China PMI underwhelms, markets resilient

Asian markets suffered a brief wobble on Thursday as data on China's vast manufacturing sector just missed forecasts, with holidays across much of the region muffling the impact.

Beijing's official measure of manufacturing activity (PMI) came in at 50.4 in April, up a tick from March but under forecasts of 50.5. The middling outcome was not enough to lessen concerns about the economy, but neither did it point to a deepening slowdown.

There was also better news from South Korea as its exports grew at their strongest annual pace in over a year, suggesting the recovery in global demand was gathering pace after a soft start to the year.

The conflicted mood was clear in the Australian dollar, often a bellwether for market thinking on China given the country is a major exporter of resources to the Asian giant.

After an initial dip to $0.9279 on the PMI, the currency quickly rebounded to $0.9300 to be a shade firmer on the day. The reaction in share markets was modest given most in the region were off on holiday.

Japan's Nikkei was up 0.4 per cent, while Australian shares eased 0.4 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan barely budged.

Sentiment had been supported somewhat by Wall Street where the Dow notched up its first record high of the year. The Dow ended up 0.27 per cent, while the S&P 500 gained 0.3 per cent and the Nasdaq 0.27 per cent.

That was a resilient performance given government data had shown the U.S. economy grew just 0.1 per cent annualised in the first quarter, far below already gloomy forecasts of 1.2 per cent.

Net exports, inventories and investment all dragged on growth, with household spending the only bright spot.

Still, investors have been willing to give the economy the benefit of the doubt in expectations of a rebound this quarter, and other data did offer some supporting evidence.

A closely-watched indicator of manufacturing activity in the Chicago area jumped to 63.0 in April, to be well above forecasts, while the ADP report on private sector employment showed a rise of 220,000.

That fuelled hopes the April payrolls report on Friday would at least meet forecasts of a 210,000 increase in jobs.

FED STAYS HOPEFUL

The Federal Reserve was prepared to look on the bright side, ending its policy meeting with a relatively upbeat statement as it pared back its bond buying by another $10 billion.

Recent information "indicates that growth in economic activity has picked up ... after having slowed sharply during the winter in part because of adverse weather conditions," the central bank said after a two-day meeting.

Yet investors in bonds and currencies were less impressed, taking yields and the dollar lower. Yields on 10-year Treasuries fell 4 basis points to 2.65 per cent, while those on two-year notes dropped 3 basis points to 0.41 per cent in a sharp move for that tenor.

Interest rate futures also rallied as the market pushed back the likely timing of a first hike by the Fed.

That in turn weighed on the US dollar which dropped to three-week lows against a basket of major currencies.

Pressure on the greenback helped the euro bounce to $1.3870 from a three-week trough of $1.3770. Against the yen, the dollar was at 102.20, having lost 0.4 per cent overnight.

In commodity markets, oil fell as stocks of the fuel in the United States hit a record high.

Brent crude for June delivery was off 2 cents at $108.07 on Thursday having shed over a dollar overnight, while June US crude eased a further 3 cents to $99.71.

Spot gold also fared poorly to stand at $1,290.00 an ounce, after easing 0.4 per cent on Wednesday.

Copyright: Thomson Reuters 2014