Stocks Rally as Data Points to Stronger Growth

European stock markets are moving broadly higher, following on from gains in Asia. Earnings reports continue to underpin global markets as promising economic data support world growth expectations. In Asia, the ASX outperformed as the RBA held rates steady but warned of the dampening impact of a strong currency on growth and inflation. The country’s cash rate has stayed at 1.5% since August 2016. In Europe as well the strong EUR, which is holding above 1.18 to the USD will back Draghi’s cautious approach to QE tapering, even as Q2 growth remains strong, PMI numbers still show very robust growth and unemployment continues to fall. The DAX is currently up higher with peripherals outperforming. The FTSE 100 is up 0.75%, after a stronger than anticipated manufacturing PMI reading.

Eurozone PMI Manufacturing was Revised Lower

Eurozone manufacturing PMI revised down to 56.6 from 56.8 reported initially. The marked decline from the 57.4 in the previous month still leaves the reading at high levels indicating robust expansion in the sector. Markit reported that “companies benefitted from solid gains in new business from both domestic and foreign clients” and while rates of expansion eased, output, new orders, and new export business still continued to grow at a pace that “remained among the best registered since the first half of 2011”. At the same time, rising inflow of business is testing capacity and is underpinning “further strong job creation”.

Eurozone Q2 GDP growth 0.6% quarter over quarter, as expected and in line with the previous quarter. The annual rate nudged higher to 2.1% year over year from 1.9% year over year. The survey data for July on the whole continues to show a rapid pace of expansion and ongoing job creation as the backlog of orders increases. More arguments then for the ECB to take the foot off the accelerator and reduce monthly asset purchases further from next year, although with inflation still below target and wage growth stubbornly low despite the improvement on labor markets Draghi and the doves at the ECB clearly remain cautious.

The Caixin China manufacturing PMI for July came in at the four-month high of 51.1, topping expectations of 50.4. In June, the Caixin manufacturing PMI came in at 50.4, up from May’s 49.6, which was an 11-month low. China reported Monday that its official manufacturing PMI for the month of July came in at 51.4 slightly less than expectations. Official services PMI meanwhile fell to 54.5 in July from 54.9 in June.