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Chinese Manufacturing data lifts equities investors wary ahead of Fed

Article By: ,  Financial Analyst
November 1, 2010 4:14 PM

Much stronger than expected manufacturing data from China helped to surge European equities on Monday with strong gains in the miners pushing the FTSE 100, DAX and CAC all 0.8% higher.

Gains were kept on a leash however with investors eyeing a potential volatile week of economic data that sees the Federal Reserve announce an expected second round of quantitative easing on Wednesday, followed by decisions from the Bank of Japan, Bank of England and ECB, while the week finishes with the US nonfarm payrolls.

Indeed, as Indices touched gains of around 1%, we started to see investors start to take profits off the table, preserving their gains and sitting on the sidelines awaiting the decision from the Federal Reserve. This could certainly be a feature of trading for the early stages of this week until Wednesday.

Speculative buys in the major UK banking stocks helped to supplement Index gains in the early part of the morning session as investors bet that banks which are set to report over the coming week could report strong earnings. Though early profit taking in the banks have kept these gains on a bit of a leash.

Chinese data lifts miners
The miners are energy behind gains in indices today and this is firmly a reaction to the stronger manufacturing data from China, the world’s fastest growing economy. Both the official and private scales of manufacturing growth exceeded market expectations. Both Index’s hit new 6 month highs with the official PMI rising to 54.7, whilst the HSBC PMI rose to 54.8.

Considering there is historically a negative seasonality for October, the data is being interpreted as very bullish for resource demand and as such, we have seen correlated strength in commodity stocks today, with the miners topping the list of rising equities.

Surprising strength in UK PMI lifts sterling
Investors bought into the pound sterling today after British Manufacturing data shocked to the upside when it was expected to fall. The headline PMI number rose to 54.9 from a 10 month low of 53.5 with most of the market expecting another fall to the 53.1 mark.

This was a positive surprise and with the PMI Output Index also rising to 56.4, the first time it has grown since March, it’s providing another positive catalyst for sterling.

The better than expected British Manufacturing data, along with UK GDP growth of 0.8% in the third quarter lowers the probability that the Bank of England will follow other central banks and inject more stimulus into the markets, supplementing sterling gains but dashing somewhat small hopes for equity investors.

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