News Column

MARKET COMMENT: China Data Boosts FTSE 100 But Euro PMI's Disappoint

June 2, 2014

Jon Darby

LONDON (Alliance News) - The UK's leading stock index is trading higher Monday, with the mining sector leading the gains after an improved Chinese manufacturing PMI was released on Sunday, while the picture in Europe is more mixed as Markit PMI readings released across the region Monday have been broadly disappointing.

On Friday, an expectation of a low weekend reading of the official Chinese manufacturing PMI dragged UK mining and metal stocks lower. On Sunday, that release actually showed the best monthly growth of the year within the Chinese manufacturing sector, with a print of 50.8 in May, up from 50.4 in April.

The mining and metal stocks that sold off last week are leading the gains Monday, with Anglo American a top FTSE 100 gainer, up 2.4%. Rio Tinto is up 1.8%, and Glencore is up 1.8%.

By mid-morning Monday, the FTSE 100 index as a whole is up 0.3% at 6,865.40, the FTSE 250 is up 0.5% at 16,096.11, while the AIM All-share is fractionally lower at 814.81.

In Europe, at the start of a key week for the single currency area, the picture is a little more mixed, with the French CAC 40 down 0.2%, but the German DAX up 0.1%.

The manufacturing industry across Europe performed slightly worse in May than first thought, as the final Markit service sector PMI's are broadly revised lower. The only major economy to have its economy revised higher was actually France, but with a reading of 49.6, the French manufacturing sector has been confirmed to be contracting after the initial print of 49.3.

"The disappointing data paint a picture of a sector struggling to generate any sort of traction in recovery," said Markit senior economist Jack Kennedy.

In German, the manufacturing sector PMI was a more healthy 52.3 in May, although that is lower than the flash estimate of 52.9, and a drop from April's 54.1. The eurozone wide print was also revised slightly lower to 52.2, from the flash estimate of 52.5.

"On balance, newsflow from the Eurozone has proven increasingly disappointing relative to economists’ forecasts over recent months," said DailyFX currency strategist Ilya Spivak. "Such outcomes may amplify speculation about an expansion of European Central Bank stimulus at this week’s policy meeting."

The data comes ahead of preliminary German CPI data from May, still to come Monday at 1300 BST. The inflation data from Europe's largest economy will be a key indicator for the ECB to consider at the Thursday policy meeting.

The Bank of England'sMonetary Policy Committee also sits on Thursday, and while the meeting is likely to be hugely overshadowed by the ECB, the latest UK consumer credit and mortgage approval data will have given the members something to consider.

Mortgage approvals dropped to a nine-month low in April, with 62,918 loans approved, down from 66,563 in March and missing economists expectations for 64,750. Mortgage approvals have declined every month this year so far, with the Bank of England unsure as to the exact reason, although there are suggestions that banks began to rein in lending early ahead of the stricter lending rules introduced recently as part of the Mortgage Market Review.

While there are calls from some to the BoE to act to stem the rising UK house prices, they may be less likely to introduce any new measure in light of the already falling mortgage approvals, analysts say.

The amount borrowed by individuals in the UK dropped to GBP0.67 billion in April from GBP1.03 billion in March, missing economists expectations of GBP0.8 billion.

"There is very little evidence of a credit fuelled bubble in the UK, which means the central bank’s Financial Policy Committee is unlikely to take any dramatic action at its meeting later this month," said Berenberg chief UK economist Rob Wood.

The UK Markit manufacturing PMI came in as expected at 57.0 in May, slightly lower than the 57.3 recorded in April but still indicating strong growth in the sector.

Both the pound and the euro have weakened a little against the dollar over the morning, with the pound currently trading at USD1.6740, and the euro at USD1.3600.

Within the UK equity movers, outside of the gaining mining stocks, Barratt Developments is up 2.0% after receiving an upgrade to Buy from Neutral by Goldman Sachs Monday.

Standard Life leads the blue-chip fallers, down 2.7% following reports in the weekend press that the pension industry will see a further shake up during the Queen's Speech on Wednesday. Reports say that UK workers will be offered collective pension schemes that charge lower fees. Following the sector shake up at the March budget, the increased uncertainty and the prospect of lower fees appears to be dragging on the pension provider Monday.

The supermarkets are performing poorly Monday, ahead of the latest trading update from Tesco, due Wednesday. Tesco on Monday has announced a deal to start selling House of Fraser homewear products through its website. The announcement has done little to impress investors, with Tesco's shares down 1.0%. Sainsbury's trades down 1.8%, while Morrisons is down 1.0%.

Still to come Monday, all eyes will be on the German CPI release at 1300 BST. Economists expect consumer prices to have risen by 0.2% in May, reversing the 0.2% drop recorded in April.

Data from the US to come Monday includes the Markit PMI at 1445 BST, followed by the ISM PMI and construction spending data at 1500 BST.

Ahead of the data, futures trading indicates a marginally higher start can be expected on Wall Street at the opening bell.

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Source: Alliance News

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