Choose Your Own Adventure

Global equities looked to kick off the second quarter with gains as market participants weighed the ramifications of Joe Biden’s $2.25 trillion infrastructure plan.

Pfizer released long-term followup data from a phase 3 vaccine trial showing its shot exhibited 91% efficacy after six months. Notably, the company said that in South Africa, where the B.1.351 lineage is prevalent, and 800 participants were enrolled, all nine observed cases of COVID-19 were in the placebo group.

“In an exploratory analysis, the nine strains were sequenced and six of the nine were confirmed to be of the B.1.351 lineage,” a press release said. “These data support previous results from immunogenicity studies demonstrating that BNT162b2 induced a robust neutralizing antibody response to the B1.351 variant, and although lower than to the wild-type strain, does not appear to affect the high observed efficacy against this variant.”

Parse that as you see fit.

In Asia, a spate of strong data appeared to bode well for key economies. Japan’s large manufacturers turned positive for the first time since 2019, for example. The large manufacturer Tankan gauge printed 5 against consensus for -1 (figure below).

Across the region, most PMIs improved or remained solidly in expansion territory. South Korea’s manufacturing PMI held near a decade high, while a gauge for Taiwan hit 60.8, the highest in over 10 years.

South Korean exports jumped 16.6% in March (figure below), the largest gain since 2018. Shipments to the US and the EU were especially strong. It was the fifth consecutive month of growth. “Among Korea’s 20 major export items, all items experienced growth except for displays,” the trade ministry said.

Nomura economist Park Jeong-woo said “what will matter to markets is the second quarter, because what we have so far is largely in line with expectations.” Apparently, shipments abroad would need to post an average gain of 45% this quarter to put the economy on a convincing path to a total recovery from the pandemic.

Although China’s Caixin manufacturing gauge printed a small miss for March (50.6 versus 51.4 consensus), beats on the official gauges this week suggested the recovery in the world’s second largest economy remained mostly intact coming off the Lunar New Year holiday.

Global demand should improve, Europe’s struggles with new lockdowns and vaccine rollout notwithstanding, and the domestic situation seems generally stable, as what was a two-speed recovery led by industrial output evens out.

Still, the color accompanying the Caixin report (out Thursday) wasn’t ebullient by any stretch. “The March reading was the lowest since April 2020, despite marking the 11th consecutive month of expansion. That indicates the post-epidemic recovery was continuing to falter,” it said.

Wang Zhe, senior economist at Caixin, flagged a “bright spot” in overseas demand but warned on “pressure to the labor market.” “Employment remained low because manufacturers weren’t very motivated to replace departing workers,” Wang remarked, adding that “the gauges for input and output prices both rose at a faster pace, indicating added inflationary pressure.” Rising raw materials prices are “causing costs for manufacturing enterprises to soar,” the report noted.

“While the prospect of Chinese growth is relatively stable, the same can’t be said for other countries in the region,” BNY Mellon’s Chong Wee Khoon wrote Thursday, in a cautious note on Asia. “Aside from South Korea, Taiwan and Singapore, all of which have seen upward growth for 2021, the rest of the region is on a downward trajectory,” he said, adding that,

In other words, the much-hoped for vaccine-motivated growth recovery anticipated into 2021 has turned out to be too optimistic for many. South Korea and Taiwan may be supported by tech-related fundamentals, but could the better sentiment in Singapore be related to the high percentage of vaccine doses administered as a percentage of its population? Over recent weeks, we have seen continued pandemic-related challenges to macro development in trade and tourism, a substantial rise in global bond yields and overall warnings of downside risks and uncertainties surrounding the economic outlook.

All caveats aside (and there are obviously quite a few of them), data from around the world suggested the global economy is on reasonably solid footing a year on from the worst of the pandemic lockdowns.

What happens next is anyone’s guess. While some insist an inflationary overheat is all but inevitable, others warn that more aggressive virus variants, structural economic damage and labor market slack are sure to result in sluggish growth once base effects and sugar highs abate.

Choose your own adventure.