The Opening Belle

 European Opening Calls:#FTSE 5571 -0.11%#DAX 11592 +0.30%#CAC 4607 +0.28%#AEX 535 +0.14%#MIB 17947 +0.02%#IBEX 6460 +0.13%#OMX 1719 +0.10%#STOXX 2965 +0.23%#IGOpeningCall— IGSquawk (@IGSquawk) November 2, 2020 

Activity in China’s factory sector accelerated at the fastest pace in nearly a decade in October as domestic demand surged, a private business survey showed on Monday, adding further momentum to an economy that is quickly recovering from the coronavirus crisis.

The Caixin/Markit Manufacturing Purchasing Managers’ Index(PMI) rose to 53.6 from September’s 53.0, with the gauge staying above the 50-level that separates growth from contraction for the sixth consecutive month.

Analysts polled by Reuters had forecast the headline reading would remain steady at 53.0.

China’s vast industrial sector is steadily returning to the levels seen before the pandemic paralysed huge swathes of the economy early this year, though the global outlook is dimming as many Western countries battle still rising COVID-19 infections and go back into virus lockdowns.

October’s PMI reading was the highest since January 2011.

Pent-up demand, stimulus-driven infrastructure and surprisingly resilient exports have propelled the manufacturing rebound. Consumption, although hit hard earlier in the year, has also recovered in the third quarter.

“Recovery was the word in the current macro economy, with the domestic epidemic under control. Manufacturing supply and demand improved at the same time,” Wang Zhe, senior economist at Caixin Insight Group, wrote in a note accompanying the survey release.

While the Caixin survey showed total new orders surged to the highest level since 2010, the gauge for new export orders fell from the month before, though it remained in expansionary territory.

“The second wave of coronavirus infections in Europe and the third wave in the U.S. have significantly suppressed China’s overseas demand,” Wang said.

The private survey also showed Chinese factories hired workers for the second month in a row, though the increase was slight.

Factory output also rose slightly from the month before, while a gauge of business confidence rose to a multi-year high.

The Caixin survey focuses more on small and export-oriented firms while China’s official survey, which was released on Saturday, largely tracks large companies and state-owned enterprises.

The official gauge showed factory activity expanded at a slightly slower pace in October but it was slightly above analysts’ expectations.

"October PMI data pointed to a further easing in the downturn across the Japanese manufacturing sector, as firms reported slower falls in output and new orders.

Japanese manufacturers will be particularly buoyed by the return to growth in export orders, as demand across key overseas markets such as China picked up.

"The sector reported a weakening employment trend in October, however, as staff numbers fell at a faster pace compared to September.

Although ongoing issues surrounding an ageing population have held back the Japanese labour market, recent contractions in staffing levels have been exacerbated by the COVID-19 pandemic, as voluntary leavers have not been replaced.

"An encouraging finding in October was the sustained improvement in business optimism. Approximately 38% of Japanese manufacturers surveyed foresee an increase in output over the coming 12 months, strengthening the index to its highest reading in over three years."

"October data marks a clear improvement in South Korea's manufacturing sector. A gradual recovery has been seen as the impacts of the COVID-19 pandemic eased and outright expansions in both output and new orders were registered, with both rising at their fastest paces in seven-and-a-half years.

"Furthermore, the sector was bolstered by a return to expansion in overseas demand. Although the latest data points to only a fractional increase, firms signalled increasing demand in key export markets such as the US and China.

"Nevertheless, firms signalled evidence of ongoing spare capacity amid further falls in employment levels, extending the current sequence of job losses to 18 months.

"On a more positive note, South Korean manufacturers reported a more optimistic outlook for activity over the coming 12 months. This positive outlook chimes with the IHS Markit forecast for industrial production to grow by 3.5% in 2021."

EU and British Brexit negotiators will continue talks in Brussels on Monday and until around mid-week, sources on both sides said on Sunday, in a sign both sides are still pushing to avoid a damaging breakdown in trade in less than nine weeks.

An EU diplomatic source and a UK official said negotiations would continue face-to-face in Brussels on Monday following a full weekend of talks. An update on their progress and the chances of a deal was expected on Wednesday or Thursday, they added.

Both sides have, however, previously signalled their readiness to compromise on fisheries - a politically sensitive issue for both Britain and France, as well as several other EU states - and Reuters reported on Oct.23 that Paris was already laying the groundwork to net a deal.

The potential solution would allow Britain to claim it has won back control of its seas -- a key government demand -- and pave the way for the country’s fishing industry to catch more than it does currently.

But, significantly, it could defer crucial decisions over the exact quotas EU boats are allocated until a later date -- meaning EU boats wouldn’t lose out immediately, and any disagreements over how the catch is divided up in the future wouldn’t necessarily torpedo the wider deal.

The potential solution shouldn’t be described as a complete breakthrough just yet, the people said -- but it represents a significant step forward on an issue where the two sides have been diametrically opposed. The EU is pushing for a more advantageous deal on fisheries in return for granting the U.K. access to the bloc’s energy market.

The people with knowledge of the matter, who spoke on condition on anonymity because of the sensitivity of the negotiations, also cautioned that important disagreements between the two sides remain on other issues, notably on the level competitive playing field for business.

Negotiators worked around the clock in Brussels over the weekend, and plan to continue on Monday. They may pause later in the week so that the EU’s chief negotiator Michel Barnier can update the bloc’s 27 governments, or to ask Prime Minister Boris Johnson and European Commission President Ursula von der Leyen to intervene and resolve any outstanding disagreements.

 💡 One positive of the Covid control measures, being unveiled by Govts in Europe, is that it makes a Brexit deal more likely.

Govts will be far more willing to compromise on a deal, given the huge economic burdens of renewed lockdowns.— PiQ (@PriapusIQ) October 30, 2020 

China has banned imports of Australian timber from Queensland and suspended barley imports from a second grain exporter, while Chinese importers are also bracing for a possible new round of bans on copper ore and copper concentrate as well as sugar this week in the latest trade escalations between Beijing and Canberra.

The new bans occurred over the weekend as clearance of Australian rock lobster shipments was also delayed in Shanghai due to increased import inspections.

On Friday, the General Administration of Customs of China (GACC) issued a warning notice to exporters saying that it had found a pest, the bark beetle Ips grandicollis, in imported log timber from Queensland and has banned all log exports from the Australian state.

China’s customs agency also said it had found contamination in barley shipments from Australian grain exporter Emerald Grain and had ceased imports from the company from Friday. The contamination was from bromus rigidus, a grasslike weed.

Major exporter Emerald Grain collects grain from around 12,000 grower families in New South Wales and Victoria and exports grain out of 17 grain terminals across Australia.

The bans on copper ore and copper concentrate, as well as sugar, are expected to be introduced this week, according to multiple trade sources in China.

In September, China suspended barley imports from Australia’s largest grain exporter, CBH Group, after also detecting pests in a shipment. GACC has also revoked CBH Group’s import registration, although the company said that there was no evidence to support the claims of contamination.

China’s state-owned enterprises were also informally instructed by Beijing to stop buying seven categories of Australian products, namely barley, sugar, red wine, logs, coal, lobster, copper ore and concentrate from Friday, although details are scant, sources said, as no formal notice has been issued.

While China is poised to host one of its biggest trade conferences this week, the China International Import Expo, its relationship with its biggest Asia-Pacific trading partner continues to suffer.

The latest round of trade blocks and bans follows a seven-month conflict that has seen not just Australian barley hit with new duties, but Chinese bans on Australian beef exports, coal and cotton and a new anti-dumping investigation into Australian wine.