Daily Posts

PMI Data Spooks Markets: Manufacturing Contracts While Other Sectors Expand, Guangzhou Blockchain Buzz

Key News

Asian equity markets had a mixed, but mostly upward trending day as Singapore, Korea, Japan, Hong Kong, and Malaysia all showed modest gains. However, Mainland China, Taiwan, and Indonesia were down slightly on the day. Asian markets were probably responding to the tailwinds of US Fed rate cuts and gains on Wall Street. Mainland China was likely driven down slightly by a disappointing manufacturing PMI reading for October. But, PMIs in other sectors showed expansion.

In trade news, the US has said that the further extension of tariff postponements due to end in December is being considered and, despite the cancellation of the APEC summit in Chile, both sides plan to have a phone call on Friday. Bloomberg News reported negative expectations for the completion of the next steps towards a full trade deal. However, the report did not really include significant events or setbacks other than reiterating the US stance of continuing tariff pressures in a push to bring about structural reforms and Chinese demands that tariffs be lifted before any concessions are made. Same old story.

While blockchain buzz has stemmed from the central government for a while now, the city of Guangzhou just announced plans to establish a special fund for blockchain investment. The city government will select one to three leading blockchain firms in the vicinity of Guangzhou every year to be the beneficiaries of both state backing and venture capital investment. Perhaps the city is trying to rival its tech-hotspot neighbor Shenzhen.

Economic data shows conclusively that protests have driven Hong Kong into a recession. The city’s economy shrank by 3.2% from July to September according to the Wall Street Journal. Nonetheless, equity markets in Hong Kong were higher on the day, perhaps illustrating the enduring divide between the city’s capital and the city’s inhabitants. I think that there is now no question as to what the protests were truly about. Expect more stimulus from Hong Kong’s government. HSBC has already cut its base rate for the first time in a decade.

October PMI Data

Manufacturing 49.3 versus September’s 49.8
Construction 60.4 versus September’s 58
High-Tech 51.4 versus September’s 51.3

Takeaway: Manufacturing was down on trade difficulties, but this was to be expected. Continued contraction can also be read as a signal of the continuing shift in China’s economy from manufacturing to services and higher-value industries. This becomes clear considering the expansion noted in the high-tech PMI. Everbright Securities noted that the impressive expansion in construction orders is likely tied to a pickup in infrastructure fixed asset investment, rather than residential construction, which makes sense considering the targeted nature of current stimulus and the government’s aim to curb real estate development gluts.  

H-Share Update

The Hang Seng Index ticked higher all day to finish +0.89%. The market was likely boosted by Apple’s extremely positive earnings report, expectations for local policy support, and rate cuts in the US. Turnover rose by 13.02% to HKD 85.1 billion. Southbound connect investors bought HKD 763 million worth of Hong Kong stocks last night. Tech hardware gained on Apple earnings and property names rose as HSBC cut its cut its Hong Kong prime rate for the first time in over a decade. CSPC Pharma rose +0.85% and Wuxi Biotech +5.11% among strong performers in pharmaceuticals. Ping An Insurance +0.28% is staging a small comeback from a disappointing earnings report.

A-Share Update

Mainland markets opened slightly higher and then fell by the close with the Shanghai and Shenzhen indexes falling -0.35% and -0.76%, respectively. Sentiment was at a low due to the disappointing manufacturing PMI reading and demonstrated by the poor performance of newly listed IPOs. However, telecom surged as today marks the official launch of commercial 5G service. Healthcare and consumer staples were also up on the day following a positive earnings season. Also, despite sentiment, Northbound connect investors bought an impressive RMB 7.4 billion of Mainland stocks last night.

Last Night’s Prices & Yields

1-Day Government yield shoots up and currency remains stable.

  • 1-Day Government Bond Yield 1.91% versus 1.63 yesterday
  • 10-Year Government Bond Yield 3.29% versus 3.31% yesterday
  • 10-Year China Development Bank Bond Yield 3.72% versus 3.76% yesterday
  • RMB/USD 7.04 versus 7.05 yesterday
  • RMB/EUR 7.86 versus 7.85 yesterday
Happy Halloween!