There are days when investors take bad news at face value and there are days when bad news is good.
And there has been little disguising the recent bull market rally even in the face of threatening geopolitical tensions. Overnight the pair of Chinese manufacturing reports did little to change investors’ minds that the world’s number two economy is struggling to shake off a slowdown that may deliver sub-7.5% GDP in the first quarter. The HSBC manufacturing index fell to 48.0 from 48.5 in February. The official purchasing managers’ index bucked-up somewhat to 50.3 signaling a faint heartbeat for the manufacturing sector. The brace prompted investors not to sell on fears of a slowdown but to buy on account of a sense of reassurance that the government is more likely to fine-tune recovery projects. Stocks in Hong Kong and Shanghai rose as a result.
Likewise in Japan investors sold the Japanese yen and pushed up the Nikkei 225 index. The chart below shows the struggle facing investors in the first quarter of the year as stocks slid and then again tested the lows after a half-hearted rally. And as the investing community discounts the reality of an imminent increase in the consumption tax, it appears that they are similarly prepared to assume more stimulus from the Bank of Japan as it too contends that the momentum may at least temporarily falter. Consumers spent more in advance of the imposition of the sales tax to benefit from lower prices and are expected to stay at home once it comes into play.
Overnight the Tankan survey captured the mood well. The survey of 10,500 companies showed a quarterly rise of a single point in manufacturers’ mood to a six-year high. However, the outlook index declined by six points to a one-year low. The air of optimism appears to be weakening the yen, which fell to its weakest against the U.S. Dollar Index (NYBOT:DXH14) in three weeks and in turn is boosting the Nikkei 225 index.
Japanese yen at 3-week low helps boost Nikkei