March is coming in like a lion, with risk appetite rebounding across asset classes on evidence of a stronger-than-expected recovery in the Chinese economy. The US dollar is in retreat as investors pile into the euro on hopes for stronger exports, and as they buy emerging market currencies on an expected rise in raw materials demand. Major North American equity bourses are setting up for a stronger open even as Treasury yields tick higher. The Canadian dollar is gaining, but continues to lag a broader improvement in the commodity complex.

The China reopening trade roared back to life last night after the National Bureau of Statistics’ purchasing managers index rose to 52.6 in February from 50.1 in the prior month, marking the fastest monthly increase in more than a decade. Although the data was likely distorted by the ongoing rollback of Covid-zero policies and the Lunar New Year holiday, subindices for export orders and non-manufacturing rose, with construction activity jumping on a solid rebound in infrastructure spending. A separate report showed new home sales at the country’s largest property developers turning positive in February, suggesting that the government’s support efforts are beginning to bear fruit.

But China could remain “uninvestable” in the longer term: according to a speech yesterday, Xi Jinping plans to announce measures aimed at expanding the role of the state in the private sector during next week’s annual People’s Congress. The devil is in the details, but comments indicating that companies would be asked to “step up party-building work” suggest that he intends to expand oversight and control in critical areas of the economy – raising dangers for foreign investors.

For now, the renminbi looks unlikely to stage the solid recovery we and others expected earlier this year. The dollar exchange rate climbed a little more than a percentage point overnight, but upward momentum appears to have faded in recent weeks as geopolitical concerns weigh on inward capital flows.

The euro and major European stock indices are up as investors bet on a stronger recovery in external demand. Euro area inflation data, set for release tomorrow morning, is increasingly expected to exhibit signs of a re-acceleration in price pressures, helping set the stage for a half percentage point move at the European Central Bank’s May meeting.

The pound is trading with a slightly weaker bias after Bank of England Governor Andrew Bailey appeared to express a more neutral, data-dependent view on further rate hikes. In a speech given at a cost-of-living conference, he said “I would caution against suggesting either that we are done with increasing the Bank Rate, or that we will inevitably need to do more. Some further increase in Bank Rate may turn out to be appropriate, but nothing is decided”. Broadly speaking, most recent indicators have illustrated a modest easing in inflation pressures paired with a surprising degree of strength in the British economy – conditions that could indicate markets are overestimating the likelihood of further tightening.

North American markets are facing another sparsely-populated trading session. Neel Kashkari, among the most hawkish members of the Federal Open Market Committee after having undergone a Damascene conversion last year, speaks at 9 am. S&P’s February manufacturing purchasing manager survey is expected to remain unchanged relative to the preliminary reading. And the Institute for Supply Management’s manufacturing index is seen ticking up to 47.6 from 47.4 in January.