While you were sleeping Manufacturing lifts stocks

Tuesday 17th December 2013

Investors found value in equities on both sides of the Atlantic after the recent slide amid concern US Federal Reserve policy makers might start easing back their bond-buying programme in a two-day meeting starting on Tuesday.

The latest economic data added to signs of strength in the world's biggest economy. US industrial production increased 1.1 percent in November, following a revised 0.1 percent gain in October previously reported as a fall. Last month's rise was the biggest in a year.

Separately, the Fed Bank of New York's general economic index climbed to 1 in December, up from minus 2.2 last month.

"The outlook for 2014 is going to be bright," Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York, told Reuters. "The economy has reached escape velocity and, with numbers like these, the Fed better start recalibrating."

The Federal Open Market Committee meets on Dec. 17 and 18.

A potential taper announcement this week should not hurt markets, Trevor Greetham, director of asset allocation at Fidelity Worldwide Investments in London, told Bloomberg News.

"They're letting up on the accelerator, not braking," Greetham said.

In afternoon trading in New York, the Dow Jones Industrial Average climbed 0.87 percent, the Standard & Poor's 500 Index rose 0.68 percent, while the Nasdaq Composite Index advanced 0.75 percent.

Gains in shares of IBM, last up 3 percent, and those of Exxon Mobil, last up 2.4 percent, propelled the Dow higher.

Still, most analysts and investors still expect the Fed will hold off on tapering until 2014.

"I still believe January or March are more likely, but the round of profit taking seen from December 10 through December 12 point to growing concerns," Randy Frederick, managing director of active trading and derivatives at the Schwab Center for Financial Research, told Reuters. "There is little consensus whether good news is good or bad right now, with the indicators that I watch showing everything from fully bearish to fully bullish."

In Europe, the Stoxx 600 Index gained 1.3 percent from the previous close, as did the UK's FTSE 100. France's CAC 40 jumped 1.5 percent, while Germany's DAX added 1.7 percent.

Here too, there were reasons for optimism about the economic recovery, albeit cautious. Markit's index based on a survey of purchasing managers in the manufacturing industry climbed to 52.7 in December, up from 51.6 in November.

"The rise in the PMI after two successive monthly falls is a big relief and puts the recovery back on track," Chris Williamson, chief economist at Markit, said in a statement. "The upturn means that, over the final quarter, businesses saw the strongest growth since the first half of 2011, and have now enjoyed two consecutive quarters of growth."

"On the downside, the PMI is signalling a mere 0.2 percent expansion of GDP in the fourth quarter, suggesting the recovery remains both weak and fragile," Williamson said.

BusinessDesk.co.nz

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