Chinese stocks rallied while other Asian markets trimmed declines after factory activity ramped up in the world’s second largest economy.
(Bloomberg) — Chinese stocks rallied while other Asian markets trimmed declines after factory activity ramped up in the world’s second largest economy.
The offshore yuan strengthened about 0.3% while Australia’s currency, which is particularly sensitive to China’s outlook, reversed an earlier sharp drop and climbed about 0.1%.
Data showing China’s manufacturing activity recorded its highest monthly improvement in more than a decade saw the Hang Seng China stock gauge rally as much as 3%. An Asian equity benchmark changed course and rose while futures for the S&P 500, the Nasdaq 100 and Euro Stoxx 50 pared losses.
The economic news comes as investors are keeping a close eye on developments in China in the lead-up to the National People’s Congress. The latest data “should keep the yuan on a firm footing” heading into the event while “commodity currencies such as the Australian dollar may also be buoyed on expectations of a solid Chinese demand recovery,” said Wei Liang Chang, a strategist at DBS Bank Ltd.
“China’s in a relatively good place in at the moment relative to other major economies in terms of in terms of the easing cycle,” Elizabeth Kwik, Asian equities investment director at abrdn, said on Bloomberg Television. Any growth stimulus signals from the government “will be something good to watch that might come out of the NPC,” she said, referring to the congress.
Meanwhile, a gauge of dollar strength was little changed, holding recent gains as investors recalibrate for a higher likely peak in US interest rates.
Treasury yields extended their climbs. Over February, the two-year Treasury yield climbed more than 10 basis and the 10-year rate rose more than 40 basis points. Yields on Australian and New Zealand government bonds slipped.
“While the Fed is still raising rates, there’s going to be nervous and jittery markets. And so we do expect choppy markets over the next three months or so,” Loreen Gilbert, chief executive officer of WealthWise Financial Services, said on Bloomberg Television.
Bond yields rose in Europe as well on Tuesday after hot inflation data caused a reassessment of rate expectations, picking up a theme that has dominated trading in a month that saw the Federal Reserve signal its intention to ratchet rates higher than the market had been anticipating.
Investors in February grappled with the realization that inflation isn’t cooling to the extent the Fed would like to see, especially as key indicators the central bank is watching came in hotter than expected. That subdued some of the optimism that had sent stocks soaring in January.
Bond traders no longer view the odds of a Fed rate cut this year as better-than-even, a shift from what they were expecting just a month ago. Traders are now pricing US rates to peak at 5.4% this year, compared with about 5% just a month ago. Market expectations also see the European Central Bank raising rates through February 2024, with a 4% ECB terminal rate fully priced.
Elsewehere, oil climbed on China’s economic rebound outlook and gold rose.
Key events this week:
- China manufacturing PMI, non-manufacturing PMI, Caixin manufacturing PMI, Wednesday
- Eurozone S&P Global Eurozone Manufacturing PMI, Wednesday
- US construction spending, ISM Manufacturing, light vehicle sales, Wednesday
- Eurozone CPI, unemployment, Thursday
- US initial jobless claims, Thursday
- Eurozone S&P Global Eurozone Services PMI, PPI, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.1% as of 11:23 a.m. Tokyo time. The S&P 500 fell 0.3%
- Nasdaq 100 futures fell 0.2%. The Nasdaq 100 fell 0.1%
- Japan’s Topix index fell 0.1%
- Hong Kong’s Hang Seng Index rose 2.4%
- Australia’s S&P/ASX 200 Index was little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0584
- The Japanese yen fell 0.1% to 136.36 per dollar
- The offshore yuan rose 0.3% to 6.9363 per dollar
Cryptocurrencies
- Bitcoin rose 0.6% to $23,275.29
- Ether rose 0.6% to $1,615.58
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.94%
- Australia’s 10-year yield declined five basis points to 3.80%
Commodities
- West Texas Intermediate crude rose 0.4% to $77.38 a barrel
- Spot gold rose 0.1% to $1,828.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Charlie Zhu and Wenjin Lv.
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