While you were sleeping Weak manufacturing signals help

Tuesday 4th September 2012

European equities advanced as data on manufacturing output from both the euro zone and China bolstered hopes that policy makers will act soon to help accelerate economic activity.

The final Purchasing Managers' Index reading for the factory sector in August showed activity across the euro zone dropped to 45.1 from an initial estimate of 45.3. It marked the 13th month below 50, the mark that separates expansion from contraction, according to Reuters.

A Chinese government survey released on September 1 indicated factory output unexpectedly contracted for the first time in nine months in August, sliding to 49.2.

While adding to the mountain of data showing economic sluggishness in the world's largest economies, the latest reports raise expectations that central banks will step in. First and foremost, investors are eyeing European Central Bank chief Mario Draghi who is expected to announce a bond-buying program to help keep a lid on borrowing costs on Thursday following a meeting of policy makers.

"I think we're going to see more stimulus from pretty much every central bank on the face of the planet," Michael Ingram, market analyst at BGC Partners, told Reuters. "We're living in a globalised economy. It's a globalised slowdown so policy makers have to step up to the plate."

Anticipation of a helping hand bolstered Europe's Stoxx 600 Index to finish the session with a 0.8 percent gain from the previous close. France's CAC 40 climbed 1.2 percent, the UK's FTSE 100 rose 0.8 percent, while Germany's DAX advanced 0.6 percent.

The outlook also bolstered Spanish and Italian bonds, pushing yields lower. Yields on Spain's two-year note dropped 15 basis points to 3.51 percent, according to Bloomberg. Spain is due to sell debt later this week.

Commodities including gold and oil were also supported by expectations of more accommodative monetary policy.

Brent October futures were up 40 cents at US$114.97 per barrel, while gold was steady near five-month highs of US$1,686.96 an ounce, according to Reuters.

"Anytime they're putting more money into the economy, it's good news for gold," Dan Denbow, a fund manager at the US$1.8 billion USAA Precious Metals & Minerals Fund in San Antonio, told Bloomberg News. The outlook for monetary stimulus "allows the risk-on trade to come back in to the market."

Wall Street was closed today for the Labor Day holiday. In European trading, futures rose, with those for the Dow Jones Industrial Average up 0.18 percent, the Standard & Poor's 500 Index 0.26 percent stronger and the Nasdaq Composite Index 0.32 percent higher.

BusinessDesk.co.nz

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