China data brings early smiles to Asia

Upbeat China data released on Sunday looks set to give Asia a positive start to the week. Official China Manufacturing and Non-Manufacturing Purchasing Manager Indexes (PMI) for March comfortably beat forecasts. Manufacturing PMI leapt to 50.5 versus 49.5 expected, and Non-Manufacturing rose to 54.8 versus 54.0 expected. The manufacturing print, in particular, will go a long way to allaying slowdown fears about China, at least in the short-term as the US-China trade talks move back to Washington this Wednesday.

Early trading in Asia seems to bear this out with the Australian dollar (AUD) slightly higher and both the Japan Nikkei and S&P 500 futures leaping more than 0.50% in the early Asia twilight zone.

Data junkies are indeed in for a treat this week with a veritable avalanche of numbers being released to get the first week of Q4 going. Asia has a busy day ahead starting with Japan’s Tankan report at 0750 Singapore time closely followed by South Korea’s trade balance at 0800, Australia’s NAB Business Confidence at 0830 and China’s Caixin Manufacturing PMI at 0949, which is expected to climb slightly to 50.1.

Any of this data could upset the applecart temporarily, but the China Caixin PMI will carry the most weight. An outperformance could cement the early feel-good factor in Asia ensuring a sea of green across local stock markets today. Newspapers were awash this weekend with stories of stock markets enjoying their best quarters in years. Not wishing to pour cold water on the party, traders would do well to remember the galactic Q1 performance in the stock markets was driven entirely by new dovish central banks, not a frenzy of economic growth.

The all-you-can-eat buffet of data releases serves up German Manufacturing PMI this afternoon and US Retail Sales. The feast continues throughout the week, with dishes of the day including Tuesday’s RBA rate decision and culminating on Friday with the US Non-Farm Payrolls, a personal favourite. There will be something for everyone this week, so I’ll report on each event as it happens because the markets themselves will react to the changing items on the buffet on a day-to-day basis. It’s too soon to tell whether the markets will be suffering from indigestion by Friday night.

In other news, Turkey’s local body elections appear to have passed without incident with Turkish lira volatility muted in early trading. “Passing without incident” and “Turkey” are not comfortable bedfellows in the same sentence and it’s unlikely the calm will last for long. President Erdogan’s Venezuelan and Zimbabwean school of economic policies seem to be pushing Turkey into a severe malaise – and the arms of the most pious of last resort lenders, Russia. Smart traders will likely follow in the footsteps of sensible investors and steer clear.

In Brexit news, the British pound (GBP) is unmoved around 1.3000. Parliament has another vote today, and Prime Minister May also wants a second vote later this week, leaving Europe shaking its head in disbelief. In other words, operations normal at Westminster.

FX

The US dollar finished the week mostly unchanged against the major currencies as the flatline in FX volatility continued, stuck in an almost Brexit-like quagmire.

Regional currencies have the potential to outperform today provided the Caixin China data follows the official China data and outperforms. This will alleviate growth fears in the short-term but markets should be prepared for daily changes in sentiment amid the flurry of numbers this week.

Equities

The Nikkei is off to a solid start ahead of the Tankan report, rising 1% in early futures trading. The S&P futures along with the ASX, have followed suit to a lesser degree. This points to a positive start for Asia assuming the steady stream of data doesn’t upset the applecart.

Oil

Both Brent and WTI rose on Friday as equity markets reached for the sky.