US stocks rose on Wall Street overnight, seeing the Dow Jones add the most since February as an increase in personal spending, the fastest growth in manufacturing since 2004, and support for Goldman Sachs from Warren Buffett saw investor sentiment take a turn for the better.
The technology-laden NASDAQ was the strongest performer rising 1.5%, while the Dow Jones Industrial Average and S&P 500 both added 1.3%.
There’s no doubt the underlying economic picture is improving. As soon as some of the short-term clouds lift, we should see investors choose to focus on the fundamentals of the recovery, the stronger-than-expected corporate earnings and the improving trend in economic data.
US economic data released during the session was positive, with personal spending and income both rising. Another key indicator was the Institute of Supply Management index, which rose to 60.4 in April, the fastest pace of growth since 2004. It is evident that the manufacturing sector continues to aid the US recovery and industrial stocks leveraged to this sector such as Caterpillar and GE were standout performers.
Across Asia, regional markets are mixed despite the positive leads from the US, as investors grapple with the conflicting forces of the tightening measures in China, proposed resources tax in Australia, good US earnings and the Goldman Sachs issues. As at 06:00, the Hang Seng is the best performer, up 0.1% while the Kospi and Shanghai Composite are lower by 0.4% and 0.9% respectively.
The Australian market is again buckling under the pressure of a depressed materials sector with the ASX 200 currently lower by 0.4% at 4765, having traded to an earlier low of 4754. Despite the positive US session, the local materials sector is still reeling from the Resources Super Profits Tax recommended in the Henry Tax Review, while the energy and financials sectors are also modestly lower. Equities were little changed after the RBA raised the cash rate by 25bp to 4.50%.
Despite the long weekend in London, the FTSE is eyeing a largely unchanged open as traders’ attention is once again focussed on the general election that takes place in just over 48 hours time. Opinion polls have again started to suggest that a clear – albeit small - majority may yet be delivered by the Conservative party and anything that points away from a hung parliament should prove good for both the FTSE and Sterling.
Wall Street’s rise yesterday has taken the US back to where the market opened on Friday and traders don’t seem overly concerned regarding the failed car bomb attack in New York either. However, disquiet at the UN over the ongoing Iranian issue could yet propel global politics back into financial markets and this could see oil find further support in the near-term. As for economic data, UK manufacturing PMI is due in the next few hours and US factory orders will be out later, whilst for earnings in London we have G4S and Standard Chartered due.
Ahead of the open we’re calling the FTSE up 2 at 5555, the DAX up 7 at 6174 and the CAC up 5 at 3833.
