Business

New Quarter Unfolds with Promising Optimism as China’s PMI takes Center Stage

The third quarter kicks off amid a positive mood in Asian markets, spurred by robust U.S. economic data and the anticipation of weathering ‘higher for longer’ global interest rates. As

New Quarter Unfolds with Promising Optimism as China’s PMI takes Center Stage
  • PublishedJuly 2, 2023

The third quarter kicks off amid a positive mood in Asian markets, spurred by robust U.S. economic data and the anticipation of weathering ‘higher for longer’ global interest rates.

As the new quarter commences, a wave of optimism and momentum, fuelled by unexpectedly solid U.S. economic data, is lifting world markets. Coupled with the growing belief that risky assets can withstand prolonged elevated global interest rates, Asia, apart from Japan, may stand to gain substantially in comparison to other regions due to underperformance in the first half of the year.

During H1 2023, global stocks experienced an almost 13% surge, with Japan’s Nikkei soaring 27% and reaching new 33-year highs. However, the MSCI’s Asia ex-Japan index witnessed a modest rise of only 1.65% in dollar terms. Meanwhile, blue-chip Chinese stocks marginally declined by 0.75%.

While the U.S.’s July Fourth holiday may lead to lower trading volumes on Monday, the previous week’s Wall Street rally is anticipated to boost risk appetite. This comes as investors prepare for a torrent of significant regional economic data and a few policy decisions due this week.

Today, the Purchasing Managers Index (PMI) reports from across the Asia-Pacific region, including nations like China, India, South Korea, and Australia, will offer initial insights into the private sector services and factory activity for June.

Further, inflation figures from countries like South Korea, Indonesia, Thailand, the Philippines, and Taiwan will reveal how inflation trends have varied across the continent in the past month. Additionally, the central banks of Australia and Malaysia are set to announce their latest interest rate decisions.

Today’s Asian economic calendar is primarily dominated by a series of manufacturing PMIs, including China’s, Indonesian inflation data, Japan’s second-quarter ‘tankan’ business sentiment survey, and Australian housing metrics.

China’s Caixin manufacturing PMI is anticipated to drop to 50.2 from 50.9, indicating a slow-down in factory sector growth nearing stagnation. The official PMI, projected to exhibit a third month of contraction, will be published on Friday.

China’s economic performance since lifting COVID-19 restrictions has been disappointingly underwhelming, exerting downward pressure on the country’s stocks, bonds, and currency. The country’s economic surprises index has crumbled and is now deep in the negative territory.

Meanwhile, investors will closely monitor signs of FX intervention from Chinese authorities to temper the yuan’s decline. They will also be cautious of Japanese authorities’ warnings that the yen’s devaluation is unwarranted, as it lost nearly 10% of its value against the dollar in the first half of the year.

On another note, equity investors will digest Tesla Inc’s announcement that it delivered a record 466,000 vehicles in the second quarter, surpassing market estimates of around 445,000. Sales in China are also expected to reach record levels, although this is mainly due to substantial discounts and incentives, suggesting that underlying demand may be weaker.

With a range of key developments set to unfold on Monday, including manufacturing PMIs from China, India, and South Korea, Indonesian CPI inflation for June, Japan’s ‘tankan’ business survey for Q2, and Tesla’s record-breaking announcement, markets are poised for an interesting start to the third quarter.

Written By
Michael Shield

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