Good morning. Most of the news over the weekend continued about Russia and the continued “aggression” or land grabs (as well as the ongoing hunt for MH370 still. Chinese manufacturing PMI out last night showed the third month of contraction, coming in at 48.1. However, that has fuelled Chinese stimulus talk so markets have shrugged it off so far.
Asia Overnight from Bloomberg
Asian shares rose, with the regional index rebounding from its biggest two-week decline since June, and the yen fell against major peers. Copper erased last week’s gain as a preliminary Chinese manufacturing gauge unexpectedly fell, while gold and silver retreated.
The MSCI Asia Pacific Index added 0.8 percent by 2:25 p.m. in Tokyo as a measure of Chinese companies in Hong Kong (HSCEI) increased a second day after entering a bear market last week. Standard & Poor’s 500 Index futures were little changed. The yen dropped 0.2 percent to the dollar. Copper slid 0.4 percent after capping its first weekly advance since Feb. 21. Gold fell for the fifth time in six days and silver retreated 0.5 percent. Corn futures gained 0.6 percent.
A preliminary purchasing managers’ index from HSBC Holdings Plc and Markit Economics signaled a third month of contraction as China’s leaders work to accelerate already-decided growth initiatives. France, Germany, the euro zone and the U.S. also publish early indicators for March manufacturing today. U.S. President Barack Obama arrives in Europe today as Russia, which completed its annexation of Crimea last week, masses soldiers on the border with Ukraine.
“The worse the PMI data is, the bigger the chance of stimulus, so perhaps people are looking at it that way,” said Dariusz Kowalczyk, a Credit Agricole CIB strategist in Hong Kong. “The key thing is that the government started talking about stimulus, because had they not begun floating that idea, the reaction would clearly be negative. Because we have a statement of policy intent to protect the bottom line, the negative data would probably only strengthen the resolve of those in government who want to spend more money and limit losses.”
Stocks Rally
The Chinese manufacturing gauge was at 48.1, from a final reading of 48.5 in February and below the 48.7 medianestimate of 22 economists surveyed by Bloomberg. About two stocks rose for each that fell on the Asia-Pacific equity measure, with all 10 industry groups advancing.
Broad Weakness
The CSI 300 Index (SHSZ300) of stocks in Shanghai and Shenzhen increased 1.1 percent after jumping 3.4 percent on Friday, the most since September, amid speculation that China would allow some companies to use preferred shares to raise funds.
“Weakness is broadly-based with domestic demand softening further,” Qu Hongbin, Hong Kong-based chief China economist at HSBC, said in a statement. “We expect Beijing to launch a series of policy measures to stabilize growth.”
China issued rules after markets closed March 21 for a trial program allowing companies to sell preferred stock, expanding financing options for the country’s banks as they seek to address tougher capital requirements. Companies will be able to issue the shares if they are included in the Shanghai Stock Exchange 50 A-Share Index, the China Securities Regulatory Commission said in a statement on its official microblog.
FTSE Outlook
The past few sessions, today included have been quite hard to call, though Friday worked out alright in the end. The key level today is 6537, pretty much where we are as I type this. If this fails to hold as support then 6503 is likely (and maybe worth a long as we have had some decent bounces lately from around here. As its quite volatile it pays to keep the stops fairly tight though. On the bullish side, if 6537 were to hold then we have the daily pivot at 6555 and resistance on the daily chart at 6573 -so both levels worthy of a small short. As per usual, on trades I will aim to get stops to break-even and trail the stops. Generally I feel its held up alright even with that worse than expected Chinese PMI, so we may yet see 6600 again soon. Certainly looking at the Raff channels for the Dax and S&P the 10 day channels are pretty bullish!