Market Close Jun 01

Sentiment boosted by China data but eyes on US tensions

China Caixin PMI shows economic recovery broadening; Trump holds back on Hong Kong retaliation; Reports of China pausing US farm imports dampens rally

by Umesh Desai
Sentiment boosted by China data but eyes on US tensions
US President Donald Trump holds a press conference in the White House on Friday May 29, 2020. He said the US will restrict Chinese students and start reversing Hong Kong's special status in customs and other areas after Beijing imposed a controversial security law. With him are Trade Adviser Peter Navarro, left, National Security Adviser Robert O'Brien, US Secretary of State Mike Pompeo and US Secretary of the Treasury Steven Mnuchin, right. Photo: Mandel Ngan / AFP

(ATF) Hong Kong: Financial markets in Asia closed off earlier highs as China struck back by suspending imports of US agricultural products amid tensions between the two nations over Beijing’s national security law on Hong Kong.

Bloomberg reported that China's state-owned firms Cofco and Sinograin were asked to pause their buying of US agricultural products in a move seen as hitting US President Donald Trump’s support base after he threatened tough sanctions over China’s new national security law for Hong Kong.

Still, markets finished in positive territory after factory activity in China remained in expansionary territory as the world’s second-largest economy extended its recovery.

Japan’s Nikkei climbed 0.84, South Korea’s benchmark Kospi added 1.75% and Australia’s S&P ASX 200 index advanced 1.1%.

But China’s mainland benchmark extended gains with the CSI300 rising 2.7% after its economic data showed a broad-based recovery. Hong Kong’s Hang Seng benchmark jumped 3.36% as Trump did not elaborate on his threat to retaliate against China’s national security law.

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.

Demand flat

“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.

President Donald Trump had 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 threatened its legal system and free media. Still, there was relief that he had not indicated tariffs or a withdrawal from the phase-one trade agreement with China.

Credit markets were firm as yield-hungry investors eyed new bond offerings from Yinchuan Tonglian and Starhill Global REIT. Sovereign CDS were 1-8 basis points tighter with China’s 5-year contract an outperformer, having moved in 4 bps to 52/54 as investors eyed its economic recovery. The Asia IG index was 2 tighter at 100/101.

 In the week ahead, financial markets will eye purchasing managers' index – PMI – business surveys this week in a host of countries which will provide the first major insights into global economic trends in May, after early signs of a pick-up were seen in April.

Also on Asia Times Financial:

This week: PMI surveys, ECB, RBA, BOC rates, US non-farm payrolls

China's economic recovery broadens albeit at a slow pace 

Beijing repeats warning over US action over security law  

Foreign Exchange: As Trump threatens HK, G Sachs sees yuan drop to 7.25 - we doubt it

Asia Stocks

· Japan’s Nikkei 225 climbed 0.84%

· Australia’s S&P ASX 200 advanced 1.1% 

· Hong Kong’s Hang Seng index jumped 3.36%

· China’s CSI300 rose 2.7%

· The MSCI Asia Pacific index was up 1.3%.

Stock of the day 

ZTE rose as much as 11% after media reports the company is about to unveil a smartphone which could be one of the cheapest in the market. The stock also received a boost after a report Huawei, Xiaomi and ZTE are exploring the use of 6G in China.