Asia market morning update - firing the cylinders

US ISM manufacturing surprise

Following the PMI surprises out of China, the ISM manufacturing index in the US had likewise affirmed the improving manufacturing picture. The March reading arrived at 55.3 against the market’s 54.5 consensus and the previous 54.2 reading, though as with the Chinese figures, the external component failed to impress. Still the figure had been a pleasant surprise to contend with amid the growth worries within markets, having the added bonus of a rebound shown for manufacturing employment, altogether furthering the risk-on tone for markets.

This saw to all but the defensive sectors on the comprehensive S&P 500 index ticking higher and as for the Dow Jones industrial index, a breakout on the upside of the current wedge pattern can be seen as the bulls take control. Watch if the index can hold its ground with a series of resistance seen past the 26,000 mark in addition to the jobs data and US-China trade talks still to come.

Greenback strength

On FX, the improvement in risk sentiment as a result of the data surprises underpinned the uptick for the likes of USD/JPY (大口）. The risk play saw the currency pair trading firmly above 111.00 level, last seen hovering 111.40. Likewise for the US dollar index which saw further gains, in part supported by higher yields overnight. The US 10-year yields had noticeably shot up briefly to 2.5% levels on Monday, keeping some yield curve inversion worries at bay. As mentioned yesterday, the overreading into both the inversion and the return to normality should be cautioned upon. Economists have increasingly been purporting the view that a recession is expected in the coming one to two years. Still, the fact of the matter is that the short-term price action will be guided by the more telling economic indicators and even in a blow-out of growth slowdown, the USD haven status would come in handy to keep the greenback supported.

Asia open

Owing to the synchronised manufacturing surprises out of China and the US, Asia markets have sustained gains into Tuesday. As seen across the likes of the ASX 200 and the Nikkei 225, gains of 0.75% have been seen thus far. With the turn of the month, China’s tax cuts had also kicked into place with Apple having announced the lowering of iPhone prices in the country. The consumer preference may still have a significant part to play on this end as investors look to the closing of the gap in Chinese sales after the disappointment from the previous earnings announcement. However, whether to what extend the tax cut can boost April’s data will be one to watch for Asia’s largest economy.

For the day ahead, focus on the RBA meeting with no changes expected to monetary policy or the neutral stance. February’s durable goods out of the US will be one for the greenback to watch.

Yesterday: S&P 500 +1.16%; DJIA +1.27%; DAX +1.35%; FTSE +0.52%