Talking Points:

• Asian stocks surrendered gains as China returned to the fray after its long Lunar New Year break
• A private sector manufacturing survey out of the world’s number two economy underwhelmed
• And the central bank raised very-short-term rates unexpectedly

Asian markets relinquished gains on Friday after a Chinese manufacturing survey missed forecasts and the People’s Bank of China sprang a surprise short-term interest rate hike on the markets.

The PBOC raised its reverse repurchase rate by ten basis points to 2.35% just as Chinese markets were getting back into the swing after their long Lunar New Year break. Analysts reportedly did not see this move as a prelude to further monetary tightening, more as a nudge to over-leveraged Chinese firms to get their balance sheets in order. 

Both mainland Chinese and Hong Kong stocks slipped in their first full session of the holiday-shortened week. There was more general worry about China’s private, Caixin Purchasing Managers Index survey of the manufacturing sector. While still indicating expansion, the headline 51.0 level was some way below the 51.8 print markets had hoped for. December’s 51.9 had been a 47-month peak, however.

In Japan. the Nikkei 225 slipped very slightly to close off 0.03%. Sydney’s ASX took a little fright at those Chinese numbers and finished down 0.4%.

Turning to foreign exchange, the US Dollar recovered from lows not seen since mid-November, although USD/JPY remained subdued in a sign that perceived haven assets remain in demand. Crude oil prices ticked up with the markets casting sidelong glances at Iran, concerned that fresh US sanctions could be the price of Tehran’s latest reported missile test.

As for the rest of the session, official US labor-market statistics will roll around again, so that is where market focus will be. Investors expect a steady-as-she-goes rise of 175,000 in January’s nonfarm payrolls. They’ll also get sight of January’s service sector index from the Institute for Supply Management. It’s expected to remain encouragingly strong at 57.