Economic optimism lifts European stocks

Economic optimism lifts European stocks
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First Published: Wed, Jul 01 2009. 03 46 PM IST
Updated: Wed, Jul 01 2009. 03 46 PM IST
London: European stock markets rose on Wednesday as investors started the third quarter with mild optimism following some upbeat economic data, but Asian markets were only mixed after a disappointing Japanese business survey.
The FTSE 100 index of leading British shares was up 58.83 points, or 1.4%, at 4,308.04 while Germany’s DAX rose 67.80 points, or 1.4%, to 4,876.44. The CAC-40 in France was 55.36 points, or 1.8%, higher at 3,195.80.
The early gains in Europe came after closely watched manufacturing surveys for both the 16 countries that use the euro and for Britain raised hopes that growth may emerge later this year.
The purchasing managers index - a gauge of business activity - for the euro zone’s manufacturing sector rose for the fourth month running to 42.6 in June from May’s 40.7. Though a reading below 50 still indicates a contraction in activity, the higher reading indicated a less marked fall in output. Meanwhile, the equivalent index for Britain spiked to a 13-month high of 47 in June from 45.4 in May.
The improved manufacturing backdrop in Europe stoked investors hopes that the tentative “green shoots” of recovery spotted during the second quarter may be firmed up over the coming three months.
“It’s the first day of the third quarter and the bulls have jumped out of the traps with a zing,” said David Buik, markets analyst at BGC Partners.
Wall Street was also poised to open higher later following Tuesday’s losses. Dow futures were up 45 points, or 0.5%, at 8,439, while the broader Standard & Poor’s 500 futures rose 6 points, or 0.7%, at 921.50.
Thursday is at the forefront of investors’ attention as it brings the European Central Bank’s latest interest late decision and the closely watched US non-farm payrolls. Analysts expect June’s US unemployment rate to rise around 0.3 of a percentage point to 9.7%. President Barack Obama has warned that it will top 10% in the coming months.
Stocks rose from mid-March until early June on hopes the US economy in particular will recover from recession sooner than anticipated. Many investors saw fallen stocks as cheap and started buying; however, a run of downbeat economic news brought an abrupt end to the rally and altered the general mood prevailing among investors.
Stocks around the world managed to turn in one of the best quarters in years during the second quarter. The S&P 500 index in the US, for example, rose around 16% during the quarter, its best performance since 1998, despite ongoing worries about the global banking system, the public finances and the length and depth of the recession.
Neil Mackinnon, chief economist at ECU Group, said it’s a “tough call” whether a similar performance can be turned in for the quarter as investors will now need “hard evidence” that the world’s major economies are improving enough to justify current stock valuations.
“There is still the possibility of shocks to the banking sector should the property market fail to recover, thus creating negative feedback loops between the banks and property,” said Mackinnon.
“In addition, and bearing in mind that 25% of the S&P index is accounted for by energy and materials stocks, a lot depends on whether China can act as a locomotive for the global economy,” he added.
Two surveys earlier suggested that Chinese manufacturing expanded slightly in June in a sign that the world’s third-largest economy is slowly rebounding from the collapse in global trade.
Brokerage CLSA Asia-Pacific Markets said its purchasing managers index rose to 51.8 from May’s 51.2, while the state-sanctioned China Federation of Logistics and Purchasing said its own PMI edged up slightly to 53.2 from May’s 53.1.
Despite the improving signals out of China, which helped the Shanghai Composite index to rise 1.7% to 3,008.15, its first close above the symbolic 3,000 level since 12 June 2008. Asian stock markets ended mixed after a weaker than expected “tankan” business survey from the Bank of Japan.
Though the survey indicated that corporate sentiment had improved modestly, it showed that companies plan to cut capital investment, highlighting the challenges the world’s second-biggest economy faces as it climbs out of its steepest recession ever.
After climbing as much as 1%, Japan’s Nikkei 225 index fell 18.51 points, or 0.2%, to close at 9,939.93. Australia’s S&P/ASX200 index sagged 2.1% to 3,874. Hong Kong’s market was closed for a public holiday.
Among gainers, South Korea’s Kospi rose 1.6% to 1,411.66. Taiwan’s benchmark jumped 2.3% to 6,578.97, a day after the island’s government announced it had opened key parts of the manufacturing and services sectors to Chinese investment.
Oil rose above $71 a barrel as a drop in US crude inventories suggested demand may be picking up. Benchmark crude for August delivery rose $1.26 to $71.15 a barrel in electronic trading on the New York Mercantile Exchange.
The dollar rose 0.5% to 96.83 yen while the euro was up 0.2% at $1.4062.
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First Published: Wed, Jul 01 2009. 03 46 PM IST
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