Overseas markets, especially of the European kind, are acting very well this morning on the back of global purchasing managers indexes, which are mixed but continue to clear a very low bar.
First, over in China we had a mixed bag between the private HSBC PMI data and the 'official' government data. To be frank, I am not sure what we are even rooting for at this point – weaker data = more stimulus or stronger data:
- The official purchasing managers’ index increased to 50.5 from 50.3 in December, exceeding the median estimate (of 49.6). Readings for new export orders and imports contracted for a fourth month and an index of employment dropped to 47.1, the lowest in almost three years.
- The Lunar New Year holiday, which ran from Jan. 22 through Jan. 28, helped increase consumer spending and domestic demand, the Beijing-based statistics bureau said in a statement on its website. The festival provided a “temporary boost” to the data, said Yao Wei, a Hong Kong-based economist at Societe Generale SA.
- A separate gauge from HSBC Holdings Plc and Markit Economics rose to 48.8. HSBC said the areas of concern in the PMI overshadowed the bright spots. The overall output index pointed to a faster contraction in January than in December — reflected in a purchasing index, which sank to a near three-year low.
- In a nod to growth concerns, the central bank announced a cut bank reserve requirement ratios (RRR) — the first such cut in three years — at the end of November. More reserve cuts are expected in coming months to support growth, although the central bank has been injecting more cash into the banking system through its money market operations.
Over in Europe, also a mixed bag with the U.K. showing a nice bounce.
- Euro zone manufacturing activity declined for a sixth straight month in January as a slight upturn in Germany failed to offset a prolonged contraction in the bloc's smaller economies. Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) rose to 48.8 last month from December's 46.9, revised up from a flash reading of 48.7 but recording its sixth month below the 50 mark that divides growth from contraction.
- Euro zone output did increase, for the first time since July, but new order levels continued to decline across the region. The PMI's new orders index, at 46.5, was above December's 43.5 but still marked a contraction for an consecutive eighth month.
- German PMI Manufacturing expanded for the first time since September 2011, growing to 51 points in January, in comparison with 48.4 points in December, according to data released today by Markit. This result is slightly above expectations of 50.9 points.
- Markit reported that the UK PMI came in at 52.1, which is the highest level since May 2011.Economists has expected a reading of exactly 50.
Further showing how at times markets really don't care about news and will rally (or fall) regardless, aside from U.S. companies beating analysts' expectations by the lowest % in a few years this quarter, we also see quite poor data on the earnings front out of Europe – but that has not stopped the rally one iota. It could be as simple as anticipation of QE + absorption of European LTRO and/or a belief that better things are ahead in the summer, but whatever the case it remains a good news = good news and bad news = more stimulus so buy buy buy market.
- The highest proportion of European companies on record are missing profit estimates even as the region’s stocks post their best start to a year since 1998.
[Please keep in mind low expectations - that can be beaten quite often - for quarterly results are a game played between analysts and corporate management - i.e. you make me look good, and I might send you some business down the road. Hence a higher than average proportion of not beating is actually quite eye opening.]
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