Asian factories crank up
output, but U.S. election, Fed make investors wary
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[November 01, 2016]
By Elias Glenn
BEIJING
(Reuters) - Asia's largest economies posted strong factory activity in
October, though poor showings in Korea and Southeast Asia and a weaker
inflation outlook from the Bank of Japan kept market reaction muted.
China's official Purchasing Managers' Index (PMI) expanded at the
fastest pace in more than two years in October, adding to views that the
world's second-largest economy is stabilizing thanks to a credit and
housing boom.
India factory activity grew at the fastest rate since December 2014,
boosted by a surge in output and new orders, as Asia's third largest
economy continues to grow at a robust pace.
But investors remained cautious as the prospects of another U.S. Federal
Reserve interest rate hike in December raise concerns about the impact
on emerging market economies, despite positive trends in Asia.
"Asia is especially exposed to a potential rate hike by the Fed: the
region's highly indebted economies will feel the pinch from rising
dollar funding costs but will not receive a lift from stronger exports
that a strengthening U.S. economy ordinarily entails," said Frederic
Neumann, co-head of Asian Economic Research at HSBC.
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Uncertainty was also on the rise as the acrimonious U.S. presidential
election campaign entered its final week.
In China, there are worries that a pickup in activity over the last few
months can't last, with record loan growth set to slow and the
government seeking to dampen rocketing home prices.
For India, a sharp rise in input costs could point to heightened
inflationary risks, which could crimp the Reserve Bank of India's room
to ease policy interest rates further.
Inflation looked to be trending lower in the region's major developed
economies.
The Reserve Bank of Australia held its policy interest rate at a record
low on Tuesday, saying inflation was expected to remain subdued for some
time and that the economy was likely to grow near its potential next
year.
The Bank of Japan on Tuesday held off on expanding stimulus on Tuesday
despite pushing back the time frame for hitting its 2 percent inflation
target, signaling that it will stand pat unless a severe market shock
threatens to derail a fragile recovery.
Japanese manufacturing activity expanded at the fastest pace in nine
months in October as output and new export orders picked up, a private
business survey showed on Tuesday, offering some hope for the struggling
economy.
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A street vendor selling paintings drinks hot tea while waiting for
customers on a sidewalk in central Lviv, Ukraine, October 20, 2016.
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DIVERGING TRENDS
Factory surveys for major technology exporters Taiwan and Korea went in
opposite directions in October.
Taiwan's manufacturing sector showed the fastest growth in two years,
with output rising for the last five months.
Meanwhile, South Korea's purchasing managers index (PMI) contracted for
a third straight month and was the second-lowest since August 2015.
While the downturn eased slightly, persistent weakness in global demand
hampered the recovery in the export-reliant economy, the private survey
showed.
Factory activity also contracted in Indonesia and Malaysia in October,
while growth in Vietnam cooled, according to IHS Markit purchasing
managers' indexes released on Tuesday.
Surveys from Europe and the U.S. were due later Tuesday.
The U.S. economy grew at a faster than expected 2.9 percent in the third
quarter, and consumer spending rose more than expected in September,
which could bolster expectations of an interest rate hike from the Fed
in December.
(Reporting by Elias Glenn; Editing by Simon Cameron-Moore)
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