LONDON (AP) — Upbeat U.S. and Chinese manufacturing figures shored up markets Thursday ahead of a key U.S. jobs report that could set the market tone for the next few weeks.
Fairly dovish comments from European Central Bank President Mario Draghi after the bank kept its main interest rate unchanged also helped to support markets ahead of potentially the most important event of an action-packed week — Friday’s U.S. nonfarm payrolls data for July.
Stocks were buoyant even after a closely monitored U.S. manufacturing survey may make it more likely that the Federal Reserve will start reducing its monetary stimulus in September. The Institute for Supply Management said its purchasing managers’ index — a gauge of business sentiment — rose sharply to 55.4 points in July from 50.9 the previous month.
The fact that it did not prompt a reverse in markets may be a sign that investors are now focusing on the fundamental strengths of the economy rather than on hopes for monetary stimulus from the Fed.
“This can probably be called a ‘blow out’ number,” said Dan Greenhaus, chief global strategist at BTIG. “For manufacturing, the third quarter started on strong footing and while it’s not assured of course, a reduction by the Fed in asset purchases in September seems even more likely than before.”
In Europe, the FTSE 100 index of leading British shares was up 0.8 percent at 6,674 after the Bank of England opted against further monetary stimulus. The decision was widely anticipated and there was no statement explaining the decision to keep policy unchanged.
Germany’s DAX rose 1.5 percent to 8,403 while the CAC-40 in France was 1.3 percent higher at 4,043. European markets were supported by Draghi’s comments that the expectations of rate hikes being priced in by money markets were not warranted and that the current benchmark rate of 0.5 percent did not represent the lowest level it could go — a hint that interest rates could be further reduced if the eurozone economy falters again.
In the U.S., the Dow Jones industrial average was up 0.9 percent at 15,642 while the broader S&P 500 index rose 1.1 percent to 1,703.
With the European central banks’ decisions passed, markets have one big event to look forward this week. Often, the U.S. payrolls numbers are the most important economic release of the month and have the ability to drive markets for a week or two. This time, as investors try to gauge when the Fed will start reducing its monetary stimulus, they could be more important than usual.
The Fed is currently buying $85 billion worth of financial assets a month in the hope of lowering long-term interest rates and boosting lending in the economy. The stimulus has helped support financial markets, notably stocks, over the past few years as a drop in bond yields encouraged investors to look for better returns elsewhere.
The dollar’s near-term fortunes could rest on the payrolls numbers, too. On Thursday, it was slightly stronger — the euro was 0.3 percent lower at $1.3256 while the dollar was 1.3 percent higher at 99.02 yen.
The yen’s weakness had earlier helped Japan’s Nikkei 225 index, which has zigzagged all week, to close 2.5 percent higher at 14,005.77 — a lower yen makes the country’s exports cheaper.
News that China’s purchasing managers’ index — a gauge of business sentiment — rose to 50.3 in July from June’s 50.1 had helped shore up trading in Asian hours. The increase was unexpected as the consensus in the markets was for a modest decline below 50, the threshold between expansion and contraction.
Elsewhere in Asia, Hong Kong’s Hang Seng advanced 0.9 percent to 22,088.79. The Shanghai Composite Index rose 1.8 percent to 2,029.07. South Korea’s Kospi added 0.4 percent to 1,920.74.