Sign of Relief on Markets

Surge on Wall Street

US markets gained overnight on the back of an increase in US manufacturing activity and new signs of growth in China and Australia.

“US equities and bond yields surged in response to signs the US economy is not headed for recession,’ says Mike Jones, Strategist, Markets, for the BNZ.

“The US manufacturing sector grew faster than expected in August, its 13th straight month of expansion,” says Forsyth Barr. “The Dow was up +2.4%, while the S&P 500 and the Nasdaq were both up +2.8%.

“Caterpillar rose +4.6%, lifted by positive economic sentiment. The company also said that it will invest $180m over two years to expand manufacturing in Brazil.

“Aluminium producer Alcoa gained +2.6%, while Freeport McMoRan Copper & Gold climbed +5.5% on advancing metals prices.

“A report from ADP Employer Services which showed that private US companies unexpectedly cut 10,000 jobs in August and government data indicated US construction spending fell to its lowest rate in 10 years failed to dim investor confidence.

European shares registered their biggest daily gain in more than three months, on the back of strong manufacturing data from the United States and China.

The FTSE 100 closed up +2.7% on merger and acquisition talk among the travel, telecoms and mining sectors.

Cable & Wireless Worldwide surged +7.7%, with speculation of bid interest from US rival AT&T. TUI Travel Plc climbed +9.2% after the Financial Times Deutschland reported majority shareholder TUI AG was considering buying the shares in the company it does not already own.

The BNZ’s Mike Jones says, “Financial markets heaved a collective sigh of relief as a string of upbeat data reinforced the notion the global economy remains in recovery mode. Investor’s risk appetite was bolstered accordingly.

“Not only did yesterday’s Chinese PMI suggest Chinese manufacturing activity remains firm (51.7 vs. 51.5), but Q2 GDP figures showed Australia’s economy growing at the fastest pace in three years (1.2%q/q vs. 0.9% expected).

“India’s PMI also held up at 57.2 in August, pointing towards still red-hot demand.

“With the exception of the Chinese market, Asian equity markets revelled in the upbeat sentiment, recording gains of 0.4-2.0%” says Jones

“Overnight, a stellar reading of the US ISM manufacturing survey ensured the buoyant mood continued. In contrast to expectations for a sizeable fall, the survey increased from 55.5 to 56.3. A slightly softer read on US employment from the ADP survey (-10,000 vs. +15,000 expected) was largely shrugged off.

The S&P500 climbed 2.7% (following gains of 2.7-3.8% across European equity markets) and 10-year US Treasury yields rose from 2.50% to just under 2.60%. The VIX index (a proxy for risk aversion) skidded from 26.0% to 24.5%.

Share this article