Asia stocks rise, industrial metals prices fly on manufacturing bets

Industrial metals prices extended their gains yesterday with expectations of a worldwide manufacturing rebound, while Asian shares crept up a little more cautiously ahead of this week's US inflation data and a crucial European Central Bank meeting.

MSCI'S broadest index of Asia-pacific shares outside Japan rose 0.6 per cent. Japan's Nikkei rose 0.8 per cent. S&P 500 futures and FTSE futures were flat while European futures were down 0.18 per cent.

In Shanghai, the most-traded May copper futures rose more than 1 per cent to a record high, while zinc and tin made multi-month peaks and aluminium traded just below Monday's two-year top.

Even iron ore, battered by China's property downturn, steadied above US$100 a tonne in Singapore.

"It's pretty much a China bet," said Vishnu Varathan, head of economics at Mizuho Bank in Singapore.

"It's coincided with a global manufacturing bottoming, and I think that plays well into China's industrial recovery. That aspect of it is a broader-based story for metals."

On Monday, data showed German industrial production rising more than expected in February.

Last week, data showed US manufacturing growing for the first time in oneand-a-half years. China's manufacturing activity expanded for the first time in six months in March.

Among Asian bourses, Taiwan stocks touched a record high, led by a more than 4 per cent jump in shares of TSMC after the world's largest contract chipmaker won a $6.6 billion subsidy for an Arizona production plant.

A higher-than-expected print would add modest support to the dollar, but a downside surprise may see the dollar react more to the downside."

OCBC Bank strategists said in a note

Chinese stocks were more circumspect, with mainland indexes marginally lower and Hong Kong's Hang Seng 0.7 per cent, though proxies outside China from European stock markets to the Antipodean currencies have been standout gainers.

The Australian dollar is up almost 2 per cent in a week and traded at $0.6605 yesterday. The New Zealand dollar hit a two-week high of $0.6047 in morning trade.

China's yuan, down about 1.8 per cent this year, has found a floor around 7.3 to the dollar.

Since the beginning of March, the EUROSTOXX index has risen 2.3 per cent and Germany's DAX is up 3.2 per cent. The Nasdaq has been flat and the Nikkei has lost 1 per cent.

CPI and ECB ahead

The main focus this week is on US inflation data due on today and the European Central Bank meeting tomorrow.

Expectations for US rate cuts have been evaporating this year and now investors are not even sure whether there will be two 25 basis point cuts this year or three – after pricing in January implied an expected six cuts on the cards.

Ahead of today figures that are expected to show a slight tick higher in annualised US headline inflation, the shift in the rates outlook has driven up yields and pumped up US dollar long bets to levels starting to look stretched.

US two-year yields, which track short-term interest rate expectations, touched their highest since late November at 4.801 per cent yesterday, while tenyear yields also hit 2024 highs of 4.46 per cent on Monday.

"A higher-than-expected print would add modest support to the dollar, but a downside surprise may see the dollar react more to the downside," OCBC Bank strategists said in a note.

The euro traded firmly in Asia at $1.0860 ahead of a tomorrow policy meeting where investors expect the European Central Bank to flag a cut in June, but might see some risk that they strike a hawkish tone instead.

The yen, meanwhile, continues to face heavy pressure as investors see any lags in global rate cuts as leaving the gap wide with Japan's near-zero interest rates.

At 151.87 per dollar, the yen is a whisker from last month's 34-year low of 151.975. Against the euro, the yen is at its weakest for three weeks at 164.96.

Japanese Finance Minister Shunichi Suzuki said authorities will not rule out any options in dealing with excessive yen moves, repeating his warning that Tokyo is ready to act against the currency's recent sharp declines.

"We expect (Japan) to intervene above 152, but not immediately on a break," Standard Chartered strategist Steve Englander said in a note to clients.