China's economy still not revving in all cylinders

China's manufacturing sector continued its contraction for the fifth consecutive month, signalling ongoing sluggishness in the world's second-largest economy as Beijing prepares to unveil its annual growth target at the upcoming meeting of its always agreeable with President Xi parliament.

The official manufacturing Purchasing Managers' Index (PMI) for February stood at 49.1, in line with the median forecast of analysts surveyed by Reuters. This figure was slightly lower than January's reading of 49.2; hence, the sector is still wallowing in contraction territory.

On the other hand, the non-manufacturing PMI, which encompasses services and construction, recorded a reading of 51.4 and surpassed analyst expectations and marked an improvement from January's figure of 50.7 and, in no small part due to the policymaker's efforts to stabilize the property sectors.

Still, The mixed performance across different sectors underscores the challenges policymakers face to get the demand side of the economy revving on all cylinders. While services and construction show signs of rebounding, the manufacturing sector continues to grapple with headwinds and subdued activity levels.

The Yen remains in focus, with FX traders getting on and off the Bank Of Japan policy game of chance wheel. Outside of month-end Yen rebalancing swings, Governor Kazuo Ueda's overnight remarks added another twist to market rate hike expectations.

Despite new momentum anticipating potential rate hikes, Ueda emphasized that the BoJ's price target remains elusive, indicating that the central bank is not ready to consider its first rate hike since 2007.

In his statement following a meeting with a Group of 20 finance chiefs in Sao Paulo, Brazil, Ueda highlighted the importance of confirming whether the anticipated virtuous cycle between wages and prices has commenced.

Hence, the Yen has returned over 100pb to the dollar in the past 12 hours. We did warn that volatility would pick up.