The March purchasing managers’ indices from China this morning showed expansion in both manufacturing and services. They were massively better than February’s readings and well ahead of forecast. Oil rebounded from an 18-year low. It all contributed to an improvement in risk-appetite but was of little help to sterling.
In February, the Chinese PMIs came in at 35.7 for manufacturing and 29.6 for services. This morning’s readings were 52.0 and 52.3, comfortably above the breakeven line at 50. This is not necessarily cause for unbridled joy. A business that shut down in February, delivering zero output, and reopened in March to produce one tea towel would de facto deliver a positive reading. The number itself does not guarantee thriving activity, just an improvement on what went before. The Chinese economy remains under pressure.
But never mind the technicalities, any hint of light at the end of the tunnel was likely to be seized upon by investors eager for relief from the recent litany of despair. The yen moved lower on the news from China, as did the Swiss franc. The yen is 0.2% lower on the day while the franc and the euro are just about unchanged.
The European Central Bank is still having to do the heavy lifting with regard to pan-Euroland stimulus. Last week it made its biggest-ever asset purchase, buying €39 billion of financial instruments. Investors are waiting to see if the eurozone’s member states can get their act together to support the ECB.
The proposal which crops up most frequently in this debate is Coronabonds, jointly-issued debt underwritten collectively by EU member states. They were discussed at the recent European Council meeting but the idea did not fly. While nine countries, including France, Italy and Spain, support the idea, Germany, the Netherlands and others object.
Unfortunately, nobody has yet come up with an alternative proposal that would bring together the EU membership in a concerted stimulus effort. It is argued that Coronabonds will happen eventually, if only for the lack of an alternative.
Month end, quarter end
Much of the positional housekeeping for the end of the month and the end of the quarter (and, in Japan, for the end of the financial year) will already have taken place. With foreign exchange in particular, most outright trades for settlement today will have taken place on Friday. However, in thin markets there is the potential for sharp and unexpected moves today.
Whilst there is no shortage of ecostats on the agenda, the majority date back to before the pandemic and are therefore of minimal importance. This morning’s figures for UK gross domestic product in the fourth quarter confirmed stagnation and left growth for calendar 2019 unchanged at 1.1%.
ANZ’s Business Outlook pointed out that business confidence “plummeted 45 points to -64 in March, close to a record low” and the survey “made for dreadful reading”. The rest of today’s data are unlikely to be any more amusing. There are European inflation data this morning and after lunch the US reports on consumer confidence. Tonight brings more PMIs from Australia, Japan and China.