SINGAPORE, March 1 (Reuters) – Asian stocks rebounded from a two-month low and headed for their best day in seven weeks on Wednesday, as data showing Chinese manufacturing activity grew at the fastest pace for over a decade have injected a wave of optimism into previously gloomy markets.
The official Purchasing Managers’ Index (PMI) for China’s manufacturing sector came in at 52.6 last month from 50.1 in January and was well above analysts’ forecast for 50.5, giving investors hope that China’s recovery can offset a global slowdown.
MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) jumped 1.5% to leave behind a two-month low hit in early trading hours before the data was released.
Hong Kong’s Hang Seng (.HSI) jumped 3.2%, with developers and consumer tech stocks leading and just two stocks down. Chinese stocks also got a boost, with China’s blue-chip CSI 300 index (.CSI300) jumping more than 1%.
The Japanese Nikkei (.N225) rose 0.2% and S&P 500 futures gave up early losses to trade flat. European futures rose 0.1%.
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“February PMI data for China has taken on even greater significance this time due to the usual lack of reliable data from January/February through the end of this month,” said Alvin Tan, head of Asia strategy. FX at RBC Capital Markets.
“The official February PMI for China and Caixin’s manufacturing PMI all surprised strongly on the upside, and notably higher than the previous January figures.”
In currency markets, the dollar’s gains in February appear to be faltering and Asian currencies gained on Chinese data – although economic updates from India, Australia and South Korea are have become weak.
The Chinese yuan rose about 0.4% – its highest level in more than a month – to 6.9063 to the dollar. The Australian dollar reversed losses incurred after weaker than expected Australian growth and inflation figures and rose 0.3% to $0.6751.
The Kiwi Dollar, which fell almost 4% last month, rebounded off its 200-day moving average and rose 0.5% to $0.6217. The yen held steady at 136.35.
INTEREST RATE RISK
Keeping gains in check was concern that interest rates would stay higher for longer in developed economies, which was behind a shaky February in equity and bond markets.
The next wave of economic indicators will likely be crucial as markets assess whether future rate hikes are sufficiently priced in now.
Higher-than-expected inflation figures in Europe overnight boosted bond selling, before an unexpected drop in confidence figures in the United States offered a glimmer of hope that rate hikes are biting and perhaps within striking distance of the woodpecker.
Two-year Treasury yields, a guide to short-term US rate expectations, are near four-month highs, but at 4.8347%, they are below November’s high of 4.8830%. Benchmark 10-year yields stood at 3.9396% in Asia.
Commodities rallied on hopes of Chinese demand and Brent futures rose 0.6% for the last time at $83.94 a barrel.
Gains stabilized after rains in parts of the U.S. winter wheat belt and optimism over an export deal between Russia and Ukraine prompted investors to liquidate some long positions .
Geopolitics also kept nerves high in the background. US President Joe Biden’s visit to Kiev and Russian President Vladimir Putin’s abandonment of the latest nuclear arms control treaty with the United States marked a hardening of positions.
China, which signaled its support for Russia by sending its top diplomat to Moscow last week, appealed for peace, although it was met with skepticism and Washington has said in recent days that it feared that China would send weapons to Russia.
“If Beijing sent arms to Russia, it risked a rapid geopolitical breakdown in the global economy,” Rabobank research director Jan Lambregts said. “The markets haven’t even begun to consider what that might mean.”
Editing by Himani Sarkar
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