Stocks rise as China’s factories bounce back from COVID

  • China PMI highest since April 2012; 52.6 vs. 50.5 expected
  • Hong Kong leads Asian stocks; Dollar bill
  • Treasuries squeezed but steady as US ISM survey looms

SINGAPORE, March 1 (Reuters) – Asian shares rose to a two-month high and headed for their best day in seven weeks on Wednesday, buoyed by data showing China’s manufacturing activity expanded at its fastest pace in a decade. Dark markets so far.

China’s official manufacturing purchasing managers’ index (PMI) came in at 52.6 last month against 50.1 in January and was above the analyst forecast for 50.5, giving investors hope that China’s recovery will offset the global slowdown.

MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) rose 1.5%, leaving a two-month low hit in early trading hours before the data release.

Hong Kong’s Hang Seng (.HSI) rose 3.2%, led by developers and consumer-technology stocks and the only two stocks that fell. Chinese stocks also got a boost, with China’s blue-chip CSI 300 index (.CSI300) up more than 1%.

Japan’s Nikkei (.N225) rose 0.2% and S&P 500 futures gave up early losses. European futures rose 0.1%.

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“The China February PMI data is even more important this time around as we don’t have hard January/February data until later this month,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

“China February official PMIs and Caixin manufacturing PMIs both surprised to the upside and were higher than previous January figures.”

In currency markets, the dollar’s February gains appeared to be running out of steam and Asian currencies advanced on strength from Chinese data – even as economic updates from India, Australia and South Korea came in weak.

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China’s yuan rose about 0.4% – its highest in more than a month – to 6.9063 to the dollar. The Australian dollar reversed losses after softer-than-expected Aussie growth and inflation figures and rose 0.3% to $0.6751.

The Kiwi dollar, which has fallen nearly 4% in the past month, was 0.5% above its 200-day moving average at $0.6217. The yen was held at 136.35.

Rates risk

Keeping gains under control were concerns that interest rates in developed economies remain high for a longer period of time, which was behind a shaky February in stock and bond markets.

The next flush of economic indicators will be important as markets gauge whether future rate hikes are sufficiently priced now.

Higher-than-expected inflation readings in Europe drove bond sales overnight, before an unexpected dip in US confidence figures gave hope that rate hikes could bite and peak within reach.

Two-year Treasury yields, a guide to short-term U.S. rate expectations, were near a four-month high, but at 4.8347%, below November’s peak of 4.8830%. The benchmark 10-year yield in Asia was 3.9396%.

Inventories rallied on Chinese demand optimism and Brent crude futures were last up 0.6% at $83.94 a barrel.

Steady gains after rains in parts of the U.S. winter wheat belt and optimism over a Russia-Ukraine export deal prompted investors to liquidate some long positions.

Geopolitics also raised nerves in the background. US President Joe Biden’s visit to Kiev and Russian President Vladimir Putin’s abandonment of the last remaining nuclear arms control treaty with the US signaled a hardening of the situation.

China, which last week signaled support for Russia by sending its top diplomat to Moscow, has called for peace, though it has been met with skepticism and Washington has said in recent days it is worried China might send weapons to Russia.

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“If Beijing were to send weapons to Russia, it would cause a rapid geopolitical collapse of the global economy,” said John Lambrechts, head of research at Rabobank. “Markets haven’t even begun to think about what this means.”

Editing by Himani Sarkar

Our Standards: Thomson Reuters Trust Principles.

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