The equity and commodity markets rebounded today and the dollar gave back some of its recent gains. The US equity markets began the week on a positive note, as strong economic indicators in both US and Europe eased some of the pressure on riskier assets. For today’s trading session the S&P 500 Index was up 14 points to 1087.
Early in the day, the market was greeted with better than expected European PMI manufacturing. Euro zone PMI manufacturing, climbed to 52.4 in January which was the highest since January 08 and beat the consensus (52.0). Regional reports from Germany (53.7 vs 53.4 expected ), France (55.4 vs. 54.7 expected) and Italy (51.7 vs. 51.2 expected) were also stronger than expected.
In the UK, the positive PMI manufacturing data did not seem to help the pound. There were political influences and other economic concerns that weigh on the currency. While the PMI came in at 56.7 in January vs. 53.9 expected, weekend press reports suggested there is a risk of a hung Parliament after the elections this year. Additionally, talk from the Shadow MPC that the BoE should extend Q/E has undermined the pound. Weak mortgage data (mortgage approvals were 59.0K in December vs. a consensus for 61.8K and vs. 60.0K in November ) may have encouraged talk the BoE will follow the Shadow MPC recommendations to extend Q/E this week by GBP50 bln from GBP200 bln. Sterling is at its lowest level since Dec 30th ($1.5833) and is straddling technical support. The pound rebounded as the US equity market rallied, but was not able to retrace all of its losses.
In the US, factory sector activity booked its best performance in more than five years in January, amid a rebound in hiring and rising price pressures. The Institute for Supply Management said Monday its index of manufacturing activity moved to 58.4 in January, the best reading since August 2004, from 54.9 in December and 53.7 in November. Readings over 50 indicate expansion. Economists had expected the index to come in at 55.3.
Personal income rose by 0.4% in December, while personal spending rose by 0.2%, the Commerce Department said Monday. The rise in incomes was more than expected while spending advanced by less than economists had anticipated. Also, U.S. construction spending fell in December much more than expected, reflecting commercial real estate weakness and uncertainty over a government subsidy. Spending declined 1.2%, at a seasonally adjusted annual rate of $902.55 billion compared to the prior month, the Commerce Department reported Monday. It was the fifth decrease in six months. November outlays were revised way down and October was adjusted way up. Spending fell 1.2% in November; it was originally estimated down 0.6%. October spending rose 1.5%; it was previously estimated falling 0.5%.