China's official manufacturing PMI in March improved marginally to 50.3

Market movers today

• In the euro area manufacturing PMIs are due for release and the first estimate of the Spanish and Italian figure will attract most attention. The flash estimate for the euro area and the data released for other countries suggest a slight decline in both countries but still point to higher economic growth.

• Unemployment figures for the euro area and Germany are also due for release. We expect both figures to remain unchanged, although the increase in the euro-area unemployment rate has been reversed helped by the periphery countries.

• In the US ISM manufacturing will give more insight into whether there is a bigger inventory issue or whether businesses keep producing in the faith that growth will pick up again in the coming months. ISM manufacturing is at a level that to some extent reflects the softness in demand in early 2014. Today we look for a slight rise in ISM manufacturing.

Selected market news

Market sentiment remains moderately positive with the US stock market closing higher yesterday and most stock markets in Asia also higher. Some of the decline in US bond yields yesterday has been reversed in Asian trade. Fed Chairman Janet Yellen in her speech yesterday did everything she could to sound dovish. Geopolitical unrest in Ukraine appears to be easing, at least for now, and the slight improvement in China’s manufacturing PMI suggests the economy is not in free fall.

China’s official manufacturing PMI in March improved marginally to 50.3 (consensus: 50.1) from 50.2 in February, which suggests tentative stabilisation in the Chinese economy. However, the Markit/HSBC manufacturing PMI in its final reading declined to 48.0 (revised down from 48.1) from 48.5 in February. It is probably still too early to call the bottom for the Chinese manufacturing PMIs, which we expect to bottom out in May or June but we are unlikely to see a substantial decline.

In Japan the Tankan business survey for Q1 was a bit weaker than expected. Current conditions for large manufacturers improved to 17 (consensus: 19) from 16 in Q4, while expectations for Q2 dropped to 8 (consensus: 13). The Tankan business survey overall suggests that the Japanese economy might be a bit weaker than expected in Q1 and is poised to contract in Q2 in the wake of the hike in the consumption tax from 5% to 8% effective from today. It increases the likelihood that Bank of Japan will have to respond relatively fast with further monetary easing.

Reserve Bank of Australia (RBA) as expected left its leading interest rate unchanged at 2.5% in connection with today’s monetary meeting. AUD overnight has been supported by the Chinese manufacturing PMIs but has pared gains after RBA expressed some concern about the recent gains in AUD.