Chinese Manufacturing Data Boosts Economic Outlook

Online, September 23, 2013 (Newswire.com) - The start to the trading week has been rather muddled and tentative as investors contemplate a number of factors, from macroeconomic data to monetary policy, and European and US politics.

The euro is easing from seven-month highs after Angela Merkel's re-election in Germany, while European stocks are on a back foot after a poor handover from Wall Street on Friday and despite signs business activity is more positive than expected.

Activity in Asia was restricted by Japan's closure for a public holiday and by the curtailing of Hong Kong's session because of Typhoon Usagi. The Hang Seng in the end lost 0.6 per cent but on the mainland the Shanghai Composite was up 1.3 per cent after an extended holiday weekend.

Monday's session was the mainland's first opportunity to react to the Federal Reserve's decision to delay scaling down its quantitative easing program - a decision that had bolstered equities worldwide.

The Fed's move helped to give Shanghai shares a boost and gains were extended 15 minutes into the session when the "flash" manufacturing index from Markit and HSBC showed a rise to 51.2, a six-month high that was ahead of forecasts at 50.9.

"We expect a more sustained recovery as the further filtering-through of fine-tuning measures should lift domestic demand," said Hongbin Qu, co-head of Asian economic research at HSBC.

The Australian dollar, which often moves in tandem with China's growth outlook, is up 0.3 per cent to US$0.9424.

The data also helped Australian equities trim earlier losses. Stocks had opened nearly 1 per cent lower, following Wall Street's soft end to the previous week. The benchmark S&P/ASX 200 index closed down 0.5 per cent.

This was partly in response to pressure on resources groups. These reacted to a surprisingly weak showing from industrial metals, which also usually rally on better perceptions of the Chinese economy.

Copper is down 0.8 per cent to $3.29 a pound, while Brent crude is slipping just 4 cents to $109.18 a barrel, suggesting pockets of the market are not so enamored by the China PMI news.

Elsewhere in Asia there were signs that the "no taper rally" enjoyed by emerging markets has run out of steam, as the Indonesian rupiah weakened 0.8 per cent and the Indian rupee continues to shrug off last week's surprise interest rate rise by the central bank, falling another 0.6 per cent.

The Jakarta and Mumbai stock markets fell 0.5 per cent and 1.8 per cent, respectively. Thailand shed 3.4 per cent.

In Europe, the single currency initially rose to $1.3555, within a dozen or so points of its highest level since February, as investors absorbed the German election result, possibly comforted by the sense of continuity as Ms Merkel looks to form a coalition.

But the euro has since pulled back slightly, easing 12 pips to change hands at $1.3510 as the Stoxx 600 index dips 0.1 per cent.

Benchmark Bund yields are up 2 basis points at 1.97 per cent after Markit's "flash" Composite PMI showed business activity in the eurozone expanded more than forecast in September.

S&P 500 futures suggest Wall Street's benchmark will ease 1 point to 1,709 as investors continue trying to work out when the Fed will eventually start trimming its quantitative easing program.

James Bullard, president of the Federal Reserve Bank of St Louis, said at the end of last week that the central bank could start to taper QE as early as October if economic data improved - and this may have been partly responsible for Friday's pullback on Wall Street.

Investors also are becoming increasingly more exercised about the economic impact of a possible government shutdown, and/or debt default, should budget and debt ceiling negotiations fail.

The dollar index is steady at 80.42, just above last week's seven-month low of 80.07, and 10-year Treasury yields are 1bp firmer at 2.74 per cent.

Gold is off $3 to $1,322 an ounce.