Asia market morning update - Chinese PMI recovery

Positivity stemming from China’s PMI and US leads sets in motion gains for Asia markets at the start of the new quarter, though watching the private Caixin gauge for confirmation of the broad recovery ahead of a slew of US data.

Source: Bloomberg

New orders expansion

Sunday’s release out of China had been of little doubt a boon for Asia markets, though not without reservations. As it is, one had noted that the official manufacturing PMI index had surged to a six-month high of 50.5 from 49.2 and marks the first month this year out of contraction territory. Zooming deeper into the components, the key new orders and new export orders had likewise printed their respective six-month high coming out of the Chinese New Year season. While some of the recovery had likely been attributed to the departure from the Chinese New Year distortions, the broader signal that the data had sent to the market is one of recovery. This had perhaps not been a huge surprise for the market in light of February’s new orders improvement, though not of the magnitude seen.

Still, one would note that the new export orders persisted in the contraction territory, outlining the uncertain external picture. Look to the private Caixin manufacturing gauge out Monday morning for affirmation of the trend.

Asia open

Carrying the positive note from Wall Street last week, which saw to one of the strongest Q1 performance, and with aid from China’s official PMI release, look to synchronised gains for the Asia region this morning. Notably, the 3-month/10-year US treasury yield inversion had returned to normal on Friday. As with the inversion itself, one must be cautious in interpretation. Although, the lift in 10-year yields does suggest receding growth concerns. Look to the abovementioned Caixin manufacturing index in China ahead of the slew of indicators including the March ISM manufacturing and February retail sales out of the US that would play key roles into guiding views on the growth outlook at the start of the week.

Separately, this morning also saw the Japanese Tankan, or short-term economy survey, showing disappointments across large and small manufacturers’ outlook and index. Reactions across both the Japanese FX and equity market had expectedly been limited in light of the broad views for weakness in Q1.


Levels check

S&P 500: Despite the bout of growth concerns that had dampened sentiment in the past week, the S&P 500 index remained supported into the end of the last week. The 2800 level had certainly become a strong resistance-turned-support, though the broad index appears to have lost momentum at present. Look to where the series of data will take market this week, particularly the likes of the ISM manufacturing index and payrolls into the end of the week. US-China trade developments will likely play a key role as well with the series of planned talks running through to this week.

US 500 Cash ($10)

HSI: The official Chinese PMI surprise helped to renew the momentum for the HSI this morning, still awaiting the Caixin reading. Prices look to attempt the March high once again, one to watch this week with any positive news out of the US-China trade talks among others. A rejection at the level could see the consolidation sustain.

Hong Kong HS50 Cash (HK5)

USD index: The US dollar had oscillated the 96.50 level in the past months, seeing the attempt on the topside once again. While doubts had started to gather, the sustained growth differentials and yield differentials keeps the king dollar elevated. Look to the data implications this week that could determine whether a breakout may come through.

US Dollar Basket (SD1)

US Crude: Perhaps the one setup to watch this week with the ascending triangle pattern inching towards a breakout on the upside. The backdrop of tightening supply had evidently helped, but the next surge may have to count on improvement in the demand outlook for prices to firmly takeover the $60.50 level, one to watch.

Oil - US Crude (SD1)

Yesterday: S&P 500 +0.67%; DJIA +0.82%; DAX +0.86%; FTSE +0.62%


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