This was only about the second session in 10 that saw US stocks push higher, but we’re looking at the strongest gains in about three weeks. Maybe with the taper talk behind us punters could focus more squarely on the acceleration in the US activity – and certainly data out over the last 24 hours not only highlights that scenario but suggests global growth prospects are looking better as well. It started with the China manufacturing PMI re-entering the expansion zone, if only just (rising to 50.1 from 47.7). Now, while 50 isn’t great, it is a far cry from the dreary China downturn talk – it suggests instead that economic growth in China is, if anything, accelerating.
It was a similar story in Europe, the PMI there rising to 51.3 from 50.3, the composite index (which includes services) slightly higher than that at 51.7. All this data shows that it’s not just the US economy that is accelerating and all of a sudden the world isn’t looking so scary. At least last night that is.
So yes, gains on both sides of the Atlantic (major indices in Europe up 0.9 per cent to 1.4) were solid, with the S&P500 up 0.9 per cent (1656), the Dow 74 points higher (14970) and the Nasdaq finishing up over 1.1 per cent – and that’s with a halt to trading for few hours following a technical glitch. All trades made through that period were cancelled. Anyway, by sector, energy, basic materials and industrials seem to have outperformed last night. You can see the theme here – industrial recovery in all the major centres – well, at least in Europe and China, and of course the US is looking good. That’s why commodities probably managed to push higher as well – crude up 1.2 per cent ($105.1), copper 0.8 per cent higher and gold only smalls ($4.8 to $1374).
Right, so with China looking better, the global industrial production cycle is picking up and commodities are rising; the Australian dollar was only about 30 pips higher from 160 and now sits at 0.9011. The euro, having hit a low of 1.33, is now sitting at 1.3357 which is up smalls from yesterday afternoon. Otherwise the US 10-year Treasury yield is down to 2.89 per cent from 2.92 per cent. Nothing major.
In terms of other interesting news flow there were bits and pieces. There are a few stories running around about this emerging market crisis – Fitch basically seem to be watching and waiting like everyone else to see how much traction it gains. At the moment they said they won’t be changing any ratings, for Indonesia and India (both at BBB-) but they said they want to see policy makers get things under control.
Thus far, estimates suggest that emerging market central banks have thrown down about 2 per cent of their forex reserves defending their currencies (India about 5 per cent and Indonesia 13 per cent). Data wise we saw US jobless claims rise a bit, up to 336k in the week to August 17 from 323k, but this is low and points to strong jobs gains going forward. Then US house prices rose 2 per cent in the June quarter.
For the day ahead, the SPI suggests that Aussie stocks will rise 0.8 per cent. As for the data there is nothing for us locally and tonight there is US new home sales, the Jackson Hole conference over the weekend and the break-down of GDP figures for the UK and Germany.
Have a great weekend…
Adam Carr is a leading market economist.
Follow @AdamCarrEcon on Twitter.