week the overall amount was down, EPFR data showed.

“A reporting period that started with the first quadruple witching of the year and ended with the Suez Canal blocked by a massive container ship also featured renewed lockdowns in Europe, yields on the US 10-year dropping back to the 1.6% level and North Korea testing nuclear capable missiles,” said Cameron Brandt, Director, Research at EPFR.

Inflows into Global, Canada and Japan Equity Funds offset redemptions from Europe and US Equity Funds as Developed Markets Equity Funds extended their longest run of inflows since EPFR started compiling them.

Meanwhile, Bond Funds recorded their biggest inflow in over a month, with all the major geographic and asset class groups taking in fresh money during the week although investors cut duration risk, especially when it comes to corporate debt, while inflation proof funds remained popular.

Inflation Protected Bond Funds posted their 18th straight inflow, taking the cumulative total since last May over the $62 billion mark. Convertible Bond Funds recorded their 17th inflow in the past 19 weeks, Bank Loan Funds their 15th in the past 16 weeks and Mortgage Backed Bond Funds their 26th in the past 27 weeks.

“While HY and EM debt flows have recovered strongly over the past two weeks, IG investors are pulling money away from mid- and long-term funds,” said BofA Securities analysts in a note.

“With the recovery set to pick up over this year, investors are adding beta via higher yielding paper, while reducing duration risk amid higher yields and steeper curves in the sovereign bond market. We see a continuation of this trend for as long as rates uncertainty keeps a lid on IG flows, but the macro recovery pushes more investors in favour of market reopening trades.”

Economic data calendar

Last week’s rating changes

 

Also on ATF:

China puts its total foreign debt at $2.4 trillion

Tencent goes on the front foot with China antitrust meeting

Sanctions Xinxiang Uighur PMI Stimulus Bond funds EU Baidu Tencent