Stimulus Optimism capped by weak European PMI data

European markets saw an early surge following hopes for further Federal Reserve Stimulus and Policy easing in China after weak data, however, gains ebbed away as the morning progressed under the pressure of lacklustre European PMI data which indicated a further contraction for the troubled zone.

Minutes from the US central banks meeting released yesterday, showed that the Federal Reserve were considering more quantative easing soon “many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery”.

European shares are up over 15% since the beginning of June as investors have demonstrated that they are more interested in the prospect of further stimulus than worries over the euro crisis. This is a very short term approach from investors who are looking for quick profits from the markets.

However, this morning the rally was hardly as long lived or as powerful as some were expecting and this was due to the fact that the further stimulus programme for the US has already been factored into the market price. Consequently leaving little room for further upward gains, but leaving huge scope for disappointment.

Speculation for further monetary stimulus was also prominent following the Chinese Manufacturing Sector PMI which came in at 47.8, down from 49.3 the previous month and at the lowest level since November last year. Falling orders has shown that China is still continuing to struggle against the backdrop of the European Crisis, however, again the markets are optimistic that the Chinese government will step up policy easing.

This optimism resulted in Miners pushing the FTSE index higher, with Rangold gaining 3.7%, Antofagasta up over 3.4% and Fresnillo up just shy of 3%. Kazakhmys failed to follow its peers after reporting a drop in both revenues and earnings in the first half of 2012.

Weighing on the market this morning was the eurozone PMI which signalled further contraction for the troubled area for the seventh consecutive month and a continued fall in confidence. A reading of below 50 indicates contraction in activity and the figure came in at 46.6 up marginally from 46.5 in July, however, also consistent with a fall in GDP. The bounce in September’s figures would need to be particularly large in order to change the outlook for the eurozone.

With no further domestic data due out this morning, focus will again turn to the US Initial jobless figures and House Price Index across the Atlantic.