By: DailyForex.com
Activity in China's vast manufacturing sector hit a four-month high in August as new orders rebounded, a preliminary private survey showed on Thursday, adding to signs that the world's second-largest economy is stabilizing after a two-quarter slowdown.
China’s stocks rose, led by financial and phone companies, as a result of the report. The Shanghai Composite Index (SHCOMP) added 0.2 percent to 2,076.66 at 9:52 a.m. local time. The preliminary reading of 50.1 for a Purchasing Managers’ Index released by HSBC Holdings Plc and Markit Economics compares with the 48.2 median estimate in a Bloomberg News survey of 16 economists. A number above 50 indicates an expansion.
China Minsheng Banking Corp. led gains for lenders with a 2.3 percent jump. ZTE Corp. surged 3.7 percent after its net income jumped 27 percent as a gauge of phone companies rallied the most among industry groups. Everbright Securities Co. dropped 2.9 percent for a three-day loss of 18 percent after last week’s trading error.
The Flash HSBC Purchasing Managers' Index rose to 50.1 from July's final reading of 47.7, which was the weakest in 11 months, though it barely passed the watershed 50 line which demarcates expansion of activities from contraction.
The Chinese government has announced a series of targeted measures to support the slowing economy, including scrapping taxes for small firms, offering more help for ailing exporters and boosting investment in urban infrastructure and railways. According to one financial analysis, these measures confirm that the economy has stabilized in the short term and the downside risks for H2 have declined.
Annual profit growth in China's state firms picked up pace in the first seven months of 2013, official data showed on Tuesday, offering new signs that the economy may be regaining momentum in the second-half of the year.
Upbeat data for July ranging from factory output and exports to retail sales has raised hopes that China's economy may be stabilizing after slumping for more than two years. Like some of its emerging market neighbors, however, China did see capital outflows for the second consecutive month in July, suggesting its sluggish economy is still deterring investors. But the pace at which money is leaving the country appears to be slowing and its markets have not been as volatile as in India or Southeast Asia.
Movements in the Forex Market
The U.S. Dollar edged higher against the Japanese Yen during the Asian trading session as investors are reassured by the release of the Federal Reserve’s July meeting minutes which suggest that QE tapering is likely to begin by next month. While there continues to be some discord among the FOMC members as to the timing of the curtailment of the bond purchases, the minutes did little to suggest otherwise. The U.S. Dollar also got some support from the HSBC PMI, a preliminary manufacturing report from China which showed that activity in that all-important sector struck a 4-month peak in August which helped to trigger a bounce in higher risk commodity-linked currencies including the Australian Dollar.
The EUR/USD pair was trading lower at $1.3336, a loss of 0.1%. Meanwhile, the AUD/USD pair steadied at $0.8977, coming off a session low of $0.8932. The Aussie Dollar was also significantly up against the safe haven Yen with the AUD/JPY pair trading 0.6% higher at 88.10 Yen. The Yen moved broadly lower after the Chinese PMI data release; the USD/JPY pair traded at a high of 98.33 Yen before easing back to 98.16 Yen, still a gain of 0.5% from Wednesday’s late trade in New York.