The bulls are looking to make hay while the sun shines this week, with the immediate target being the highs seen last week. After a somewhat more upbeat finish to the second quarter, investors would be quite happy if they don’t hear about ‘tapering’ for a good few weeks. We are back to ‘bad news is good news’ as US data shows weakness while Europe’s major economies remain as stubborn as mules with respect to any signs of real growth.
In London, an almost total absence of corporate news meant that stocks had little to go on, but as is so often the case the first day of the quarter provided sufficient excuse for a modest rally that gained ground as the day went on. The FTSE 100 retook the 6300 level, helped on its way by mining stocks that chose to react in a positive fashion to the only moderately exciting Chinese manufacturing news. As with US data, some brave souls will be hoping that figures from China will get worse, spooking the People’s Bank of China into doing more to boost liquidity, rather than sit on its hands as seemed likely last week. This might be foolhardy, since the PBoC is even less likely to be scared into acting by market gyrations than the dry academics of the Fed.
Speaking of which, the economists in Washington will have trouble puzzling out the reasoning behind the latest ISM manufacturing figure today. Overall the sector saw expansion, but hiring fell to its worst level in four years. Investors took it as a sign that the Fed would have to ease off on any idea of tapering, and indices on Wall Street moved higher as a result. After a near 400-point rally off the lows for the Dow last week though, it is probable that we will now see US markets pause for breath ahead of non-farms on Friday.
Oil continues to confound the doubters, with US crude moving back towards $99 thanks to that ISM manufacturing reading. I might suggest it was something of a ‘Curate’s Egg’ reading, with some parts excellent and other parts less so, allowing investors to take away both the positive bits and also the renewed hope that tapering is further away than previously feared.
The Aussie is enjoying a long-overdue bounce ahead of the Reserve Bank meeting tomorrow, with policymakers expected to hold fire on any changes. Meanwhile, in London, Mark Carney is still busily settling in, but the pound has made less progress than a Mountie in heavy snow, barely moving all day but still stuck in a losing trend versus a still-strong US dollar.