"Optimism Sweeps Through the Capital Markets"

From Marc to Market:

Overview: Japan announced the name of the new era that begins May 1 and a new emperor. The connotation is of beautiful harmony. And investors have taken the bit and run with it. Optimism that the US and China near reaching an agreement on trade. China and Europe have reported better than expected PMIs today. The US ISM manufacturing, reported Monday, was stronger than expected, led by employment and new orders. Yesterday the US reported stronger than expected March auto sales, which bodes well for consumption after disappointing January retail sales disappointed. With Prime Minister May reaching out to Labour, a softer and later Brexit still seem to be the most likely scenario, and this is supporting sterling while helping the overall investment climate. Global equities are rallying. The MSCI Asia Pacific Index rose to new four-month highs. The Dow Jones Stoxx 600 is higher for the fourth consecutive session and at its highest level since last August. Risk off is weighing on bond, where yields are higher across the board, with Italy's bond the main exception. The greenback is heavy, losing to all the major currencies but the yen. The relatively higher vol, Australian and New Zealand dollars are leading with way with Sweden and Norway.

Asia Pacific
China's official PMI was stronger than expected. Many pundits dismissed it as they are skeptical of all Chinese data. However, confirmation was provided by the Caixin survey, and many seem more willing to accept the results. Caixin's composite PMI rose to 52.9 from 50.7 in February. It is the strongest since last June. Chinese stocks rallied, but bonds slumped, with the generic 10-year bond yield rising eight basis points to 3.25%, the highest of the year. Some see the PMI reports as making a near-term cut in reserve requirements less likely. We have not given up on the idea, and the Q1 GDP due on April 16 may be key.

Japan's economy, though it is still struggling. Previously, we learned that the manufacturing PMI remained in contraction (49.2 vs. 48.9), and while services are expanding, they are slowing. The service PMI eased to 52.0 from 52.3. The composite reading slipped to 50.4, the lowest since September 2016. The economic weakness has spurred speculation that the sales tax hike in October may be postponed again. We think the bar to this is very high as the government has already provided some offsets, and Abe had campaigned for it over opposition that wanted to scrap it.

Australian data were mixed. The composite PMI remained below 50 for the second month in March, but February retail sales jumped 0.8% (median Bloomberg forecast was 0.3% after 0.1% in January). It was the largest increase since November 2017. Separately, Australia reported a larger than expected February trade surplus, helped by an 11% jump in the exports to China for a 22% increase year-over-year. Exports to Japan fell 14% in the month.... 

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