Weak China data inspires stimulus optimism

<p>Weak manufacturing data out of China this morning helped to inspire some investors that the world’s second largest economy would act soon to stimulate flagging […]</p>

Weak manufacturing data out of China this morning helped to inspire some investors that the world’s second largest economy would act soon to stimulate flagging growth, supporting European indices in early Monday trade.

Yet the read across remained fairly concerning, with the final reading of the HSBC Chinese manufacturing PMI (purchasing manager’s index) falling to 47.6 from 49.3 to hit its lowest levels since March 2009.

The FTSE 100 rallied 18 points after two hours of trading whilst the DAX and CAC both also gained around 0.2%.

It is no surprise that the miners have been the energy behind today’s early rise in European indices. The FTSE 350 mining sector rallied 1.44% in trading to post the strongest sector gains in UK trading and with the miners having a heavyweight bearing on the FTSE 100, this is where much of the energy behind today’s gains can be located. Yet it is worth reminding that the miners have indeed traded very weakly over the past few weeks, with the FTSE 350 mining sector losing 9% until last Friday’s rally, though the sector has indeed bounced from near term support levels.

Much of the near term sentiment in the markets is concerning stimulus plans. Whilst Ben Bernanke seemingly kicked the stimulus can down the road with his speech at Jackson Hole, investors are eagerly awaiting the ECB decision on Thursday, where it is expected that the Central Bank will restart the Market Securities Programme and potentially cut interest rates, though the timing of this announcement may have to wait until the German constitutional court rules on bond purchases on 12 September. China is also expected to act to kick start flagging growth in the region and so investors are waiting to see if the People’s Bank of China (PBOC) looks to cut interest rates yet again.

Bucking the manufacturing data trend was UK data, with UK manufacturing PMI rising much more strongly than expected at 49.5 for August, from 45.2 previously against expectations of a 46.0 reading. The data does much to inspire that UK activity should bounce back in the third quarter of the year.

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