Asian factories crank up output, but U.S. election, Fed make investors wary

Tue Nov 1, 2016 8:29am EDT
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By Elias Glenn

BEIJING (Reuters) - Asia's largest economies posted strong factory activity in October, though poor showings in Korea and Southeast Asia and a weaker inflation outlook from the Bank of Japan kept market reaction muted.

China's official Purchasing Managers' Index (PMI) expanded at the fastest pace in more than two years in October, adding to views that the world's second-largest economy is stabilizing thanks to a credit and housing boom.

India factory activity grew at the fastest rate since December 2014, boosted by a surge in output and new orders, as Asia's third largest economy continues to grow at a robust pace.

But investors remained cautious as the prospects of another U.S. Federal Reserve interest rate hike in December raise concerns about the impact on emerging market economies, despite positive trends in Asia.

"Asia is especially exposed to a potential rate hike by the Fed: the region's highly indebted economies will feel the pinch from rising dollar funding costs but will not receive a lift from stronger exports that a strengthening U.S. economy ordinarily entails," said Frederic Neumann, co-head of Asian Economic Research at HSBC.

Uncertainty was also on the rise as the acrimonious U.S. presidential election campaign entered its final week.

In China, there are worries that a pickup in activity over the last few months can't last, with record loan growth set to slow and the government seeking to dampen rocketing home prices.

For India, a sharp rise in input costs could point to heightened inflationary risks, which could crimp the Reserve Bank of India's room to ease policy interest rates further.   Continued...

A street vendor selling paintings drinks hot tea while waiting for customers on a sidewalk in central Lviv, Ukraine, October 20, 2016.    REUTERS/Gleb Garanich/File Photo