Stocks soar as China’s factories roar back from COVID

SINGAPORE, March 1 (Reuters) – Asian stocks bounced off a two-month low and headed for their best day in seven weeks on Wednesday, as data showed China’s manufacturing activity rose at its fastest pace in more than a decade, provided a jolt of optimism in hitherto bleak markets.

China’s official purchasing managers’ index (PMI) for the manufacturing sector stood at 52.6 last month from 50.1 in January, well above the analyst forecast of 50.5, giving investors hope that China’s recovery can offset a global slowdown.

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) rose 1.5%, beating a two-month low made in the early hours of trading before the data was released.

Hong Kong’s Hang Seng (.HSI) rose 3.2%, with developers and consumer technology stocks leading the way and only two stocks falling. Chinese equities also received a boost, with China’s blue-chip CSI 300 Index (.CSI300) rising more than 1%.

Japan’s Nikkei (.N225) was up 0.2% and S&P 500 futures gave up early losses to trade flat. European futures rose 0.1%.

“China’s February PMI data has become even more important this time around due to the usual lack of hard January/February data until later this month,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

“China’s February official PMIs and Caixin’s manufacturing PMI all surprised strongly on the upside, notably higher than previous January numbers.”

In currency markets, the dollar’s gains seem to be slowly running out in February and Asian currencies rallied on the strength of Chinese data – even though economic updates from India, Australia and South Korea came in weak.

The Chinese yuan rose about 0.4% – its highest level in more than a month – to $6.9063. The Australian dollar recovered losses after softer-than-expected Australian growth and inflation data, rising 0.3% to $0.6751.

The kiwi dollar, which fell nearly 4% last month, bounced off its 200-day moving average, rising 0.5% to $0.6217. The yen remained at 136.35.

RATES RISK

To keep profits in check, concerns were that interest rates in developed economies would stay high longer, which caused a shaky February in the stock and bond markets.

The next wave of economic indicators is likely to be crucial as markets gauge whether future rate hikes are now sufficiently priced in.

Higher-than-expected inflation rates in Europe drove bond sales overnight, before an unexpected dip in US confidence data offered a glimmer of hope that rate hikes are biting and may be close to a peak.

Two-year Treasury yields, a guide to short-term US interest rate expectations, are close to four-month highs, but are below a November high of 4.8830% at 4.8347%. 10-year benchmark returns were 3.9396% in Asia.

Commodities rose on demand hopes in China and Brent crude futures were up 0.6% last at $83.94 a barrel.

Earnings stabilized after rainfall in parts of the US winter wheat belt and optimism about an export deal between Russia and Ukraine drove investors to liquidate some long positions.

Geopolitics also kept the nerves in the background. US President Joe Biden’s visit to Kiev and Russian President Vladimir Putin’s withdrawal from the last remaining nuclear arms control treaty with the US marked a hardening of positions.

China, which showed support for Russia by sending its top diplomat to Moscow last week, has issued a call for peace, though it has been met with skepticism and Washington has said in recent days it is concerned that China could send arms to Russia.

“Should Beijing send weapons to Russia, it risks a rapid geopolitical fracture of the world economy,” said research leader Jan Lambregts of Rabobank. “Markets haven’t even begun to think about what this could mean.”

Edited by Himani Sarkar

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