Stronger than expected US ISM data sends FTSE sharply higher

Stronger-than-expected US ISM manufacturing data was the catalyst to send the FTSE 100 higher in afternoon trading, helping the UK Index to gain over 1% led by higher demand for mining shares. It’s a new quarter and financial year today also, and this has likely played a role in investors adding stocks to their portfolio for the quarter and year ahead, increasing near term demand and supporting Indices as a whole.

Earlier weakness in financial stocks had seen the FTSE 100 trade between small losses and flat territory, despite mining stocks receiving a boost by positive data out of China, whilst UK manufacturing data also surprisingly grew last month.

However, gains in mining stocks and overall risk appetite got a second wind upon the opening of US markets and the release of US ISM manufacturing data, which beat market forecasts and helped to relieve some investor tension over a largely underperforming turn in economic data from across the pond of late.

US ISM manufacturing came in at 53.4, beating forecasts of 53.0 from a previous reading of 52.4. An important element of the reading also was a big jump in employment, which hit 56.1 from a previous reading of 53.2, and this boosts expectations that the latest release of US  labour data could continue to be a strong number.

Adding a caveat to this however was the fact that US construction spending disappointed, with spending falling by 1.1% having been expected to grow 0.6% in February, which is the third consecutive monthly slowdown in spending and this highlights broader concerns regarding the underlying strength of the US recovery.

Higher demand for large cap miners was seen as soon as trading opened this morning thanks to a stronger than expected rise in new orders in China, seeing the Chinese PMI measure rising to an 11 month high of 53.1, which roundly beat expectations of a small fall from 51 to 50.5. This early demand continued in full flow into the afternoon session, with the mining sector gaining close to 2% as a result, having slumped over 15% from February’s highs.

Whilst underlying concerns remain about a slowdown in the Chinese economy, this reading could have been much worse and investors have clung on to the fact that we have not seen Chinese data disappoint further, despite expectations now that the Chinese economy could see its worst quarterly performance for three years.

UK manufacturing surprises with growth last month
Data showed that UK manufacturing activity expanded to 52.1 in March from an upwardly revised reading of 51.5 and beating expectations of a fall to 50.7, its fastest rate of expansion for 10 months. New orders increased to 52.7 from an upwardly revised 50.5 in February, also boosting expectations that the UK should avoid a technical recession, with expectations of growth of 0.2% to 0.3% in the first quarter of this year.

Inflationary pressures however does pose a threat to the potential for more asset purchases from the Bank of England and it is this element that is being closely watched by investors, particularly with the BoE decision due out on Thursday before the long bank holiday weekend.”