Major Indexes Jump Over 1 Percent on Strong US and China Data

The major U.S. stock indices posted solid gains on Monday, driven first by a surprise stronger-than-expected Chinese government manufacturing report over the week-end, then another robust performance by the U.S. ISM Manufacturing PMI report early Monday. Sandwiched between the two reports was mixed data on U.S. Retail Sales, Business Inventories and Construction Spending.

In the cash market on Monday, the benchmark S&P 500 Index settled at 2867.19, up 32.79 or 1.18%. The blue chip Dow Jones Industrial Average finished at 26258.42, up 329.74 or +1.27% and the technology-based NASDAQ Composite ended the day at 7828.91, up 99.59 or 1.33%.

Although the U.S. rally looked impressive, one has to put it in perspective. Before the U.S. opening, the June E-mini Dow Jones Industrial Average was trading about 215 points higher. Since it closed 326 points higher, the gain during the U.S. session was only 111 points.

Chinese Data Sets the Table

The table was set early in the session by strong performances in Asia and Europe. These markets were underpinned throughout the session by two surprisingly better-than-expected reports from China.

Data on Sunday showed the official Purchasing Managers’ Index rose to 50.5 in March from February’s three-year low of 49.2. It marked the first expansion in four months, according to data released by China’s National Bureau of Statistics.

Early Monday, the Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) came in at 50.8 for March. Analysts were looking for a 49.9 reading.

At the end of the Asian session, China’s Shanghai Composite surged 2.6 percent. Japan’s Nikkei 225 and South Korea’s Kospi indexes posted more than 1 percent gains. European stocks also climbed with the Stoxx 600 jumping more than 1.2 percent higher.

U.S. PMI Data Fuels the Breakout

Although the U.S. indexes were set up for a gap opening on Monday, buyers took a pause in the rally shortly before the cash market opening after U.S. retail sales unexpectedly eased in February on declines in grocery stores and building materials. Traders offered mixed reasons for the drop with some saying the numbers reflected cooler weather, while others said the weak data may be signaling further headwinds for the economy in the first quarter.

The value of overall sales fell 0.2 percent after an upwardly revised 0.7 percent increase the prior month, according to Commerce Department figures released Monday. The median forecast of economists surveyed by Bloomberg called for a 0.2 percent gain.

Although U.S. equity markets gapped higher on the cash market opening, they remained rangebound until 14:00 GMT when the U.S. released a slew of economic reports.

These reports included Business Inventories which came in higher than expected at 0.8%, a bearish sign. Traders were looking for an increase of 0.4%. The prior month was also increased to 0.8%.

U.S. construction spending increased for a third straight month in February, boosted by gains in both private and public construction projects. The Commerce Department said on Monday construction spending rose 1.0 percent to a nine-month high after an upwardly revised 2.5 percent surge in January.

The primary driver of the U.S. session rally was a report on U.S. manufacturing, which showed activity rebounded a little more than expected in March. According to the Institute for Supply Management (ISM), national factory activity rose to 55.3 from 54.2 in February, which had been its lowest level since November 2016. Traders were looking for a readying of 54.5.