Asian stocks rally as China's factory bounce lifts confidence

Reuters April 1 | Updated on April 01, 2019 Published on April 01, 2019

MSCI's broadest index of Asia-Pacific shares rose about 9 per cent in the first quarter of 2019. File Photo   -  Bloomberg

Asian stocks powered higher on Monday as positive Chinese factory gauges and signs of progress in Sino-US trade talks boosted sentiment, although another defeat for British Prime Minister Theresa May's Brexit deal added to sterling's woes.

Spreadbetters expected European stocks to open higher, with Britain's FTSE gaining 0.4 per cent, Germany's DAX adding 0.8 per cent and France's CAC rising 0.9 per cent.

MSCI's broadest index of Asia-Pacific shares outside Japan added 1 per cent and the Shanghai Composite Index rallied 2.4 per cent.

Australian stocks climbed 0.6 per cent, South Korea's KOSPI gained 1.3 per cent and Japan's Nikkei advanced 1.4 per cent.

The markets took heart after China's official purchasing managers' index (PMI) released on Sunday showed factory activity unexpectedly grew for the first time in four months in March.

A private business survey, the Caixin/Markit PMI, released on Monday also showed the manufacturing sector in the world's second biggest economy returning to growth.

If sustained, the improvement in business conditions could indicate that manufacturing is on a path to recovery, easing fears that China could slip into a sharper economic downturn.

“Our view is the impact of policy easing is gradually kicking in, pushing up sequential growth indicators such as PMI first,” wrote China economists at Bank of America Merrill Lynch.

“In particular, the larger-than-expected tax and fee cuts and improving financial conditions have likely helped boost business sentiment in the manufacturing space.”

Stocks in Asia also took their cues from Wall Street, with the S&P 500 posting its best quarterly gain in a decade on Friday amid trade optimism.

The US and China said they made progress in trade talks that concluded on Friday in Beijing, with Washington saying the negotiations were “candid and constructive” as the world's two largest economies try to resolve their drawn out trade war.

“The ongoing US-China trade conflict has provided a steady stream of conflicting signals for the markets. But as a whole the negotiations appear to be headed towards a conclusion,” said Soichiro Monji, senior strategist at Sumitomo Mitsui DS Asset Management.

“Hopes that the United States and China would reach an agreement on trade as early as this month are enabling stocks to begin the quarter on a positive tone.”

In the currency market, the dollar index against a basket of six major currencies stood at 97.147 after going as high as 97.341 on Friday, its strongest since March 11.

The greenback had benefited from the flagging pound, which was on track to post its fourth day of losses in the wake of the ongoing Brexit saga.

Sterling took its latest knock after British lawmakers rejected Prime Minister May's Brexit deal for a third time on Friday, sounding its probable death knell and leaving the country's withdrawal from the European Union deeper in turmoil.

The pound crawled up 0.15 per cent to $1.3055 having posted three sessions of losses.

The Australian dollar advanced 0.35 per cent to $0.7122 . The Aussie is sensitive to shifts in the economic outlook for China, the country's main trading partner.

The euro rose 0.2 per cent to $1.1239 while the dollar gained 0.2 per cent to 111.035 yen. Safe-haven government bonds retreated as risk aversion in the broader markets eased. The benchmark 10-year US Treasury yield edged up to a six-day high of 2.444 per cent, pulling away from a 15-month low of 2.340 per cent brushed on March 25.

The Treasury 10-year yield had sunk as the Federal Reserve halted its drive to hike rates and as risk aversion, driven by concerns about a global economic slowdown, gripped financial markets towards the end of March.

The slide had pushed the 10-year yield below the three-month rate for the first time since 2007 late last month.

This phenomenon - when the spread between short- and long- dated yields turns negative - is known as a curve inversion and has preceded every US recession over the past 50 years.

The 3-month/10-year yield spread has since pulled back from negative territory and stood around 3 basis points.

Crude oil prices added to Friday's gains, with US West Texas Intermediate (WTI) futures gaining 0.6 per cent to $60.52 per barrel.

Oil prices posted their biggest quarterly rise in a decade during January-March, as US sanctions against Iran and Venezuela as well as OPEC-led supply cuts overshadowed concerns over a slowing global economy.





Published on April 01, 2019

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