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Business

Asia’s Factories May Be Over Worst as China Demand Picks Up

Asia’s factory managers saw glimmers of hope in June, with the region’s purchasing managers indexes turning up across the board as demand from China picked up.

PMIs for Japan, South Korea, and Taiwan — the region’s manufacturing powerhouses — improved slightly, but stayed below 50, the dividing line between contraction and expansion. Factory output in Vietnam and Malaysia grew for the first time since January and December, before the virus spread in the region. Indonesia’s index surged almost 11 points, the biggest increase since at least 2011, while remaining below 50.

China’s Caixin manufacturing PMI, an index more focused on smaller export-oriented firms, rose in June to 51.2 from 50.7, a release Wednesday showed.

The signs of a turnaround follow another report from China earlier this week that showed an official gauge for China’s factory activity rose in June to 50.9 from 50.6 a month earlier. The non-manufacturing measure increased to 54.4.

Financial markets rallied in the second quarter, buoyed by optimism that re-openings globally would damp soaring unemployment and reinvigorate consumption. However, setbacks in controlling virus outbreaks in many countries, including the U.S., have curbed sentiment. Bloomberg Economics now expects a 4.7% contraction in the global economy this year, down from a previous estimate of a 4% contraction.

What Bloomberg’s Economists Say

“Asia’s June manufacturing purchasing managers’ indexes indicated most economies are recovering, though at varying speeds. China’s official PMI showed that the recovery accelerated, supported by external demand. Some economies such as Australia experienced an initial strong rebound as lockdowns were relaxed. Some others — notably Japan — remained deep in contraction.”

Chang Shu, Chief Asia Economist

Analysis by Oxford Economics found that regional exports are headed for their worst outcome in years, even as the easing of lockdowns paves the way for a gradual recovery.

“The easing in global restrictions and improving Chinese demand are encouraging, but we expect regional exports to remain under pressure in the short-term, given the ongoing global recession,” Sian Fenner, an economist at Oxford Economics, wrote in a note before the PMI data.

In South Korea, a bellwether for global trade, exports continued to contract in June, but at a slower pace than in previous months. Shipments fell 10.9% from a year ago, an improvement from the 23.6% slump in May.

“Given the cyclical nature of South Korea’s export-oriented economy, it appears the chances of a slow recovery from the Covid-19 economic shock are rising,” said Joe Hayes, an economist at IHS Markit. “Without a sustained pickup in demand, manufacturing output levels will likely remain subdued.”

— With assistance by Ailing Tan

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Markets

More Stimulus, Boris Reopening U.K., Miserable Voters: Eco Day

Welcome to Wednesday, Asia. Here’s the latest news and analysis from Bloomberg Economics to help you start the day:

  • The Trump administration is discussing another stimulus package with lawmakers that could be passed in July, the latest effort to revive the U.S. economy amid the coronavirus pandemic, said Treasury Secretary Steven Mnuchin
  • Boris Johnson has launched the biggest gamble of his premiership, announcing that July will see a dramatic lifting of the lockdown measures imposed in England in March
  • The misery spreading through the U.S. economy is posing a significant threat to President Donald Trump’s re-election. The Misery Index is expected to be at a record high in November, based on calculations by Bloomberg Economics
  • The renewed outbreak of Covid-19 in Beijing is more consequential than its highly localized nature suggests. It could have a chilling effect on consumption by reigniting concerns about infection risks, writes Chang Shu
  • BlackRock Inc. Chief Executive Officer Larry Fink said the full extent of the coronavirus pandemic on the U.S. economy’s smaller companies remains unclear, even as cities begin reopening
  • Prime Minister Shinzo Abe declared his virus-response package to be the world’s biggest, yet much of it remains stuck in Japan’s aging administrative pipeline, blocked by paperwork, complexity and a lack of staff
  • China is not only tightening its political grip on Hong Kong to rein in the restive city, it’s pushing harder to deepen its influence over the international finance hub’s business life
  • Newly diagnosed cases of Covid-19 and other indicators of the pandemic’s spread soared in hot spots across the U.S., driving city and state officials to consider slowing or reversing reopening plans. Cases are surging in Texas, Florida, Arizona and in California
  • Filmmaker James Cameron’s return to New Zealand to begin production on his Avatar sequel sets the scene for the South Pacific nation to position itself as a Covid-free haven in a world still struggling to contain the pandemic

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Categories
Markets

Asia Stocks to Open Mixed After U.S. Gains Fade: Markets Wrap

Stocks in Asia were poised for a muted start after gains for U.S. stocks faded into the close, with concerns mounting that a spike in virus cases in some states could impact the speed of the economic rebound. Gold rose to the highest since 2012.

Futures dipped in Japan, while those in Hong Kong were flat and Australian contracts edged higher. The S&P 500 jumped as much as 1.2% before paring the gain by two-thirds on reports that a surge in cases in several hotspots in the South and Southwest of the U.S. threatened to derail plans to ramp up reopenings. The Nasdaq Composite hit another all-time high. The dollar fell and Treasuries were little changed.

Investors are betting that trillions of dollars in stimulus by central banks and governments around the globe will shield economies from a resurgence in virus breakouts. PMIs for June showed business activity in the world’s largest economy continuing a rebound that started in May.

Stimulus “puts the bottom on bad news,” said Nela Richardson, an investment strategist at Edward Jones. “Bad news isn’t so bad if we think that that means more stimulus. The markets are responding also to the quick action, quickest in any recession going back to the Great Depression, of the Federal government and monetary authorities, not just in the United States, but around the world.”

On the virus front, Anthony Fauci, the U.S.’s top infectious-disease doctor, warned Tuesday that the coronavirus isn’t taking a summer break, judging from its persistent spread in the U.S. Sun Belt. A German state locked down a municipality where 1,553 workers tested positive at a single meat factory.

Here are some key events coming up:

  • The IMF will release new 2020 growth projections on Wednesday.
  • U.S. jobless claims, durable goods and GDP data are due Thursday.
  • A rebalance of Russell indexes is due on Friday.

These are the main moves in markets:

Stocks

  • The S&P 500 rose 0.4%.
  • Futures on Japan’s Nikkei 225 fell 0.3%.
  • Hang Seng futures were little changed.
  • Futures on Australia’s S&P/ASX 200 Index gained 0.1%.

Currencies

  • The yen was at 106.49 per dollar.
  • The offshore yuan held at 7.0609 per dollar.
  • The Bloomberg Dollar Spot Index fell 0.3%.
  • The euro bought $1.1311.

Bonds

  • The yield on 10-year Treasuries remained at 0.71%.

Commodities

  • West Texas Intermediate crude fell 1.7% to $40.02 a barrel.
  • Gold rose 0.8% to $1,768.41 an ounce.

— With assistance by Sarah Ponczek

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