China stocks outperform on their return

Strong Chinese PMI boosts China equities

China equities are playing catchup this morning, after returning from an 8-day holiday. The Caixin PMI data has seen the Shanghai Composite and CSI 300 climb sharply by 1.50% initially, boosted by robust real-time data from the holiday break, and property developer Evergrande dodging another debt bullet. US index futures have also risen in early Asia, likely supported by the strong China open.

Elsewhere though, the rest of Asia is definitely in wait-and-see mode, preferring to insulate themselves from the random risks associated with the Presidential Twitter account. Japan, South Korea, Taiwan, Hong Kong, Jakarta and Singapore are ranging each side of unchanged quietly. Even the perpetual optimists of Australia have paused for thought today, perhaps with one eye on their national rugby team’s impending smashing by the New Zealand All Blacks tomorrow, with the ASX and All Ordinaries almost unchanged.

We expect the initial jump in China to run out of steam later in the session, and for the mainland, stocks to also move into wait-and-see mode. Although the US major indices rose between 0.50% and 0.80% overnight, predicting the US president is firmly in the too hard box for the rest of the world.

The fact that Mr Mnuchin and Ms Pelosi are talking again was enough to inspire a modest gain in US equities overnight. Hopes remain that a fiscal stimulus package could emerge before the election. Although, realistically, it would take a titanic effort to make that happen before the election date. Still, it’s the thought that counts. Markets head into the end of the week in a positive frame of mind after a schizophrenic week. Movement on the US stimulus package would be market positive, but markets outside the US won’t react until they see ink on paper, or at least a joint statement from Mnuchin and Pelosi.

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