The US dollar drifted a little lower in Asia to start the week
while equities had a slightly heavier bias. The MSCI Asia Pacific Index slipped 0.1%.
European bourses are mostly closed for the extended Easter holiday, while the
S&P is set to start the new quarter about 0.3% lower. Although the subdued
price action may not reflect it, there have been several new economic reports
and developments.
Japan's quarterly Tankan survey was a touch softer than expected and left the
market nonplussed. The
results of the large manufacturers ticked down to 24 from 25, while the large
non-manufacturer sentiment was unchanged at 23. The results for small
business was similarly little changed. Given the more than 5% decline in
Japanese stocks in Q1 and the fact that it is being targeted with US steel and
aluminum tariffs, the fact that both readings remain near multiyear highs is
notable.
Still business showed
cautious investment plans. Capex is projected to growth 2.3% in the new fiscal year
down from 7.4% the respondents expected in December for the fiscal year
that just ended. Business expect the dollar to average JPY109.66
this fiscal year. It averaged about JPY110.85 in the last fiscal
year.
China announced duties on
more than 100 US products. Some products, like scrap aluminum and frozen pork were hit
with 25% tariffs on top of the current tariff schedule, while other goods, such
as dozens of foods, fresh and dried fruit, nuts, and rolled steel bars were
subject to new tariffs of 15%. These are not surprising and simply
provide details on what Chinese officials already indicated. This
is in retaliation for the steel and aluminum tariffs.
China's action is less than
the US action and seems mostly symbolic. However, it does not mean that China will not do
more. Specifically, by the end of the week US Trade Representative
Lighthizer will release the details of the US measures in retaliation for
intellectual property rights violations that will include tariffs on $50-$60
bln of Chinese goods. China will likely make take fresh measures after
the new US actions are announced.
China appears to have a
three-prong response to the US. First, there are these symbolic gestures. Second,
there is the WTO. Third, China will adjust its behavior. There is
little problem with China's declaratory policy--what it says it will do.
The rub lies with its operational policy--what it does. There are several
measures that are in China's interest, like better safeguards for intellectual
property rights, especially as Chinese companies acquire their own portfolio of
patents and innovations.
China's official PMI was
firm, with the manufacturing firming to 51.5 from 50.3 and the
non-manufacturing edging up to 54.6 from 54.4. New export orders helped lift the manufacturing
results, while construction helped lift non-manufacturing. The Caixin
manufacturing PMI, which has a greater weight for small businesses than the
official measure, fell to 51.0 from 51.6.
South Korea's March
manufacturing PMI eased to 49.1 from 50.3, an eight-month low. It averaged 50.0 in Q1 and 50.4 in
Q4 18 (49.7 average in 2017). Taiwan's manufacturing PMI slipped to 55.3
from 56.0. It is the second consecutive decline and a four-month
low. Malaysia's manufacturing PMI fell deeper into contraction territory
with a 49.5 reading down from 49.9. Indonesia's manufacturing PMI eased
to 50.7 from 51.4 and Thailand's reading fell into contraction mode (49.1) and
its lowest level since late 2016.
Although, the Philippines
went the other way, bouncing from February's six-month low of 50.8 to 51.5, the
region appears to have lost some momentum. The US and Europe also appears to
have lost some momentum in Q1. The peak of the synchronized recovery may
be a 2017 story.
Turning to the foreign
exchange market, the dollar has been stuck in narrow ranges. The euro has been confined to about
1/5 a cent, while the dollar has traded in a 1/4-yen range. Sterling
enjoys a slightly larger range, with a bounce toward $1.4070 when it became
clear the $1.40 level was going to hold.
The North American session
features the US manufacturing (March) PMI and ISM and construction
spending (February). The March PMI is at record high, but it is
only a three-year old series. The ISM,
though tells a similar story of strength in the US manufacturing sector. The February reading of 60.8 was slightly
below the record high of 61.4 seen in 2004.
Construction spending is expected to have ticked up after a flat
January. The main takeaway is that the
pessimism toward Q1 GDP seen in recent weeks may have been overstated. Meanwhile, Minneapolis Fed’s Kashkari is the
only Fed official to speak today and his dovish reputation proceeds him. Markit also report Canada’s manufacturing PMI
today. It was at 55.6 in February, which
is just shy of the cyclical high seen last April at 55.9.
Monday Blues
Reviewed by Marc Chandler
on
April 02, 2018
Rating: