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Sunday, May 19, 2024

Asia Stocks Gain; Metals Rally on Positive Manufacturing Outlook

Industrial metals prices continued to rise on Tuesday, driven by optimism about global manufacturing recovery. Asian shares cautiously edged up before key events like U.S. inflation data and the European Central Bank meeting.

Asia-Pacific shares outside Japan gained 0.6%, Nikkei rose 0.8%, but futures for S&P 500, FTSE, and European markets showed mixed trends.

In Shanghai, the most-traded May copper futures rose more than 1% to a record high, while zinc and tin made multi-month peaks and aluminium traded just below Monday’s two-year top.

Even iron ore , battered by China’s property downturn, steadied above $100 a tonne in Singapore.

“It’s pretty much a China bet,” said Vishnu Varathan, head of economics at Mizuho Bank in Singapore.

“It’s coincided with a global manufacturing bottoming, and I think that plays well into China’s industrial recovery. That aspect of it is a broader-based story for metals.”

On Monday, data showed German industrial production rising more than expected in February.

Last week, data showed U.S. manufacturing growing for the first time in one-and-a-half years. China’s manufacturing activity expanded for the first time in six months in March.

Among Asian bourses, Taiwan stocks (.TWII), opens new tab touched a record high, led by a more than 4% jump in shares of TSMC (2330.TW), opens new tab after the world’s largest contract chipmaker won a $6.6 billion subsidy for an Arizona production plant.

Chinese stocks were more circumspect, with mainland indexes marginally lower and Hong Kong’s Hang Seng (.HSI), opens new tab up 0.7%, though proxies outside China from European stock markets to the Antipodean currencies have been standout gainers.

The Australian dollar is up almost 2% in a week and traded at $0.6605 on Tuesday. The New Zealand dollar hit a two-week high of $0.6047 in morning trade.

China’s yuan , down about 1.8% this year, has found a floor around 7.3 to the dollar.

Since the beginning of March, the EuroSTOXX index (.STOXX), opens new tab has risen 2.3% and Germany’s DAX (.GDAXI), opens new tab is up 3.2%. The Nasdaq (.IXIC), opens new tab has been flat and the Nikkei has lost 1%.

CPI AND ECB AHEAD

The main focus this week is on U.S. inflation data due on Wednesday and the European Central Bank meeting on Thursday.

Expectations for U.S. rate cuts have been evaporating this year and now investors are not even sure whether there will be two 25 basis point cuts this year or three – after pricing in January implied an expected six cuts on the cards.

Ahead of Wednesday figures that are expected to show a slight tick higher in annualised U.S. headline inflation, the shift in the rates outlook has driven up yields and pumped up U.S. dollar long bets to levels starting to look stretched.

U.S. two-year yields , which track short-term interest rate expectations, touched their highest since late November at 4.801% on Tuesday, while ten-year yields also hit 2024 highs of 4.46% on Monday.

“A higher-than-expected print would add modest support to the dollar, but a downside surprise may see the dollar react more to the downside,” OCBC Bank strategists said in a note.

The euro traded firmly in Asia at $1.0860 ahead of a Thursday policy meeting where investors expect the European Central Bank to flag a cut in June, but might see some risk that they strike a hawkish tone instead.

The yen, meanwhile, continues to face heavy pressure as investors see any lags in global rate cuts as leaving the gap wide with Japan’s near-zero interest rates.

At 151.87 per dollar , the yen is a whisker from last month’s 34-year low of 151.975. Against the euro, the yen is at its weakest for three weeks at 164.96 .

Japanese Finance Minister Shunichi Suzuki said authorities will not rule out any options in dealing with excessive yen moves, repeating his warning that Tokyo is ready to act against the currency’s recent sharp declines.

“We expect (Japan) to intervene above 152, but not immediately on a break,” Standard Chartered strategist Steve Englander said in a note to clients.

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