Phew, saved by one imperfect number in an incomplete survey about the strength of part of the Chinese manufacturing sector, while a similar report also showed a stronger than expected reading from the Japanese manufacturing sector.
It’s hard to believe, but judging by the way the stockmarket and the Australian dollar bounced higher yesterday, you’d be mistaken in believing that the number was a bit more substantive.
Our market had its best day for months, jumping 1%. The Japanese market leapt 2.1%.
The Australian dollar rose half a cent, from US92.22¢ to US92.72 after a stronger than expected early report on the HSBC/Markit survey of the health of Chinese manufacturing. But the currency later retreated in overnight trading.
Helping confidence was news late yesterday of the Chinese central bank injecting a record $US19 billion of cash into the country’s money market to make sure there were no credit strains.
The survey mainly concentrates on small to medium business (leaving the bigger companies to the official survey issued at the start of each month. it has been a bit stronger than the HSBC survey.)
It jumped to a five-month high at 49.7 this month, from the final April reading of 48.1 (which was a disappointment). The final report will be issued at the start of June.
The news provoked concerns about the health of our biggest export market after the April flash and final reports – which saw falls in the level of activity to worrying lows.
Now, after the surprise rise in the latest survey, there are grins all round. Our market jumped more than 55 points – earlier yesterday it was up 27 points. It added to the 12 point gain the market struggled to on Wednesday.
Coming after a 1% rise in spot iron ore prices to just over $US98 a tonne, and after the weakness in that key commodity price earlier in the week (dipping under the $US100 a tonne mark on Monday night) news of the better than expected PMI (performance of Manufacturing Index) reading was a fillip for our market.
Up went the share prices of stocks such as BHP Billiton, Rio Tinto and Fortescue Metals – the big three of iron ore.
So BHP shares rose 1.3%, Rio’s shares jumped 2.6%, Fortescue shares were up more than 3.6% and Arrium shares jumped 5.3%.
Big banks also rose – the NAB rose 1.5%, ANZ, 1.2% and the Commonwealth and Westpac both rose 0.6% each.
HSBC’s China chief China economist Hongbin Qu said in commentary with the report that while "the improvement was broad-based, with both new orders and new export orders back in expansionary territory”.
New export orders, considered by some analysts as a proxy for foreign demand, saw the biggest turnaround. The index climbed 3.4 points to 52.7, a level not seen in nearly three and a half years.
Qu expressed concern about the fall in the employment subindex, writing in his commentary yesterday that this "implies that this month’s uptick in sentiment has not yet filtered through to the labor market”.
Of the 11 sub-indices in the survey, all but those for employment and stocks of finished goods rose compared to April, which was a much stronger result than in April. But that will have to be confirmed in the final report, and in the official survey results.
Qu added that, “Downside risks to growth remain, particularly as the property market continues to cool. We think more policy easing is needed to put a floor under growth in the coming months."
The AMP’s chief economist Dr Shane Oliver pointed to the improvement from April, but added that the survey results remain stuck in a tight range that has existed since 2011.
Meanwhile the Japan survey showed little apparent impact on manufacturing from the hike in the consumption tax to 8% from 5%.
The reasonably new monthly index from Markit and the Japan Materials Management Association saw a half a point rise to 49.9, just under the 50 level that indicates growth.
In April, the survey had produced a fall from 53.9 in March to 49.4, ending the 13 months of expansion (above to 50 point level). The prospective rise in the tax was blamed for the fall.
