Equity markets in Asia are enjoying some decent gains overnight, with China and Hong Kong the obvious outperformers, while Europe is also enjoying a positive start on Wednesday.
Choppy trading conditions are still evident this week although the latest Chinese PMIs have provided some cause for more optimism. It was already believed that the transition from zero-Covid to living with it was going smoothly but this survey data suggests businesses are now extremely optimistic about the future.
That bodes well not just for China but regionally as well, as strong demand boost trade and a resurgence in tourism restores the battered industry. There’s still a long way to go and there could be setbacks along the way but investors will no doubt be encouraged by these early signs.
Those with close economic links with China have seen their currencies perform well in the aftermath of the releases, while the yuan is also trading much stronger on the day. While the initial reopening data may be noisy, a strong rebound will be very welcome after a very challenging 2022.
PMIs a big positive for oil
It’s not just equities that have been lifted by the PMIs, oil is also rallying today on the prospect of a stronger Chinese recovery and resilient global demand. While this was just one survey, the breakdown of the surveys was undoubtedly encouraging and that’s lifting Brent and WTI in early trade.
All we need to see now are signs of cooling price pressures and perhaps less heat in the labour market in order for crude to potentially break higher. Higher interest rates forcing a hard landing remains the main downside risk for crude prices which has driven the consolidation we’ve seen in recent months, and recent data has only fed those fears.
But with China transitioning well and survey evidence indicating resilient demand, all we’re missing is the removal of that downside growth risk. We may need to wait a little longer though as the data points traders will be most focused on for that are released over the next few weeks. A repeat of January could come as quite a shock.
Creeping higher
Gold is quietly heading for a third day of gains, boosted by a softer dollar today as other currencies react favourably to the Chinese survey data. The yellow metal fell almost 8% from its highs in February, coming close to key support around $1,780-$1,800. With momentum fading on approach, it would not come as a shock to see it pare those losses ahead of crucial US data over the coming weeks. Of course, it’s reliant on yields not spiking again and some improvement in risk appetite wouldn’t do it any harm either.
A timely boost
Not one to miss out on a bump in risk appetite, bitcoin is trading more than 2% higher this morning. It appears to have consolidated around late-February lows in recent days after failing to break key resistance – $24,500-$25,500 – in the middle of the month. That could be a sign of weakness, at least in the short-term, although ultimately it’s hard to imagine that occurring if we do see risk appetite continue to improve.
