Asia Macro: Data highlights cyclical upswing in Chinese economy

China's data for September so far is indicative of an economy firmly in a cyclical upswing. Highlights this week include an acceleration in export growth (9.9%), a substantial rise in imports (13.2%), and a September record for new loans (CNY 1.7trn). Concerns that China's economy's demand side is lagging the recovery in the supply side is fading, which has triggered a strong response across commodities where even the beleaguered oil market is stepping to the beats of China’s consumption engines. 

Although, for oil prices, those gains look precariously perched as prominent oil traders remain hyper concerned over the extent to which governments may have to renew social mobility restrictions to control the coronavirus's spread 

While commodity-producing currencies tend to benefit from recovering Chinese demand, the Aussie is still trading heavy due to internal macro concerns, which may in turn elicit an RBNZ-styled RBA policy response in November. 

Australia's headline employment decline in September was better than expected at -29.5k vs. -40.0k consensus. However, the fall points composition increased labor-market weakness, with full-time jobs (-20.1k) recording a more considerable decline than part-time work (-9.4k) – that’s a metric the RBA is never happy to see.

Reinforcing an accommodative view, RBA Governor Lowe gave a dovish speech earlier that suggests further rate cuts are in the pipeline. 

Downside risks to EUR and GBP-denominated assets into the European Council meeting that starts today have started to ease after the UK indicated that it wants to continue negotiating beyond PM Johnson's self-imposed October 15 deadline to reach a trade deal. 

Beyond Brexit, downside risks to the UK and Eurozone economies are rising on tighter social-mobility restrictions. A new three-tier Covid-19 alert system in the UK and a 9pm to 6am curfew in France's largest cities from Saturday suggest these economies will end the year on the back foot, with monetary policy having scant room for further stimulus. That leaves the onus on more fiscal spending to support activity.

Asia tech super cycle 

With the US software market reaching $3.9trn in market cap and an 11x median EV/sales multiple, the golden age for software has not gone unnoticed by stock market denizens. 

However, Asia's enterprise software sector, specifically the cloud-centric firms, faces what could be a once-in-a-decade demand catalyst as Covid-19 and the economic crisis shift the mindset of large enterprises and kick-off a multi-year technology investment cycle. It looks like an excellent place to stick your toe in the water – or maybe entire foot.