Stocks and Sovereign Debt Yields Up on Better-than-Expected Chinese and British Manufacturing Data

April 1, 2019

This is not an April Fool’s joke. China’s NBS manufacturing purchasing managers index climbed 1.3 points to a 6-month high of 50.5 in March from February’s 3-year low, while the Caixin-compiled Chinese manufacturing PMI reading of 50.8 constituted an 8-month high. Also, the NBS nonmanufacturing PMI rose 0.5 points to a 6-month high as well of 54.8.

Meanwhile in Britain where there was a rush by manufacturers in March  to stockpile inventories ahead of a feared withdrawal from the EU caused that economy’s purchasing managers index to leap 3.1 points to a 13-month peak of 55.1.

These surprises lifted 10-year sovereign debt yields across a wide spectrum of economies and also drove share prices up by 2.6% in China, 1.5% in Hong Kong, 1.4% in Japan, 1.3% in South Korea, and 1.2% in Singapore. Even in Europe where continental manufacturing PMIs continued to be mostly worrisome, stocks show gains of 1.0% in Germany, 0.7% in France and Britain, 0.5% in Spain, 0.4% in Italy and 0.3% in Switzerland.

West Texas Intermediate crude oil jumped 1.2% and at $60.85 per barrel is comfortably clear of the $60 resistance level. Comex gold dipped 0.2% and remains below $1,300 per ounce.

The dollar fell 0.7% against sterling and 0.3% versus the New Zealand and Australian dollars. The greenback also edged marginally lower relative to the euro and Swiss franc.

A 71-month low in Euroland’s purchasing managers index in March was overlooked by markets because of the better-than-expected news from the U.K. and China. Euroland’s PMI fell 1.8 points to 47.5, which is clearly sub-50 and thus in deterioration territory. Indices for Germany (an 80-month low of 44.1), Italy (a 70-month low of 47.4), and France (49.7) were also below 50. Austria’s manufacturing PMI is now sitting right on 50.0, and the Dutch reading of 52.5 is at a 33-month low and well under January’s 58.1 score.

In other European economies, the Czech manufacturing PMI was below 50 at 47.3, the lowest reading since late 2012, and the Swiss PMI dived 5.1 points to a 39-month low of 50.3. The Danish PMI dipped to a 2-month low, but higher PMI readings than in February were experienced in Norway, Sweden, Poland, and Russia (where the level was at slightly more than a 2-year high.

Turning to the Pacific Rim, Japan posted a manufacturing PMI of 49.2, which although above the preliminary reading and the result from February was below 50 for a second straight month. The Taiwanese PMI rebounded from February’s 3-1/2 year low of 46.3 to a 6-month high of 49.0. South Korea’s PMI climbed to a 3-month high of 48.8, and both Indonesia‘s 51.2 and Thailand‘s 50.3 scores represents 3-month highs also. Vietnam‘s PMI rose 0.7 points back to January’s level of 51.9, but somewhat lower readings were reported for Malaysia and the Philippines. Australia’s CBA-compiled manufacturing PMI declined 0.9 points to a 32-month low of 52.0.

The Bank of Japan’s quarterly Tankan survey of business conditions and expectations confirms a trade war-damaged economy that’s not expected to get any better in the coming three months. Conditions among large manufacturers recorded their greatest quarter-to-quarter deterioration just over six years, and the summary diffusion indices for both that group and for large non-manufacturers hit two-year lows. Planned investment in the fiscal year that began today among all 9,830 firms participating in the Tankan survey is projected to decline 2.8%.

National Australia Bank’s monthly reading of business confidence in that economy fell with a thud to zero, the first time it wasn’t positive since July of 2013 even though the companion index of business conditions rebounded three points to a 2-month high.

South Korea posted a $9.31 billion trade surplus in the first quarter of 2019, down from $12.63 billion a year earlier. Indonesian CPI inflation dipped further to 2.48% last month from 2.57% in February and a 6-month high of 3.23% last November. Retail sales in Hong Kong posted their largest on-year volume slump (10.4%) since August 2016, but the comparison was distorted by the lunar new year holiday.

CPI inflation in the euro area dipped 0.1 percentage point in March to 1.4%, matching January’s 7-month low and also the level in March 2018. Core CPI inflation dropped 0.2 percentage points to 0.8%, its lowest point in 11 months. Also in Euroland, unemployment remained at 7.8% despite slightly lower but still very high youth joblessness of 16.1%.

The Central Bank of Chile’s Board, which had lifted lifted its monetary policy rate by 25 basis points each in October and January, decided unanimously to keep such at 3.0% after its latest review and released a statement that observed, “Tensions in international financial markets have reappeared. The yield curve has inverted, the dollar has appreciated globally, and new fears about the performance of some emerging economies whose economic fundamentals are perceived as weak have arisen.”

The U.S. manufacturing PMI compiled by the Institute of Supply Management will be forthcoming.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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