The FTSE 100 pushed closer towards 6000 this morning, as strong Chinese manufacturing data lifted mining stocks and banks recovered following yesterday's revelations about Irish banks.
Some caution persisted ahead of this afternoon's all-important US non-farm payrolls data, which will help to set the tone for the opening weeks of this quarter.
The broad gains in the UK and Europe this morning signal a willingness among investors to put the difficult events of March behind them. Although the various problems around the world will continue to provide cause for concern, as illustrated by the Portuguese bond auction this morning, today's Chinese data has reminded everyone that the underlying story of growth in Asia remains largely intact.
UK & Chinese manufacturing
UK manufacturing activity fell back in March, according to a survey from Markit. The index dropped to 57.1 from 61.5 in February, having been expected to hit 60.9. The sector continues to expand, since the reading remains above 50, while the index is above its long-run average of 51.3. Output prices rose at their fastest pace since 1999, and input prices advanced for the 19th month in a row. Incoming new orders were at their worst level since October 2010. The simultaneous weakening of activity and rising prices will not help ease the dilemma of the Bank of England, since it shows that inflation pressure is still building while the economy continues to languish in the doldrums.
China's manufacturing remained strong in March, according to official data. The PMI index from the Federation of Logistics & Purchasing hit 53.8, from its six-month low of 52.2 seen in February. The Federation said that the increase was a sign of stabilisation in the economy, and a particularly encouraging sign was that the prices sub-index, which measures the cost of raw materials, dropped to 68.3 from 70.1, indicating that inflation has eased somewhat. This could mean that China is starting to see some success in its battle with rampant inflation.
Portuguese bond auction
Portugal sold €1.645 billion in one year bonds this morning, in an 'extraordinary' sale designed to help provide short-term funding for the government. The average yield was 5.79% but the bid-to-cover ratio, which measures demand, slumped from 2.3 to 1.4, pointing to drastically reduced demand. Indeed, the only person buying may have been the European Central Bank, as in a number of previous auctions. Portugal, which is currently without a permanent government, will go to the polls on 5 June to elect a new leader.
UK equities – banks, miners, Centrica, Marks & Spencer
By 10.30pm (London time), the FTSE 100 had risen 42.87 points (0.73%) to 5951.63, but the FTSE 250 lagged behind, losing 8.6 points (0.07%) to 11583.38.
The leading index's solid gains came from both the mining and banking sectors. Banks recouped losses from yesterday's sell-off following news of the Irish recapitalisation programme, with Barclays leading the way with a 3.2% gain to 286.5p. Miners were lifted by the Chinese manufacturing data, which helped them brush off a general retreat in commodity prices this morning.
Gains of 1% were common among the big names, but Randgold Resources continued to be the stand-out winner, rising a further 3% today following yesterday's 9% jump which resulted from news that suggests the ongoing conflict in the Ivory Coast (where the company has a significant gold mining operation) may be drawing to a close. Randgold shares stood at 5115p, having been at 4425p in mid-March.
Centrica, which owns British Gas, continued to snap up assets in North America, announcing the purchase of gas fields in Alberta, Canada. The cost will be £30 million and will give Centrica's Canadian subsidiary, Direct Energy, an additional 45 billion cubic feet of gas reserves, boosting daily production by around 10 million cubic feet. The shares rose 0.65% to 327.4p.
Retailer Marks & Spencer announced that it will be staging a return to France, having withdrawn from the market ten years ago. A store on the Champs Elysees will be opened later this year and a website serving all of France will also be launched. The company is also in talks about opening several of its 'Simply Food' shops in and around Paris. Marks & Spencer endured its own Dunkirk moment in 2001 when it withdrew from the continent, but re-entered the European area with a store in Spain in 2009. Marks & Spencer shares gained 0.2% to 337.33p.
US pre-market
June futures for the Dow & S&P 500 are up 0.3% and 0.26% respectively, pointing to a higher start for Wall Street this afternoon. However, the key moment today will be 1.30pm (London time), when the March non-farm payrolls figures are released. These are forecast to show that the US economy added 190,000 jobs last month, from 192,000 in February. Later, at 3pm (London time), ISM manufacturing data for March is published, with the index forecast to slip from 61.4 to 61, although this still shows strong growth for US manufacturing.
