Asia Session: Chinese PMI Data Fails To Turn Investor Sentiment

Concern surrounding the feasibility and long-term effectiveness of Greece's second bail-out has driven risk lower throughout the session. Officials in Athens are now racing to complete a substantial number of tough reforms in order to receive the EUR130 billion bail-out.

Attention in Asia momentarily shifted away from Greece to focus on PMI data out of China. Recent manufacturing data out of Beijing has highlighted the problems facing the domestic economy, with relatively weak levels of demand for Europe hitting the export sector. After dropping into contraction territory during November 2011 for the first time since early 2009, the official headline PMI figure has managed to just hold its ground above 50 (the level which separates expansion and contraction territory).

Today's HSBC flash manufacturing PMI figure for Feb printed just below expansion territory at 49.7, modestly higher than the previous period's 48.8. Historically, the official figure has been somewhat correlated to HSBC's survey, but the bank's survey is skewed more towards the private sector, and this sector is generally more pessimistic than the public sector. Also, in October last year we saw a complete divergence between the two figures, with the bank's figure jumping into expansion territory but the official print actually cooled a little.

Unsurprisingly, the markets did not react significantly to the Chinese data. Investors are acutely aware today's figure may have been skewed by lunar New Year celebrations and it also didn't take in to account the RRR cut by the PBoC over the weekend. Therefore, we suspect traders are waiting for the official figure next week before they come to a conclusion on the health on the Chinese manufacturing sector.

In Australia, the wage cost index printed at +1.0%q/q, slightly higher than consensus estimates of +0.8%. Also, the conference board leading index came in modestly higher than the previous period at +0.2%. Nevertheless, given how wrapped-up in overall risk sentiment the aussie is it failed to react significantly to either announcement.

Despite a fairly quiet session on the data front, price action in the FX market was not lacking. The dollar briefly managed to break 80.00 against the yen, reaching a high around 80.10 (representing the first beak of the 80 level since August last year). NZD/USD slipped through a key support level around 0.8324 and continued downwards to post a session low around 0.8302, however the kiwi has since retraced some of these losses.

Investors in Europe are likely still evaluating Greece's second bailout package, but their attention with momentarily drawn to France, Germany and the UK. Both France and Germany are releasing PMI data, at 19:00AEST and 19:30AEST respectively, whilst the MPC is releasing its meeting minutes at 20:30AEST.