China manufacturing data beats forecast
Asian equities had a nervous start on US election uncertainty, and national lockdowns in Europe announced over the weekend. All was quickly forgiven when China produced an impressive Caixin Manufacturing PMI. Surprisingly, Japan was an outperformer, perhaps boosted by government comments confirming talks with China about easing travel restrictions. Bubbles aren’t usually good for markets unless they are travel bubbles.
US index futures are all higher, led by the S&P 500 e-minis which have risen 0.40%. The Nikkei 225 has rallied 1.40%, with a weaker yen and an improving PMI also helping sentiment. The Kospi is 0.90% higher, but China’s initial rally has faded quickly. The Shanghai Composite is down 0.40% and the CSI 300 is now unchanged.
Hong Kong has risen 0.70%, with Singapore higher by 0.60%. Taipei has followed the mainland 0.30% lower with Kuala Lumpur down 0.90% ahead of political risk this week. Jakarta is flat, and Manila has risen 1.10% as the super-typhoon passes. Australia’s ASX 200 and All Ordinaries have advanced 0.35%.
Investors should perhaps take their cues from China’s markets today, where the PMI-induced rally has quickly faded. That warning sign suggests that spikes higher in equity prices are just that, spikes. None of the event risks of last week has magically gone away. If anything, it has increased. Bullish exuberance remains a dangerous game to play this week.
The US election is the highlight of the week, with results rolling in across Wednesday in Asia. Although the headlines and opinion polls continue to focus on the presidential race between Trump and Biden, I maintain that the Senate race is the crucial one and will have the most impact on markets. A Republican Senate will be an immediate negative, but probably the best outcome for equity markets longer-term. If the fiscally conservative Republicans keep control, massive fiscal stimulus and a significant tax hike will be off the agenda in this scenario.