Stocks rally on positive manufacturing data, Dollar dips
Stock markets in Europe are largely showing respectable gains as we approach the end of the trading day. This mood in this part of the world was greatly influenced by the robust rally seen in Asia overnight. Last week, stocks in China and Hong Kong, endured large declines due to concerns the Beijing authorities were tightening regulation. Those fears have faded for now, and that has lifted sentiment in Europe. The upbeat feeling is also as a result of the $1 trillion infrastructure bill that is being pushed through by US lawmakers, the S&P 500 is up on the session.
Judging by the economic reports posted today, the economic recovery in Europe is going well. German retail sales grew by 4.2% in June, easily beating the 1.9% that economists had forecasted. In addition to that, the previous report was revised up from 4.2% to 4.6%. It is encouraging to see that people are keen to go out and spend money as that will help drive the rebound along. The manufacturing PMI reports from the major economies of Europe were well received. Unsurprisingly, the German manufacturing PMI report outperformed as it was 65.9 – a three month high.
Over in the US, the ISM manufacturing report was 59.5, down from 60.6. The finer details of the update showed that prices paid cooled from 92.1 to 85.7 and that new orders were 64.9, down from 66. On the bright side, the employment component came in at 52.9, which was an improvement on the 49.9 registered in the previous report. It bodes well for the economy that the labour market is improving while at the same time, the input prices have cooled a little. The Federal Reserve is far more focused on inflation than on CPI, so today’s data should make their life a little easier.
The US dollar is off the low of the session, but it remains in the red. Last week, it was reported the US economy grew by 6.5% in the second quarter, greatly undershooting the 8.5% forecast. This put pressure on the greenback as there are worries the US rebound is greatly underperforming forecasts. Those fears are still circulating today, hence the weakness in the dollar.
Gold and silver are showing small losses even though the dollar is weaker, the assets typically move higher when the dollar slips. It is possible the metals have fallen out of favour with dealers as they are willing to take on more risk and plough their funds into riskier assets like equities. Oil is down on the session following on from the Caixin survey of Chinese manufacturing, which came in at 50.3 – a 15 month low. China is one of the largest oil importers in the world and the fears about its appetite for energy products have hurt WTI and Brent crude.