European factories buoyant but weak Asia adds to stimulus calls

EUR= down around 12 percent since January and factories have benefited as it has not only made exports cheaper but also meant competing imports were more expensive.

Bolstered by a similar pick-up in export orders and strong domestic demand, Britain’s manufacturing industry grew at the fastest rate in eight months in March.

Stock markets and the dollar saw solid starts to the second quarter on Wednesday, following the upbeat European data. [MKTS/GLOB]

SIMULATING ASIA

Analysts predict a modest expansion in U.S. manufacturing activity when figures are released later on Wednesday, taking the view that a recent slowdown was a blip related to harsh winter weather and keeping alive expectations the Federal Reserve will start to raise interest rates later this year.

However, hopes that a strengthening U.S. economy and lower energy costs would spur activity in Asia have proved elusive.

“For Asia-Pacific as a whole, we still see limited evidence that those tailwinds, namely the pick-up in U.S. consumer spending and sharply lower oil prices, are boosting growth,” said Paul Gruenwald, Standard & Poor’s Asia-Pacific chief economist.

China’s official PMI ticked up to 50.1 in March from 49.9, but a private survey from HSBC which focuses on small and mid-sized firms showed factory activity contracted after two months of recovery.

Both reports indicate economic conditions remain sluggish, which may be reflected in China’s first-quarter growth figures on April 15.

“Recent policy actions, such as mortgage rule easing, suggest that concerns at the top level of the government are rising. We believe this suggests that more easing measures, particularly monetary easing measures, will be rolled out,” said Qu Hongbin, HSBC’s chief China economist.

“The March economic activity data are due to be released in the next two weeks. Further confirmation that the real economy is now tracking below the official target will likely prompt easing measures from the PBoC.”

Some are also calling for even more stimulus in Japan, including one of the architects of premier Shinzo Abe’s “Abenomics” reflationary policies.

The Bank of Japan must ease policy further at its meeting on April 30, Kozo Yamamoto told Reuters on Wednesday.

“The economy is at a standstill and prices are seen falling ahead. To do nothing isn’t an option for the BOJ,” said Yamamoto, an expert on monetary policy in Abe’s ruling Liberal Democratic Party.

Japanese manufacturing activity expanded more slowly in March than in February as domestic orders contracted for the first time in almost a year, in a worrying sign the recovering economy may be losing momentum.

Figures elsewhere in Asia provided a sobering read.

In South Korea, exports suffered their biggest fall in two years while factory activity in Indonesia – the biggest economy in the Association of Southeast Asian Nations (ASEAN) – contracted for the sixth straight month as output and new orders dropped at the fastest rate on record.

(Additional reporting by Leika Kihara and Yuko Yoshikawa in TOKYO, Koh Gui Qing and Pete Sweeney in BEIJING, Christine Kim and Choonsik Yoo in SEOUL, Nilufar Rizki in JAKARTA and David Milliken in LONDON- Editing by Alan Raybould and Toby Chopra)