By Marius Zaharia
HONG KONG (Reuters) – Factory activity in China showed a slight surprising recovery last month, with a sign that the stimulus was injected Asia's growth engine can produce results, but concerns about a global downturn continued due to weakness elsewhere in the region.
Even in China, growth in new domestic and export orders was marginal. The factory activity in Japan, South Korea, Malaysia and Taiwan shrank further and contributed to the expectations of a weak turnaround from central bankers in the region.
The tariff war in the US and China and delayed Chinese demand for a campaign to reduce financial risk assessment has caused great damage, making everybody from small businesses injured in supply chains from Chinese manufacturers to global tech entertainers like Apple (NASDAQ 🙂 and over the map from Australia to South Korea and Japan.
Later on Monday it was expected that euro area activity surveys showed contraction due to their own trade frictions with the United States, Brexit uncertainty, and US-China trade-offs.
The weak external environment feeds back into the US economy, and urged the Federal Reserve to suddenly end its policy tightening last month and cause the treasury yield curve to emerge last week ̵
Fed's break has changed the game for many Asian central banks and investors are betting on a growing list of potential interest rate cutters.
"The PMI data … tells us that the stimulus measures set up by the Chinese authorities since the middle of last year are finally beginning to gain influence," said Khoon Goh, leader of Asia Research at ANZ.
"Now is It obviously only a month. I expect Asian Central Bankers to continue to be accommodating, and some of them will be cuties. There is no doubt that general growth is still delayed. "
(GRAPHIC: Production activity in Asia – https://tmsnrt.rs/2V8UCMr)
China's Caixin / Markit Manufacturing Purchasing Managers Index (PMI) expanded to the strongest pace in eight months in March, rising to 50, 8 from 49.9 in February, over 50-degree dividend expansion from contraction and highest level since July 2018.
An official survey on Sunday also showed modest expansion.
Economists also warned that there were seasonal factors in play, with March activity traditionally picked up sharply when the Chinese Lunar New Year's holiday fell in February, as they did this year.
If the trend is persistent, it may mark the turn that China's policemen had been hoping for after some major fiscal and monetary stimulants, including five cuts in the bank's reserve requirements in the past year, although analysts say several such measures may still be in progress.
BofA Merrill Lynch Analysts noted the " shrubbery shootings "from the March PMI readings, but the real activity growth could have been under pressure in the first quarter, especially given the tougher environment for exports.
"We believe that political decision-makers will stick to their commitment to political easing to stabilize growth," said BofA Merrill Lynch analysts in a note to clients. Chinese Prime Minister Li Keqiang said last month that government has further monetary policy measures may take, and will even cut "his own flesh" to help finance large tax cuts.
On the commercial front, US President Donald Trump said Friday that talks with China went really well but warned he wouldn't accept anything less than a "big deal" by the top US and Chinese trade representatives wrapped two days of negotiations in Beijing.
"A set of better economic figures on the Chinese side could increase the negotiating games in negotiations with the United States as they could show that China's economy can still jump back from tariffs imposed by us so far, "said Kevin Lai, economics in Asia in Japan at Daiwa Capital Markets.
BROAD V REALITY
Activity in Vietnam, Indonesia and the Philippines grew at a modest pace, but in economies with greater impact on regional growth, the prospect remains gloomy.
South Korea's factory activity in March expired for a fifth straight month.
Japanese production activity was at a slower pace in March than last month, but production fell at the sharpest rate in nearly three years. Japanese industrial trust deteriorated to a two-year low in the first quarter of this year showed a central bank survey.
Business spending in Asia is likely to fall for the first time in three years, with investments of 2,137 Asian companies seen at an average of 4 percent this year showed a Reuters analysis of Refinitive data.
(GRAPHIC: Asian firms' capex – https: // tmsnrtrsrs / 2FewW3C)
An analysis by Oxford Economics showed nominal Asian exports Growth fell 3.8 percent from January to February in combination, mainly driven by a sharp fall in exports in North Asia, although growth in Southeast Asia was also weak.
"So far, there are few signs that the global trade cycle has bottomed out and we see global growth still falling lower than in the short term," said Joachim Fels, global financial adviser for PIMCO, adding, however, that Fed's Changing the roof and kinostimulation can lead to stabilization or even moderate retrieval.
"These factors may allow a soft landing of varieties for the global economy – albeit with additional air pockets along the flight path."