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Asia bounces

Asia was primed for an outperformance on the first day of October, following yesterday’s strong recovery in US and European equities. 

China Oriental
Source: Bloomberg

Regional bourses were higher today. In particular, the ASX 200 jumped 1.8% to extend gains well above the 5000 level, while the Nikkei almost recouped back the sharp losses from the early part of this week.

The slightly higher than expected China’s PMI alongside an upward revision in the Caixin PMI also helped sentiment. The NBS manufacturing PMI for September came in at 49.8, when the market was expecting 49.7. While the headline reading remains below the 50 level, the breakdown of the data showed improvement in key sub-components.

Both output and new orders improved to 52.3 and 50.2 from 51.7 and 49.7 respectively. The progress in the new orders into expansion territory is definitely encouraging. This would help lift expectations that we could see a bottom to the slowing growth momentum in China.

One may also expect the lagged impact of the monetary easing and fiscal investment to filter through the economy. Therefore, we could see a pickup in economic activity in the fourth quarter, especially if the 7% annual GDP target comes under threat.

However, I can’t help but get the sense that the risk uptake today is tentative. The macro environment has not changed significantly, and risk assets remain quite the pariah they were in recent weeks.

The rebalancing of global funds due to the month/quarter-end adjustment should wear off soon enough, and dim global economic outlook point towards a tepid picture for equities and commodities in the months ahead. This means there is really no impetus for global equities to rebound strongly. At most, we could see some bounce triggered by technical moves.

October promises to be a very interesting month. The main focus will clearly be the Fed’s view on rate hike timing. Market participants will hang on to US macro data as well as global market developments, to assess if the view to raise rates in 2015 still has merit. Developments out from China, both financial markets and economic indicators, will have substantial impact on the debate for the Fed.

In the US session, traders await the ISM manufacturing data as well as jobless claims figures. Construction spending may gather some attention, but it is for August, which means the information could be a tad stale.

Meanwhile, San Francisco Fed president John Williams is due to speak, although his speech is unlikely to deviate much from his recent comments. On Monday, Mr Williams renewed his call for a rate hike at some time later this year, citing strong employment data and increasing house prices. He warned about potential imbalances if the Fed delays hiking interest rates, leading to high asset prices, particularly in the real estate. The FOMC has two more meetings left this year, in October and December.

 

Singapore higher

With China beginning its golden week celebration, until 7 October, Singapore looked towards the US trade for guidance. The STI rallied above 2800 today, in tandem with regional indices. The index held on to the key level for most of Thursday.

Consumer staples were the best performing sector, driven by demand for Wilmar and Golden Agri, as Chinese PMI showed that further weakness in China’s economy may see a bottom soon. Financials also did pretty ok, with SGX advancing strongly after RHB Research raised the stock to a ‘Buy’ from ‘Neutral’ on Wednesday, citing respectable securities market’s average daily turnover and higher y/y volume for derivatives in August.

SGX price has fallen almost 19% since its peak of SGD 8.78 in May, and the counter is still lower by over 8% on the year.

In addition, the markedly lower prices of the three Singaporean banks might also have attracted investors hunting for bargains. The banks gained about 0.5%.

Meanwhile, the haze continued to affect Singapore, with the 24-hour PSI sitting at 155-196 range. 3-hour PSI was at 195 as of 4pm. As a result, the organisers of the Bloomberg Square Mile Run has postponed the race (which I have been diligently training for) a couple of days back. They have not announced a new date but on a brighter note, I have more training time to improve my timing to decent from abysmal.

 

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