Wall Street rebounded on Monday from its biggest weekly drop in nearly six months boosted by Chinese stimulus and a bounce back in the US manufacturing sector, which had languished in contraction territory for five months.
The S&P 500 climbed as much as 1.3 per cent following the report, before paring those gains to 0.7 per cent at the closing bell. The benchmark index was coming off its worst week since August on fears over the coronavirus outbreak and its economic impact.
The Nasdaq Composite was up 1.3 per cent, as Alphabet rose more than 3 per cent ahead of its quarterly earnings report and Tesla surged nearly 20 per cent.
News that China’s central bank would inject $173bn into the economy had supported equities in the US and Europe, where the continent-wide Stoxx 600 was up 0.3 per cent and London’s FTSE 100 jumped 0.6 per cent.
The gains on Wall Street also came as the Institute for Supply Management’s PMI rose to 50.9 last month from a December reading of 47.8, with strength in new orders, production and exports supporting gains. That lifted the factory survey above the 50 threshold that separates growth from contraction — a level last seen in July — and higher than economists’ forecast of 48.5.
Energy shares were by far the biggest laggard in the S&P 500 on Monday. Brent crude slipped further into a bear market as it dropped 3.8 per cent to $54.45 a barrel.
American manufacturers lagged the broader US economy in the back half of 2019, contrasting against low unemployment and robust consumer spending, amid uncertainty over the US-China trade dispute that appeared to dent business investment. The rebound came after the world’s two largest economies agreed a preliminary trade deal that reduced tensions and allayed the sector’s concerns over a potential increase in tariffs.
“It seems likely that the Phase One trade deal with China has generated a positive lift for the sector by giving some certainty that there will be no-more tariffs, at least in the near term,” said James Knightley, ING’s chief international economist. “Businesses therefore appear more willing to put plans into action, generating the uplift in orders and output.”
The services sector, which accounts for more than two-thirds of US economic activity, was more resilient in 2019, with ISM’s non-manufacturing survey averaging a reading of 54.4 in the fourth quarter.
Jai Malhi, global market strategist at JPMorgan Asset Management, said the positive report on factory activity “gives us some confidence that the manufacturing slowdown may now be behind us and that economic activity will remain resilient this year.”
The dollar index, which tracks the greenback against other currencies, advanced 0.5 per cent for its strongest day in a month. Gold fell 0.8 per cent.
“But for us to have absolute conviction that we are looking at a more meaningful recovery, we would like to see a stronger rebound in the employment component of the survey,” Mr Malhi added. The sub-index for employment in the manufacturing sector hit 46.6 last month, compared with 45.2 in December.
Oxford Economics noted that manufacturers still face challenges from the spread of coronavirus and a production halt of the Boeing 737 Max, as well as “pre-existing constraints” such as slower global growth, tariffs and a strong US dollar. Those headwinds should “keep manufacturing activity lethargic this year,” Oren Klachkin, lead US economist at Oxford, said.
Source: Economy - ft.com
