Hong Kong: Asian stocks shot to eight-month highs on Monday after a gauge of China’s manufacturing activity offered fresh evidence of a recovery in the world’s third-largest economy.
Growing optimism that the worst of the global downturn is over offset long-expected news that General Motors Corp will file for bankruptcy later in the day in a government-managed process that will pump another $30 billion in US taxpayers’ money into the ailing automaker.
US stock futures added to gains as details of the bankruptcy filing emerged with no major downside surprises, while Treasury futures extended modest declines.
US oil futures rose to the highest since early November at $67 a barrel, as investors shrugged off surprisingly soft South Korean export figures for May and concentrated on the China numbers, which also showed new export orders growing for the first time since June 2008.
“We expect manufacturing activity will continue to expand in the coming months, supported by the roll-out of the governments stimulus. Some bright spots have emerged in China’s heavy industries,” Jing Ulrich, managing director and chairman of China equities at JPMorgan in Hong Kong, said in a note.
S&P 500 futures were up 0.6%, extending earlier gains made on the Chinese manufacturing report.
Hong Kong’s Hang Seng index and China’s Shanghai composite led Asian equity markets higher, rising 1.5% and 2.2%, respectively.
Japan’s Nikkei share average rose 1.2%, with trading houses and industrial sectors performing well.
The MSCI index of Asia Pacific stocks outside Japan advanced 1.4% to its highest since 2 October, having risen 55% since a global equity rally began on 9 March.
The materials and energy sectors outperformed on Monday, as they have since the rally started.
News over the weekend that China would raise retail diesel and gasoline prices by 6-7% supported shares of domestic refiners, with PetroChina climbing 3.5%.
Optimism about the region as well as continued weakness in the US dollar because of lingering concerns about US fiscal health pushed up emerging Asian currencies across the board.
The Australian dollar rose 0.6% to US$0.8053, gaining some 16 cents in the last three months. The currency has become a proxy for global growth prospects because of Australia’s big commodity exports to China.
China’s official purchasing managers’ index for May fell to 53.1 from 53.5, staying above high water mark of 50, which separates expansion and contraction, for the third month in a row and fueling hopes that China will lead a global recovery.
The British pound climbed 0.3% to US$1.6235, having touched the highest since 3 November.
The pound has benefitted from acute weakness in the US dollar, as investors leave its deep liquidity for higher returns elsewhere.
Gold has also been a target. It hit a three-month high on Monday in the spot market of $983.15 an ounce, creeping closer to the psychologically significant $1,000 price.
“Gold is rising because the dollar is weak, the economy is stabilizing, and interest rates are low,” said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
“There is too much hot money around as governments are printing money, and one option is to put that into stocks and the other is to gold,” he said.
US crude for July delivery rose 0.9% to $66.92 after earlier hitting a fresh seven-month high of $67. Stock market optimism and sustained hope for a global economic recovery have supported the market’s best monthly gains in a decade.
“My thinking is that most of the commodity markets, the base metals as well as oil, have moved to factor in economic recovery, and probably a fairly decent ‘V´,” said Commonwealth Bank of Australia commodity strategist David Moore.
The rally in equities and general optimism for the global economy put US Treasuries under pressure.
The yield on the benchmark 10-year note rose to 3.51% from 3.47% late on Friday in New York.
The 10-year futures were down 0.3% after extending modest losses on the GM news, but still above the six-month low hit last Thursday.