Asia Markets wrap
Asia Markets wrap

Hong Kong: Financial markets are off highs struck after strong data from the world’s two biggest economies amid worries that a resurgence in coronavirus infections could stymie the economic rebound.

“The continued rise in new cases has raised the risk that economies could re-enter into lockdown to curb the spread of the virus. Policy-makers will face difficult decisions on how to manage economic activity alongside managing the virus outbreak,” Morgan Stanley analysts said in a note.

But they added that these lockdowns would be selective rolling measures and not as strict as seen earlier in the year. This would mean at a global level, economic activity could continue to improve, helped in particular by the economies which are reopening, they said.

Earlier, China’s services sector reported the fastest growth in more than a decade and followed strong US jobs data numbers.

China’s services sector activities grew at the fastest pace in more than a decade in June with the Caixin/Markit services Purchasing Managers’ Index (PMI) rising to 58.4, the highest reading since April 2010, from May’s 55.0.

But analysts said it must be compared with the record contraction suffered in February at the peak impact of Chinese lockdown measures, which meant this was only a partial recovery of lost output.

‘Recovery depends on virus impact’

“The recovery ahead is expected to be contingent on there being no serious second wave of infections or further shocks, or escalation of global trade weakness,” said Bernard Aw, Principal Economist at IHS Markit. “The increase in the level of backlogs of work in June was also subdued, underscoring how demand needs to strengthen further in the coming months to prevent the recovery from losing momentum.”

Mainland China’s CSI300 index raced up 1.93% after the PMI data and Hong Kong’s Hang Seng benchmark advanced 0.99%. Earlier, Japan’s Nikkei index rose 0.72% and Australia’s S&P ASX 200 added 0.42%, as a fresh outbreak brought weekly cases close to their previous peak.

”We still expect overall activity in Australia to continue to improve as restrictions are generally eased. But new outbreaks will slow the pace of recovery and reduce the likelihood of a boost to GDP from a restart of domestic tourism,” Capital Economics said in a note.

Covid-19 ’round 2′ in US

Sentiment has been reined in by worries about a second round of infections in the US too where the resurgence of Covid-19 remains a threat to the economic recovery. A Reuters study showed that more than three dozen American states are seeing a rise in coronavirus cases after the United States set a new record with more than 51,000 infections in a single day on Thursday.

Overnight, the risk rally was stoked by the mammoth US payroll numbers as June’s further 4.8 million jobs, added to the 2.5 million unexpectedly added in May. Markets had expected an addition of 3 million jobs last month.

As the second half of the year begins, investors are hoping the combination of monetary and fiscal stimulus launched by central banks and governments will help the global economy warm up.

“As was the case with the virus cycle, the recovery will be sequential and involve different regions at different times – on a ‘first in, first out’ basis – and will depend on the size of the policy response,” Pascal Blanqué and Vincent Mortier, of Amundi Asset Management, said.

“Risk assets have recovered too much and too quickly in our view: discounting an immediate return to normality at a time when many painful adjustments in the real economy and the corporate sector need to be made. In the second part of the year, a reality check on earnings growth has to be considered.”

Credit markets were firm but the mood is cautious ahead of the long weekend as investors digest newly sold bonds and prospective issuers monitor sentiment.

The Asia IG index has moved in by 2 basis points to 80/81 bps and sovereign CDS have narrowed by 1-2 basis points.Wuhan Dangdai has issued price guidance for reopening its bonds due in 2023.

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Foreign Exchange: Why the dollar ain’t smiling

Asia Stocks

# Japan’s Nikkei 225 added 0.72%

# Australia’s S&P ASX 200 climbed 0.42% 

# Hong Kong’s Hang Seng index advanced 0.99%

# China’s CSI300 rebounded 1.93%

# The MSCI Asia Pacific index rose 0.70%.

Stock of the day 

Carmakers BYD and Geely Auto both surged as industry-wide sales rose 11% to 2.28 million, according to estimates released by the China Association of Automobile Manufacturers. BYD climbed as much as 15.2% and Geely rushed up 12.56%.

This report appeared first on Asia Times Financial.