The first trading day of the new month has seen the release of pan-Asia Pacific Manufacturing PMI’s. The results have been positive and should go some way to assuaging the Covid-19 recovery fears that have weighed on the region in recent days. Although with China and Japan away today, Asia seems more inclined to remain gloomy, at least for today. Australia, Indonesia, Malaysia and Taiwan PMIs all outperformed for April, with South Korea’s retreated slightly from a high base to 53.9, still expansionary.
Over the weekend, South Korea’s trade balance shrunk to 0.40 billion dollars even as exports surged by 41.10% YoY for April. The culprit was imports, which also leapt by 33.90% YoY. The headline data is flattered due to the world being deep in Covid-19 lockdowns in April last year, but overall, I suspect the import number is not such a negative. Surging imports suggest that both South Korea’s manufacturing machine remains on track, and more importantly, domestic demand is recovering.
Perhaps the biggest takeaway from the data is that the semi-conductor shortage is not aggressively making its presence felt in regional Asia for now. Pan-Europe Markit Manufacturing PMIs are released this afternoon, and it will be interesting to see if the same trend continues.
Although the data picture paints a bright image, the market reaction is likely to be muted as both China and Japan are on holiday until Thursday. A host of peripheral Asian countries celebrate Labour Day today as well. Additionally, the United Kingdom also has a holiday, likely muting any European flows this afternoon.
On Friday, markets were somewhat wrong-footed as US yields fell, but the US dollar recorded robust gains. Stocks also fell on Wall Street. Non-voting Fed Governor Kaplan put the fox amongst the hens by suggesting that tapering talk needs to happen sooner rather than later. That may have been all the excuse equity markets required to lock in some profits from a positive week. The US bond and currency movement were a little cloudier, however, being I suspect that month-end rebalancing flows by international investors explain most of the price moves. If we continue in the same vein this week, I may need to readjust my thinking cap.
Despite the long holiday in China and Japan, Asia’s data calendar still contains plenty of interest, and across the week, the global calendar looks as punchy as last week. The week’s highlight will undoubtedly be the US Non-Farm Payrolls on Friday. A print North of 1 million is possible and may give bond vigilantes another chance to hold field court-martials with the longer end of the US yield curve.
In between, we have rate decisions from Australia, Malaysia and Thailand, and the United Kingdom and Norway. All will remain unchanged, but as ever, it will be what they say in the statements afterwards that will be of most interest. The most significant even risk here will be Australia and Malaysia, I feel.
The official and Markit Manufacturing and Services PMI frenzy continue across Asia and Europe tomorrow, with China’s Caixin Services PMI out Thursday. We also have US ISM Manufacturing PMI this evening which follows the giant leap to 72.1 by the Chicago PMI for April on Friday. That makes me believe even more strongly that the fall in US yields and the US equities was month-end related. Throw in US Trade Balance tomorrow, and the German and French Industrial Output data on Friday, and this week is starting to look like the show with everything but Yul Brunner.
Indonesia Inflation and Core Inflation will be Asia’s primary data point for the rest of the day. The headline will remain under 1.50%, and Core under 1.30%, far below the Bank of Indonesia’s (BoI) 2-3% target. The Indonesian Rupiah has strengthened through 14,450.00 to the dollar recently. It should maintain those gains post-data, as the BoI has now run out of runway to cut rates further without endangering the rupiah. The most recent cut was probably one too far, and the IDR remains acutely vulnerable to sharp rises in US yields.
India’s Sensex Index and the Indian rupee staged mighty comebacks last week. The start of this week could see both give back some of those gains. The ruling BJP endured a torrid time at state elections over the weekend as voters passed judgement on the Modi government’s handling of the Covid-19 situation. That situation appears to be deteriorating, with India hitting 400,000 daily new cases and the tragic stories there for all to see in the world’s media. Buying the dip played out handsomely last week; it may be harder to justify this week.
