Better than expected Asian PMI data along with a much better than expected US ISM Manufacturing report pushed US equities up dramatically. The ISM index rose to 56.3 in August from 55.5 the prior month. Expectation were for a declined to 53.5. The parallel index in China clicked up to 51.7 from 51.2. Expectations were for a declined to 51.0. The S&P 500 Index climbed 31 points or 2.95% to close trading at 1081.
Private-sector jobs in the U.S. fell by 10,000 last month, according to a national employment report published by payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers. Economists had expected ADP to report a jobs gain of 17,000 in August. The estimated change in employment for July was revised to a gain of 37,000 from an increase of 42,000 first reported. The ADP survey tallies only private-sector jobs, while the Bureau of Labor Statistics’ nonfarm payroll data, to be released Friday, include government workers. Economists surveyed expect that continued layoffs of government workers hired temporarily for the Census will mean a drop of 110,000 jobs from total August nonfarm payrolls. Among those economists forecasting private-sector jobs within the BLS data, the median projection is for a gain of just 28,000.
More strong economic news from Asia improved the mood in financial markets, and saw gains for risk assets and currencies, with the Japanese yen and Swiss franc losing ground vs. the majors. China said growth in manufacturing quickened in August from July’s performance, which was the slowest expansion since early last year. The government purchasing managers index rose to 51.7 from 51.2, beating expectations of a rise to 51.5. The separate HSBC PMI showed a return to growth in August after contraction in July the index rose to 51.9 from 49.4. The report may allay some fears about the pace of slowing of the Chinese economy. Nevertheless, it is clear that growth is slowing, and even though inflation ticked up recently, in our view the PBOC is unlikely to look at tightening measures until next year. Australia, one of the main beneficiaries of Chinese growth, reported that the economy grew at the fastest pace in three years in the second quarter. GDP climbed 1.2% in Q2 from the previous three months, when it expanded by a revised 0.7%. The pace of growth was quicker than the 0.9% expected, and was in large part down to exports of iron ore to China – overall exports rose 5.6% in the quarter and added 1.1 percentage points to GDP, while household spending was also a significant contributor. From a year ago, the economy grew 3.3%, more than the 2.8% expected. The Reserve Bank has held rates steady for the past three months on concern about slowing global growth, and an index of manufacturing today suggested that it may be affecting current activity – the AIG/PWC performance of manufacturing index fell to the lowest level in five months. South Korean exports increased for the 10th straight month in August, and did nothing to change the sense that the Bank of Korea will potentially hike rates in the next quarter. Exports rose 29.6% from a year earlier in August, up from 28.3% growth in July, though slower than expected. Imports climbed 29.3%, leaving a trade surplus of $2.1 billion. Indian manufacturing expanded in August, though at a slower pace. The HSBC/Markit PMI reading fell to 57.2 from 57.6.