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China's Manufacturing PMI Beats Expectations - EMEA Brief 01 Apr

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JoeIG

  • Confidence returns to the markets as Asian stocks rallied on Monday over positive Chinese factory gauges and signs of progress in US-China trade talks boosted investor sentiment. Manufacturing activity in China expanded at its fastest pace in eight months in March, reading 50.8 and beating analysts' expectations of 49.9.
  • Bloomberg has announced that Chinese government bonds will be included in its Bloomberg Barclays Global Aggregate index, a global benchmark of government securities. This move could attract around $2 trillion of foreign inflows into China's onshore debt market and is expected to reshape global capital markets, according to Moody's. 
  • In Europe, Theresa May's divorce deal was defeated for a third time on Friday, leaving parliament in an ongoing political gridlock surrounding Brexit. The prime minister is considering restructuring the deal for a fourth vote this week, with another round of "indicative votes" for rival plans today. 
  • The Dow Jones closed 211.22 points higher on Friday, whilst the S&P 500 gained 0.7% to 2,834.40 - posting its best performing quarter since 1998 as it rose 13.1% for the period.
  • The Shanghai Composite rallied 2.4% as the Nikkei and South Korea's KOSPI advanced 1.4% and 1.3% respectively. Australian stocks also climbed 0.6%.
  • The pound edged up 0.15% to $1.3055 after posting three sessions of losses amid Brexit woes.
  • Oil prices also posted their biggest quarterly rise in a decade, thanks to U.S. sanctions and OPEC-led supply cuts. WTI traded at $60.51 and Brent was at $68.16 a barrel.

Asian overnight: A strong start to the week for Asia has seen Chinese markets surge higher amid a return to growth for their manufacturing sector. Improvements in both manufacturing and non-manufacturing PMI surveys out of China saw the first above-50 reading in manufacturing since September. This bullish sentiment was further enhanced by a second return to growth in the sector, with the Caixin PMI rising to 50.8 from 49.9. Meanwhile, in Japan we saw the Tankan manufacturing index fall to 12 (from 19), with services sliding to 21 (from 24). Elsewhere, the Turkish Lira lost further ground, with weekend local elections dealing a blow to Erdogan’s ruling coalition, which lost control of the city of Ankara. Istanbul is also hanging in the balance, with both sides claiming victory.

UK, US and Europe: Looking ahead, a whole host economic data points are due out as the beginning of the new month brings a focus on UK PMI surveys and US jobs. The UK focus certainly remains prevalent today, with the manufacturing PMI providing the precursor to the second round of indicative votes in parliament. All eyes will be on the customs union and referendum (on any deal) options, given how close it was last time. This could be the beginning of a shift towards a softer Brexit (GBP positive). Elsewhere, eurozone inflation and unemployment is likely to ensure that there is plenty of euro volatility, with US retail sales and PMI surveys providing the focus in the afternoon.

South Africa:  Global markets are being led higher by the Shanghai Composite (+2.4%) after China released better than expected manufacturing data this morning. Markets are also perhaps finding some positivity from news that China's Vice Premier is heading to the US this week for further trade discussions. Metal prices trade mixed with precious metals down and base metals up on the day. The rand has been trading firmer since Friday after Moody's Investor Relations did not change South Africas investment rating or outlook. Tencent Holdings is up 1.5% in Asia, suggestive of a strong start for major holding company Naspers. The BHP Group is up 1.4% in Australia, suggestive of a positive start for local diversified miners.

Economic calendar - key events and forecast (times in GMT)

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Source: Daily FX Economic Calendar

9.30am – UK manufacturing PMI (March): index expected to fall to 51.3 from 52. Markets to watch: GBP crosses

10am – eurozone CPI (March, flash): prices to rise 1.5% YoY, and core CPI to rise 1%. Markets to watch: EUR crosses

1.30pm – US retail sales (February): sales expected to rise 0.2% MoM. Markets to watch: US indices, USD crosses

3pm – US ISM mfg PMI (March): activity expected to increase, with the index rising to 54.5 from 54.2. Markets to watch: US indices, USD crosses

Corporate News, Upgrades and Downgrades

  • easyJet predicts H1 performance to be in-line with prior forecasts, where pre-tax losses total £275 million. Total revenue is expected to have grown by 7.3%, yet headline costs at predicted to have risen by 18.8% thanks to increased capacity, higher fuel unit costs and increased cost per seat.
  • Kellogg is reported to be nearing a deal to sell its Keebler business to Ferrero for between $1 billion and $1.5 billion.

John Laing Group upgraded to outperform at RBC
Orange upgraded to buy at Berenberg
PostNL upgraded to buy at Berenberg
Royal Mail upgraded to hold at Berenberg

Kingfisher downgraded to equal-weight at Morgan Stanley
Nemetschek downgraded to hold at Baader Helvea

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