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 Business surveys published on Tuesday confirmed factory output
expanded across Asia following months of decline in its two biggest
economies, as massive stimulus packages from the authorities in
Beijing and Tokyo begin to take effect.
China's final HSBC/Markit Purchasing Managers' Index (PMI) rose to
50.7, slightly below a flash reading but above the 50 mark that
separates growth from contraction for the first time in six months.
The official China PMI, which is geared more towards bigger
state-owned firms, hit a six-month high of 51.0.
"The Chinese numbers were good. The authorities are helping, they
are supporting, they are guiding the economy in the direction they
want it to go in," said Peter Dixon, economist at Commerzbank.
In contrast, the raft of measures announced last month by the
European Central Bank to counter the threat of deflation and support
growth by boosting lending to companies and households have yet to
show any impact.
Markit's final Manufacturing PMI for the euro zone fell to 51.8 in
June from May's 52.2, the lowest reading since November.
"The ECB is going to be looking at these numbers in the coming
months and hoping that we see a bit more of a pick-up. Let's check
in six month's time if the ECB needs to do any more," Dixon said.
Stock markets firmed after the China data, which reinforced market
views that the world's second-largest economy is steadying thanks to
stimulus from Beijing after growth dipped to an 18-month low of 7.4
percent in the first quarter.
Those measures include reserve requirement cuts for some banks to
encourage more lending, quicker fiscal disbursements and hastening
construction of railways and public housing.
A downturn in the property market is clouding the outlook, however,
and economists expect Beijing to stand ready to ease fiscal and
monetary policy further to counter any major spillover into the
broader economy.
"Efforts to slash overcapacities in old-fashioned industries, as
well as the housing market downturn ... will continue to weigh on
overall economic activity," said Nikolaus Keis at UniCredit.
In Japan, central bank and PMI surveys painted a similar picture of
improving factory activity, supported by continued hefty central
bank money injections and government spending.
Japan's PMI topped the 50-point mark for the first time in three
months but with an April sales tax rise still acting as a drag, the
Bank of Japan's business optimism gauge dipped in the second
quarter. Still, firms were optimistic about the outlook, declaring
readiness to boost capital investment and output.
"It was still a good result. The Tankan result supports the Bank of
Japan's upbeat view on the economy," said Takuji Aida at Societe
Generale.
In Indonesia, Southeast Asia's largest economy, factory activity
grew at its fastest pace on record and in India, the continent's
third-largest economy, it hit a four-month high.
Markets will also be looking ahead to U.S. PMI data to confirm that
the world's biggest economy has finally put its weather-affected
start to the year firmly behind it.
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BRITAIN LEADS EUROPE
British factories followed Asia's lead, increasing activity at the
fastest rate in seven months while creating new jobs in at the
briskest pace in more than three years.
Euro zone unemployment was stable for the second consecutive month
in May at 11.6 percent but the pace of factory growth eased as a
contraction in the bloc's second biggest economy, France, deepened.
Germany was again the driving force, helped by a resurgence in the
bloc's periphery countries, although its PMI dipped due to public
holidays.
"The slowdown will put pressure on policymakers at the ECB to do
more to prevent the recovery from stalling, and we will no doubt see
more calls for full-scale quantitative easing to be implemented,"
said Chris Williamson, Markit's chief economist.
The chance of the ECB launching an asset purchase program has risen
to one-in-three, a Reuters poll taken last week found, ahead of this
Thursday's policy meeting.
The ECB cut its deposit rate below zero last month and suggested
rates will remain at record lows for years, while offering more
long-term loans aimed at boosting bank lending. But it is still
reluctant to conduct outright bond purchases.
By contrast, the Bank of England is widely expected to be the first
major central bank to begin tightening policy, possibly as soon as
this year. The pound has been surging as a result.
"Manufacturing is growing strongly, and work flows suggest this has
legs," said David Tinsley at BNP Paribas. "As this news flow is
absorbed further, rate hike expectations for the first hike in Q4
this year should harden."
(Reporting by Xiao Shao and Kevin Yao in Beijing, Stanley White,
Leika Kihara and Tetsushi Kajimoto in Tokyo, Christine Kim and
Choonsik Yoo in Seoul, Nilufar Rizki in Jakarta, Anu Bararia in
Bangalore and Ana Nicolaci da Costa in London; Editing by Catherine
Evans)
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