China PMI Rises, Payrolls Expand, Markets Rally

NFP rose by 216,000 workers in March after a revised 194,000 gain in February, according to numbers released today, mostly in line with expectations. The jobless rate dropped to 8.8 percent from 8.9 percent in February.

The numbers show that the public sector added 14,000 people last month, indicating depressed hiring at the local level, while Federal government increased payrolls by 1,000. Factory payrolls improved by 17,000, which is less than the survey forecast of a 30,000 gain.  Services employment rose by 185,000 in March, which is the highest monthly gain since May 2010, while construction payrolls fell 1,000 and retail trade employment increased 17,700.

On the whole these numbers show that the Fed`s effort to encourage U.S. Consumers to maintain their earlier habits has had some success, since the improvement in services hiring would be hard to explain in the absence of a matching improvement in overall economic data. The data also suggests that the U.S. Government`s pressure on the Chinese to appreciate the USDCNY will be less of an urgent focus in bilateral relations, now that the old regime of economic relationship shows signs of being resuscitated, albeit temporarily.

In that light, it is not surprising to learn that China’s Purchasing Managers’ Index rose to 53.4 in March from 52.2 in February, registering its first increase in four months. Even as the Chinese government`s attempts to cool down the economy bear some fruit, the economy appears to be benefiting from better U.S. performance. Chinese stocks responded positively to the release, but Japan underperformed on the back of continuing uncertainty about the nuclear issue.

In a sign of what is driving the U.S. economy in the aftermath of the Fed`s aggressive actions last year, today`s news reports show fixed income investors flocking to high-yield as investment grade debt of all kinds deliver historically low returns. Speculators of varying backgrounds are believed to have channelled some $14.4 billion into high-yield mutual funds so far in 2011. That is compared with $31.5 billion in all of 2010, bringing yields lower as returns of about 88 percent since the end of 2008 is more than double the gains of the S&P 500 stock index.

Markets received the Chinese PMI data positively, and coupled with a rebound in Europe, the optimism in Asia was enough to lift stocks around the world. The USDJPY was lower, while pairs where the dollar serves as the funding currency were higher, in response to stronger market sentiment.  Libya remains in an uncertain situation, but the victory of the loyalist forces against the rebels near the oil producing town of Ras Lanuf seems to have boosted the price of oil and commodities today, in spite rising inflation risk.