March could be a messy month.
China's manufacturing activity expanded at the fastest pace
in more than a decade in February, smashing expectations as
production zoomed after the lifting of COVID-19 restrictions.
The abrupt lifting of COVID curbs appears to have book-ended
one of the worst years for the world's second-largest economy
in nearly half a century.
After its bleakest February in 40 years, Hong Kong's Hang
Seng stock index roared back more than 4% on Wednesday,
with Shanghai up 1% too. China's offshore yuan also surged 1% against the dollar.
And against increasingly tense geopolitics, the rebound will
be a relief to Beijing as China's annual parliament opens on
Sunday and President Xi Jinping tightens control with the
biggest government reshuffle in a decade.
For the rest of world markets, jarred by increasingly
uncomfortable inflation readings from Europe and the United
States, the question is how much China's re-opening staves off
recession or just spurs commodity and input prices once more.
With euro zone factory output also now expanding again for
the first time since May, German state inflation readings on
Wednesday appeared to tally with data showing annual price rises
picking up steam again last month.
This is emboldening both the hawks at the European Central
Bank and markets keen to re-price the interest rate horizon.
Goldman Sachs raised its estimate for peak ECB interest
rates for the second time in as many weeks, saying it now
expects rates to go up by 50 basis points at the May meeting,
taking the 'terminal rate' to 3.75% by June.
Money markets have already moved beyond that and now price
peak ECB rates at year-end almost 150 bps higher at 3.90%.
Even though U.S. consumer confidence and housing data on
Tuesday questioned some of the reheating narrative, markets now
assume peak Federal Reserve rates will be as high as 5.42% by
July. Two-year Treasury yields pushing to their highest in
almost four months to 4.86%.
Inflation expectations in markets are also on the rise in the United States and Europe, with 5-year, 5-year forward inflation swaps in the latter near 2.5% for the first time in at least 13 years.
The euro surged against the dollar on Wednesday. It gained against sterling too as Britain, as so often this year, struck a gloomier note.
UK house prices last month dropped in annual terms for the
first time in nearly three years, mortgage lender Nationwide
said. And homebuilder Persimmon dropped almost 10% after
it warned the housing slowdown and higher mortgage rates would
hit profit and home-building targets.
European bourses and U.S. stock futures were marginally
higher, however.
Tesla is readying a production revamp of its
top-selling Model Y, according to Reuters sources. Chief
Executive Elon Musk has said he will discuss the third part of
the EV maker's "Master Plan" when the company holds an investor
day event later on Wednesday.
Frankfurt-listed shares of COVID-19 vaccine maker Novavax fell 26% on Wednesday, after the company raised doubts
the day before about its ability to remain in business.
BNP Paribas fell 2.9% after the Belgian state
participation agency SFPI said the country is preparing the sale
of a third of its 7.8% equity stake in the bank. Euronext has withdrawn its 5.5 billion euro ($5.9
billion)indicative offer to buy fund distribution firm Allfunds .
Key developments that may provide direction to U.S. markets
later on Wednesday:
* U.S. and Global Feb manufacturing surveys, U.S. Jan
construction spending
* Minneapolis Federal Reserve President Neel Kashkari speaks,
Italian central bank chief Ignazio Visco speaks
* G20 foreign ministers meet in New Delhi
* U.S. corporate earnings: Salesforce, Lowe's, Dollar Tree,
Snowflake, NIO etc
($1 = 0.9389 euros)
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China's factory activity at a decade high First fall in almost three years Predicted 2023 best performing strategy ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(By Mike Dolan, editing by Emelia Sithole-Matarise
mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)
