Markets mixed in Asia today as US offers little direction
In the absence of any significant economic data, Wall Street posted modest gains on Wednesday with the S&P500 advancing 0.2%, led by a lift in energy and consumer discretionary stocks. After declining Tuesday, Treasury yields eventually nudged higher, with the 10Y rising 2bps to 1.58%, while the greenback also posted modest gains. Since the close, however, US equity futures and UST yields have nudged back a couple of tenths lower. So, with Wall Street on balance providing little direction and with the day providing only a small amount of local macro news, bourses in the Asia-Pacific region have generally posted a mix of inconsequential gains and losses.
The main exception was the Philippines, where the market has rallied 5% with investors perhaps looking forward to an expected easing of pandemic restrictions at the end of this month. In contrast, in Japan the TOPIX declined 0.5%, with the focus remaining on the likelihood of an extension to pandemic-driven trading restrictions and the unresolved possibility that this may yet lead to the cancellation of the Tokyo Olympics (in an editorial yesterday, the Asahi newspaper called on PM Suga to call off the games). In mainland China, stocks posted a modest gain for a second day following Tuesday’s 3% rally. South Korea’s KOSPI fell modestly as the BoK left its policy rate at 0.5% but boosted its forecasts for growth and inflation. While not wanting to rush tightening, Governor Lee appeared to indicate some concern about building financial imbalances, suggesting that the BoK will likely be one of the first central banks to start the process of unwinding its unprecedented easing.
In Australia, some very positive news on business capex in Q1 – and a welcome sizeable upward revision to firms’ forecast for the coming financial year – was countered by concerning local pandemic news. With the number of cases in a new virus cluster rising sharply to 34 today, and with genome testing identifying the infection as a fast-spreading Indian variant, the state of Victoria announced a snap 7-day lockdown from midnight tonight in a bid to contain the cluster. While this news weighed somewhat on the Aussie dollar and bond yields – the 10Y AGCB falling 2bps to 1.64% - the ASX200 still managed to eke out a 0.1% gain, led by higher prices for materials and technology stocks.
China’s industrial profits grow 57%Y/Y in April
The only news in China today concerned industrial profits in April, which predictably continued to report a hefty annual growth rate in light of the pandemic-induced decline in profits reported a year earlier. Total industrial profits increased 57.0%Y/Y, following a 4.3%Y/Y decline a year earlier. Perhaps more meaningfully, profits increased over 49% compared with April 2019. Given the April result, on a year-to-date basis profits increased over 106%Y/Y (and 43% compared with the same period in 2019), with manufacturing profits rebounding almost 114%Y/Y.
German consumer confidence rises but lags improvement in business sentiment
With a much-improved trend of new coronavirus cases and accelerated vaccine roll-out, all the evidence suggests that German business confidence has markedly improved, e.g. with Monday’s ifo survey reporting a leap in its headline index to a two-year high and firms in every sector seemingly more upbeat. Consumer confidence has improved too. But as in France, where yesterday’s improvement in the INSEE business survey was significantly larger than that in the equivalent consumer survey, German households appear to remain significantly warier about the outlook than firms. Indeed, the improvement reported in this morning’s GfK German consumer survey was smaller than expected, with the headline sentiment index – presented as a forecast for June – rising just 1.6pts to -7, still below April’s level albeit significantly above this year’s trough in February and March.
Admittedly, within the survey detail, German consumer confidence in the economic outlook increased dramatically, with the respective index leaping by a record amount (almost 34 pts) to the highest level since March 2018. Having weakened last month, expectations of future incomes rebounded too. However, the survey measure of willingness to buy fell back (down 7pts to 10) close to the average level so far this year, perhaps constrained by continued pandemic containment measures restricting options for purchasing services.
Looking ahead, the Italian ISTAT survey results for May due alter this morning are similarly likely to report a further notable improvement in business confidence but perhaps a smaller increase in consumer optimism.
Q1 GDP revisions ahead in the US; April activity indicators highlighted by durable goods orders
Following yesterday’s lull, the US dataflow resumes today with the release of revised GDP data for Q1. Daiwa America Chief Economist Mike Moran expects upward revisions to consumer spending, residential investment and inventories to lift GDP growth by 0.4ppts from the previous estimate to 6.8%AR. Further clues on how activity has continued in the current quarter will come from the durable goods orders report for April, with Mike expecting a 0.8%M/M increase in total orders – a 12th consecutive advance that would lift bookings comfortably above pre-pandemic levels. News on pending home sales during April will also be released today, as will the Kansas Fed’s manufacturing survey for May.
Aussie capex rebounds a further 6.3%Q/Q in Q1; firms’ outlook for capex also boosted
Following yesterday’s slightly firmer-than-expected construction data, today’s Q1 CAPEX survey also conveyed positive news about equipment, plant and machinery investment during the quarter. The volume of overall business capex increased 6.3%Q/Q – about triple the consensus estimate and the largest quarterly increase since 2012. So with the previous quarter’s growth also revised up 1.2ppt to 4.2%Q/Q, annual growth turned positive at 0.8%Y/Y. The key driver of growth was a sharp 9.1%Q/Q lift in investment in equipment, plant and machinery, adding to the 7.3%Q/Q rebound in Q4 and lifting annual growth to 5.6%Y/Y. Spending on buildings and structures increased 3.8%Q/Q, but remained down 3.4%Y/Y. Ahead of next week’s remaining partial indicators, these figures bode well for a solid lift in GDP of circa 1½%Q/Q despite the likelihood of a sizeable drag from net exports.
The section of the survey measuring firms’ future planned spending also contained positive news. For the current financial year that ends on 30 June, the 6th estimate of firms’ total nominal capital spending was 2.2% above the last estimate made three months ago but still 1.4% below the comparable estimate made for 2019/20 (the 5th estimate had been more than 7% below its comparable estimate). Forecast spending on equipment, plant and machinery was revised up 6.4% from the forecast made three months ago, and so is now 2.1% above the comparable forecast made for 2019/20. However, forecast spending on buildings and structures was revised down 1.2% and so remained over 4% below the comparable forecast for 2019/20. Within the mining sector, forecast spending was revised down 0.9% from three months earlier but was still 1.3% higher than the comparable estimate for 2019/20. However, in the non-mining sector forecast spending has increased 3.5% over the past three months but remains 2.5% lower than the comparable estimate in 2019/20.
More importantly, the 2nd estimate for total capex spending in the coming financial year (ending 30 June 2022) was revised up a sizable 7.9% from the 1st estimate made three months ago and was almost 15%Y/Y higher than the comparable estimate made a year earlier (and perhaps more meaningfully, 4.6% higher than the comparable estimate for the preceding year before the pandemic struck). This result owed most to a 13.0% upward revision to expected spending on equipment, plant and machinery, while planned investment on buildings and structures was revised up 5.0%. Most of this increase owes to planned capex in the non-mining sector, which was revised up 11.3%Y/Y to a level 21.4% above the comparable estimate a year earlier. And while just 0.6% above the comparable estimate in the preceding year, today’s result is nonetheless the highest 2nd estimate in the history of the survey. By contrast, planned investment in the mining sector, while at its highest levels for six years, is only around a third of the extreme peaks reached during the mining investment boom.